Happy new year

Wishing you all a happy and Prosperous New year 2013.

In 1929, Deflation Started in Europe Before Overtaking the U.S.

In 1929, Deflation Started in Europe Before Overtaking the U.S.
What Happens in Europe Will Not Stay in Europe 

By Elliott Wave International

More than 1,500 years after the fact, scholars still debate the causes of the Roman Empire's fall.

What historians do agree on is that the crumbling empire's final days were marked by economic contraction, a struggle to fund Rome's routine affairs and excessive debt.

Sound familiar?

Mark Twain said, "History doesn't repeat itself, but it does rhyme."

That quote seems to apply when economically comparing the Roman Empire and the United States.

Today's superpower also faces a mountain of debt and a slow economy.

Unlike then, however, the modern economy is global.

So an economic downturn in one major area of the globe is likely to affect another. In fact, even during the Great Depression (long before the phrase "global economy"), Europe was exporting to America.

But one historic export was not the kind that the U.S. welcomed.

The economy is clearly vulnerable to a debilitating wave of debt deflation. The threat is approaching quickly from an important source: Europe. The same sequence of events occurred in 1929, when deflation started overseas before lapping onto U.S. shores.

The Elliott Wave Financial Forecast, January 2012

The Financial Forecast has long kept a careful eye on the threat Europe's debt crisis poses to the U.S. economy.

The economic slowdown that EWFF characterized in January as Europe's "top export" is finally reaching foreign shores. Several financial news outlets report that the U.S. and China are now "slipping in sync" with Europe.

The Financial Forecast, June 2012

And recent news registered the economic slowdown.

• Small Businesses Grow Wary; See Fewer Hires -- Reuters, Oct. 9
• IMF Slashes Forecasts for Global Economic Growth -- CNBC, Oct. 8
• World Bank Cuts East Asia GDP Outlook, Flags China Risks -- Reuters, Oct. 7
• Europe's Richer Regions Want Out -- New York Times, Oct. 7
• Entrepreneurship is 'weaker than ever' -- CNNMoney, Oct. 5
• The U.S. unemployment rate tumbled to 7.8% in September but a broader measure was flat at 14.7%. [emphasis added] - Wall Street Journal, Oct. 5
• Orders to U.S. Factories Plunge -- Bloomberg, Oct. 4
• Spain's Tax Take Tumbles as Companies Go Abroad -- Reuters, Oct. 3
• Trade Slows Around World -- Wall Street Journal, Oct. 1

Indeed, the European Central Bank recently initiated a new bond buying plan, the Bank of Japan just expanded its asset purchase and loan program, and the Federal Reserve announced QE3.

But don't count on central bankers to rescue the global economy.

Consider what Robert Prechter said in the July 2012 Elliott Wave Theorist:

The Fed's actions are short-term inflationary but are setting up a bigger crash than would happen otherwise.

Why do The Fed and other central banks around the world keep making these types of mistakes? You can find out for free. See below for details.

USD/JPY: Lemons into Lemonade

USD/JPY: Lemons into Lemonade
How Elliott wave analysis helps you as a forex trader with built-in, risk-defining safeguards 

By Elliott Wave International

Elliott wave analysis is not a crystal ball. (No market-forecasting method is.)

But here's what is remarkable: Even when your Elliott wave forecast doesn't pan out, you have built-in safeguards to alert you -- and help you manage risk. Here's a real-life example.

Going into the November 14 low, USD/JPY charts had been showing an impulsive downward Elliott wave pattern. Impulses are 5-wave moves, but on November 13-14, the pattern looked incomplete: the fifth wave down seemed to be missing.

Here's a chart our Currency Specialty Service subscribers saw early on November 13:

So, our analysis on November 13 suggested that USD/JPY would fall further. But USD/JPY just would not fall; instead, it went sideways.

That suggested to our Currency Specialty Service team that the wave (4) you see in the chart above was extending. Perhaps it was developing as another Elliott wave pattern -- maybe a contracting triangle? This chart and analysis described to subscribers that scenario:

"A bearish fourth-wave triangle is another idea that's in a position to yield new lows in wave (5). Resistance rests at 79.655/765."

Note that line: "Resistance rests at 79.655/765" -- it represents the very risk-defining safeguards I mentioned earlier.

How? Well, there are things that Elliott wave patterns just are not allowed to do. In a contracting triangle (an A-B-C-D-E formation), prices must stay within converging trendlines -- and they cannot overlap the start of wave A, the origin of the pattern. Resistance at 79.655/765 was exactly that: the price point where the contracting triangle interpretation would be invalidated.

Practical application: If you were bearish on USD/JPY on November 14, you could have used the price area of 79.655/765 to manage your position risk.

As you probably know, USD/JPY did not go sideways for long. Nor did it go down. Soon after, it went higher and breached that key resistance level:

When one Elliott wave pattern ends, another one begins. As soon as that key resistance in USD/JPY was breached, a new road map for the Japanese yen became clear.

Which Works Best -- GPS or Road Map? (Part 3)

Which Works Best -- GPS or Road Map? (Part 3)
Trading with Elliott wave analysis 

By Elliott Wave International

(Here are Part 1 and Part 2 of this article.)

Think of Investing as a Trip

Here's my advice: View the Elliott wave Principle as your road map to the market and your investment idea as a trip.

You start the trip with a specific plan in mind, but conditions along the way may force you to alter course. Alternate counts are simply side roads that sometimes end up being the best path.

Elliott's highly specific rules keep the number of valid interpretations to a minimum. The analyst usually considers the "preferred count" to be the one that satisfies the largest number of guidelines. The top "alternate" is the one that satisfies the next largest number of guidelines, and so on.

There are only three hard-and-fast rules with the Wave Principle:

1. Wave two cannot retrace more than 100% of wave one.
2. Typically wave four does not end within the price territory of wave one but may do so from time to time in highly leveraged markets.
3. Wave three is never the shortest wave of an impulse.

Elliott's rules give specific "make-or-break" levels for a given interpretation. In Figure 2, for example, if the move labeled (2) continues below the level of the beginning of wave (1), then the originally preferred interpretation would be instantly invalidated.

By eliminating subjectivity, the rules help you firm up your investment strategy -- and reduce your risk.

"Are We There Yet?"

You've heard that irritating question, "Are we there yet?," from the back seat just about a million times. Every map has a scale, and it's the scale that helps me determine how many miles I have to travel before I reach my destination. When using the Wave Principle, Fibonacci relationships are the scale.

Many investors today know that Fibonacci ratios are used for market forecasting. But few realize that Fibonacci analysis of the markets was pioneered by R.N. Elliott. The use of Fibonacci ratios requires a valid Elliott wave interpretation as a starting point. Unfortunately, many non-Elliott analysts try to find Fibonacci proportions between market moves that are not related to each other in any way. This has made the approach appear to be far less valuable than it is.

Elliott wave analysis has two chief insights concerning Fibonacci relationships within waves. First, corrective waves tend to retrace prior impulse waves of the same degree in Fibonacci proportion. For example, wave (2) in Figure 2 retraces 38% of wave (1). That's a common relationship. Other frequent wave relationships are 50% and 62%. Second, impulse waves of the same degree within a larger impulse sequence tend to be related to one another in Fibonacci proportion. For example, common relationships include wave three traveling 1.62 times the distance traveled by wave one of the same degree. When that occurs, wave five often tends toward equality with wave one of the same degree.

Planning the Trip

Just as I sit down and plan my trips before shoving off, I rely on wave interpretations and Fibonacci relationships to help establish investment strategies and reduce risk exposure when I analyze the markets for our clients. Investors use these same wave analysis methods to help decide where to get into a market, where to get out and at what point to give up on a strategy. The Wave Principle lets you identify the highest probability direction for the market, as you also adopt an optimum position to take advantage of it -- all while protecting yourself against lower probability outcomes. You couldn't ask more from your own GPS.

By the way, we did make it to Cades Cove on our way back across Smoky Mountain National Park. I turned off my GPS and consulted my map. The old tried and true worked like a charm.

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Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.

Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.

Which Works Best -- GPS or Road Map? (Part 2)

Which Works Best -- GPS or Road Map? (Part 2) 

Trading with Elliott wave analysis 

By Elliott Wave International

(Part 1 of this article is posted here.)

A Quick Road Map of Wave Analysis

For this overview of wave analysis, I have borrowed from the "Cliffs Notes" version that we provide for free to anyone interested in learning about wave analysis. It's called Discovering How To Use the Elliott Wave Principle.

Elliott's road map, or basic wave pattern, consists of "impulsive waves" and "corrective waves." An impulsive wave is composed of five subwaves and moves in the same direction as the larger trend -- or the wave's next larger size. A corrective wave is divided into three subwaves, and it moves against the trend of the next larger degree. As you can see in Figure 1, there are plenty of right and left turns -- or up and down moves on a price chart.

Figure 1 reveals the general roadmap that markets follow during bull markets. Notice the building-block process. The completion of an initial impulsive wave (waves 1-5, up-down-up-down-up) sets the stage for a corrective phase (waves A-B-C, down-up-down). Combined, those waves represent the first two legs of a larger "degree" advance. In this illustration, waves 1, 2, 3, 4 and 5 together complete a larger impulsive wave, labeled as wave (1).

A five-wave rally from a significant low tells us that the movement at the next larger degree of trend is also upward. It also warns us to expect a three-wave correction -- in this case, a downtrend. That correction, wave (2), is followed by waves (3), (4) and (5) to complete an impulsive sequence of the next larger degree. At that point, again, a three-wave correction of the same degree occurs.

Note that, regardless of the size of the wave, each impulsive wave peak leads to the same result -- a correction.

If we isolate the corrective waves, the subwaves A and C move in the direction of the larger trend and usually unfold in an impulsive manner. Referring to Figure 1, the (A)-(B)-(C) decline that follows the (1)-to-(5) sequence illustrates this structure. Waves labeled with a B, however, are corrective waves; they move opposite to the trend of the next larger degree. In this case, they move upward against the downtrend. Notice that these corrective waves are themselves made up of three subwaves.

Reading the Wave Analysis Map

So now that you have a wave road map in hand, let's talk about how to apply it to the actual terrain of financial markets. When I look at a price chart for the first time, my first task is to identify any completed five-wave and three-wave structures. Once I do that, then I can interpret where the market is along the pre-defined path and, from there, where it's likely to go.

Say we're studying a market that has reached the point shown in Figure 2. So far we've seen a five-wave move up, followed by a three-wave move down.

But this is not the only possible interpretation. It's sort of like having a GPS that tells you that you've arrived, when you've actually got miles to go. In this example, it is also possible that wave (2) hasn't ended yet; it could develop into a more complex three-wave structure before wave (3) gets under way. Another possibility is that the waves labeled (1) and (2) are actually waves (A) and (B) of a developing three-wave upward correction within a larger impulsive downtrend, as shown in the "Alternate" interpretation at the bottom of the chart. According to each of these interpretations, though, the next imminent movement is likely to be upward. That tells you more than most technical analysis systems do.

Alternate counts are an essential part of using the Wave Principle. They are neither "bad" nor "rejected" wave interpretations. Rather, they are valid interpretations that are given a lower probability while the count works itself out. If the market doesn't follow the original preferred scenario, the top alternate usually becomes the preferred count.

I consider alternate counts to be similar to detours -- just a different way for the market to get to where it's going. How many times do you actually go from point A to point B non-stop in your travels? Admit it, you have to stop to grab a bite to eat or ask for directions once you realize you're lost. After consulting the map, you get back on track toward your intended destination. The new path represents an alternate count.

This seeming ambiguity about a wave structure illustrates an important point about the Wave Principle that, in my opinion, is often misunderstood. The Wave Principle does not provide certainty about any one market outcome. Instead, it gives you an objective means of determining the probability of a future direction for the market. At any time, two or more valid wave interpretations usually exist. Unlike actual physical roads that exist, price movements in financial markets are always changing, and the best you can do is be somewhat confident of whether they are moving up or down. That's the kind of confidence that the Wave Principle provides.

(Come back soon for part 3 of this series.)

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Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.

Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.

Which Works Best -- GPS or Road Map? (Part 1)

Which Works Best -- GPS or Road Map? (Part 1) Trading with Elliott wave analysis By Elliott Wave International Some of the best stories about global positioning systems (GPS's) are the weird detours they sometimes recommend to drivers. Just like some of the weird detours that financial markets can make you take when you think they would be better off going in a straight line either up or down, depending on how you've positioned your trades. Not long ago, while taking a trip with my family through Great Smoky Mountains National Park on the way to Gatlinburg, Tenn., I decided to use my GPS to drive around the park's western boundary. We wanted to visit Fontana Dam and Cades Cove to see the wildlife. We'd do the go-carts, miniature golf and rides the following day. From Fontana Dam, my old-fashioned map made it look like it would take the better part of the day to drive around the park to Gatlinburg and then head into Cades Cove from the north. But my new GPS unit suggested that Cades Cove was less than 20 miles away. I could have kissed it -- my GPS was going to save me hours of travel time! Or so I thought. Little did I know until I got there that the road my GPS suggested for the final few miles was only the remnant of an old wagon trail -- and it was a one-way wagon trail, going the wrong way. I had to backtrack and take the much longer path my paper map suggested. What's the moral of the story? Sometimes the new-fangled gadget is not much of an improvement over what it's designed to replace. Although my GPS unit is great when it comes to identifying the quickest and most efficient route from point A to point B, it sometimes fails to take into account some of those necessary nuances, such as whether a street is one way or whether it might be impassable at times. Every so often, the old-fashioned way of doing things is still the best way. I believe that's true when it comes to analyzing markets, too. The method I employ every day has been around since the 1930s, and it works as well as, if not better than, any new-fangled technical analysis method for which you must buy some expensive computer software. My method is a form of technical analysis based on the Elliott Wave Principle, which Ralph N. Elliott worked out via hundreds of hand-drawn charts, well before the dawn of charting software. If you like those GPS units that talk you through every turn, you can almost imagine Ralph's voice explaining where to turn as you follow a market. Those directions -- the road map he drew for tradable markets -- have withstood the test of time. As I found during my trip, detours are a fact of life. They are also a part of market trends. For instance, a bull market shows periods of "punctuated growth" -- that is, periods of alternating growth and non-growth, or even decline. The patterns then build on themselves to form similar designs at a larger size, and then again at an even larger size. You've probably heard of this idea of repeating patterns on increasing and decreasing levels of scale. This emerging science, which is called "fractal geometry," is a branch of chaos theory. And it is precisely the model identified by R. N. Elliott more than 60 years ago. (Stay tuned for parts 2 and 3.) is Jim Martens? Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd. Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.

Moving Averages and the Wave Principle

Moving Averages and the Wave Principle
Improve your Elliott wave pattern identification skills with this lesson from Jeffrey Kennedy 
November 02, 2012

By Elliott Wave International

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Among Elliott wave traders, you will likely find an especially high percentage of investors and traders who incorporate moving averages into their Wave analysis.

Here's why: you can use moving averages to identify Elliott waves.

Senior Analyst Jeffrey Kennedy knows how to take complex trading methods and teach them in a way you can immediately understand and apply -- his step-by-step tutorials are beneficial to traders at any level of experience. Jeffrey is also well-known for combining ancillary technical tools to strengthen his Elliott wave analysis.

The following lesson provides a powerful example of how moving averages can strengthen your ability to identify Elliott Patterns. It is excerpted from Jeffrey's free 10-page eBook, How You Can Find High-Probability Trading Opportunities Using Moving Averages. (Click here to get your copy of this free eBook now.)

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If you're new to the Wave Principle, I recommend using a moving average to get you started, and the reason why is that a moving average overlaid on a price chart will help train your eye to see developing Elliott wave patterns.
For an example of a schematic Elliott wave, look at the figure below:

If you've read The Elliott Wave Principle by Robert Prechter and A.J. Frost, you know that wave patterns are illustrated as line diagrams.
When you look at a real price chart rather than a schematic, the basic chart is typically an open-high-low-close price chart. Each price bar represents a single period and is illustrated by a vertical line with a small mark to the left and a small mark to the right as seen in the next figure:

The little lower line on the left-hand side of the vertical bar is the open; the little upper line on the right-hand side of the vertical line is the close; the top of the line is the day's high or that trading period's extreme; and the bottom of the line is that trading period's low.
Here's the thing: Whenever you're making the transition from looking at a textbook diagram to actually counting Elliott waves on a real price chart, it can be confusing to the eye. If you use a moving average, it will help you to see the wave pattern more easily.
Let me prove my case more thoroughly with this chart of Corn:

The blue line is an 8-period simple moving average of the close, which clearly shows that a five-wave decline has unfolded from the upper left-hand side of this price chart. With the aid of a moving average, the subdivisions within this selloff are more easily discernible than with the untrained naked eye.
Also, notice that the slope of the move up in wave 4 is shallow. This detail is important because one of the key characteristics of countertrend price action is that it moves slowly, thus its slope will be inherently more shallow than what one can expect to encounter when a motive wave is in force.

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Learn How to Trade the Highest Probability Opportunities: Moving Averages No matter what your level of experience in the markets, you'll be amazed at how quickly you can benefit when you include moving averages in your Elliott wave analysis. Now you can learn how to apply them to your trading and investing in this free 10-page eBook. Learn step-by-step how moving averages can help you find high-probability trading opportunities. Begin to improve your trading and investing with Moving Averages today! Download Your Free eBook Now >>

This article was syndicated by Elliott Wave International and was originally published under the headline Moving Averages and the Wave Principle. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

When to Leave the Demo Account and Switch to Live Trading

When you are first starting in the world of forex trading, it is always a good idea to do a fair bit of demo trading before you start risking your own money. Demo accounts allow you to familiarise yourself with the financial markets and to make mistakes and discoveries without running up losses. They also give novice traders an opportunity to test out strategies and learn what works for them.

Before you make the switch from demo trading to live trading, you need to be sure that you have developed the skills that are required for successful forex trading. One of the principal benefits of using a demo account is that it lets new traders learn how everything works. It is important to have a good grasp of the mechanics of placing a trade and attaching orders to those trades, such as stop loss orders. It is also crucial that you familiarise yourself with the characteristics of your chosen market. This includes things such as typical levels of volatility and the kind of economic or political news and events that can affect the direction of the market. This type of knowledge will give you greater insight into the key triggers for buying and selling.

Before you make the jump into trading for real, you want to have some proof that your investment skills are strong enough to back with your own money. It is best to evaluate this over a significant length of time, as a few profitable trades may not necessarily be the most reliable indicator that you are ready to go live.

Although dummy accounts often come with large starting balances, such as $100,000, unless you are actually planning to invest this amount in real life, then you should try to stick to demo transactions that mirror the size of your potential real transactions as closely as possible. This will give you a more realistic idea of your worth as a trader, and of how much you can reasonably expect to win or lose when you are trading for real.

Often, the transaction costs involved in real trading are not factored into the demo trading results, so you should always include these in your calculations when you come to evaluate your performance. This will give you a more complete picture of how you might expect to fare financially on the forex market.

Another way in which you should try to stay within the bounds of realism is when it comes to the amount of time that you spend trading, and when they trade. Your activity on the demo facility should reflect the hours that you expect to trade once you begin trading in earnest. For example, the results you get spending all day on the demo platform while you are on holiday will probably be quite different to the type of results you will get during the working week when you have less time to trade.

Developing a trading strategy is a crucial step on the road to becoming a successful trader. A trading strategy is a set of rules the trader uses to define his activity. The best strategies are as tried, tested and as mechanical as possible, and the best place to try out different strategies, and get used to sticking to them, is on the demo mode. If it proves successful, then it will give you more belief in the strategy, which you will need in order to be self-disciplined about it.

Perhaps the most important skill a trader can have is the ability to control their emotions and detach themselves from the trading results. A trading strategy will only work if you stick to it, and you must control your emotions in order to do this. Before you graduate to a real trading account, you should have learned to override your emotional impulses and stick to a strategy, otherwise you could be setting yourself up for a lot of grief.

Forex trading is a high-risk activity with the potential for massive gains and massive losses. When faced with this risk, many novice traders panic and make poor, fear-based decisions, rather than sticking to their trading strategy. One way to avoid this is to test your strategies extensively using appropriate lot sizes. This will give you confidence in your judgement. If you lose, try to avoid chasing your losses by staking higher and higher amounts, and treat every trade as a separate action.

If can be tempting to get carried away with a few big wins, and start taking bigger risks when your confidence is up. However, this can be a recipe for disaster, and again you should stick to your trading strategy and have a risk management plan in place to reduce your exposure to risk.

The other major function of the demo mode is to evaluate several brokers so that you can find the one that best suits your needs and preferences. Things to look for in a broker include a user friendly interface, low spreads, trading tools, and access to analytics and market news.

Source: www.tradingquarter.com

Top 15 Forex trading strategies for profit

Forex Avenues brings some of the best strategies practiced by Forex Traders around the globe. Below is a very interesting blog on Trading Strategies.

Top 15 Forex trading strategies for profit

Those who come to financial markets are blinded by seemingly easy profits. Lots of brokers scream about thousands of dollars that are to be made by you trading this or that market. Reality is different and you will find it for yourself in no time. One of the keys to trading successfully is to trade with a reliable system and this post is about some of the best Forex trading strategies that can also be applied in other markets. Firstly, I will deal with major systems which have given rise to alternative ones. Some of them will be quite simple, others more advanced. However, you should always remember that a trading method is only one of the keys to success. You need to know much more how to trade currencies profitably. You should also try to remember that there are so many scams online on the topic. To protect yourself from losses you should always be cautious and check everything you read and hear to see if that really works. I will try to explain as clearly as I can so that all beginners understand what I mean. I believe that intermediate traders will benefit from the post too. So let me reveal some of the systems for you.

1. Trend trading is the mother of all strategies both in stock and Forex markets

It took me more than one year to find out that I must follow a tendency in order to make money trading currencies. If you study lives and ways famous traders and speculators of the past made money you will find out that trend trading was most often used way to have profit. But how does that work? Most of the time securities stay in their ranges. In 2004 when I started trading Foreign Exchange market eur/usd was fluctuating in a pretty narrow range 1.1950-1.2460 from June to October when it exploded upwards. One should know that when a security stays for a long time in a narrow range it then forms a very powerful and often long term move. And that is when most Forex hedge and investing funds make money. You trade this kind of move by placing buy orders above the top of the range and sell orders below the bottom of the range. When price goes beyond one of the levels one of your orders is opened and you go with the market wherever it takes you. 

It is important to get out of your trades when signs of a reversal start appearing. Two major problems appear for traders who use this kind of strategy. One is that they run away from the market too early with very little profit, because they are afraid to lose it. Another is that they keep two positions too long and when a sharp reversal comes their profits are sharply reduced or they still sit hoping that trend will resume itself. They consequently lose all of their profit. So, watch for signs to determine your entry and exit levels. 

2. Forex range trading system for those who like playing with support and resistance

As has already been said most securities stay in tight ranges most time of the year. At this time prices tend to go to the top and bottom of the range a few times or even more till the extreme points are broken. What you want to do while trading this strategy is to trade a reversal at the top by selling a given security and buying a security around bottom. This is how you can make profits trading ranges. A few technical indicators can help you to filter your trades. 

Using this trading system one should remember that the longer the range continues the great odds are that a breakout is coming and one should be very careful when next time he sees price approaching key support or resistance levels as those can be taking in no time and one can experience severe losses. 

3. Breakout trading strategy for breakout traders

Breakouts of various levels happen on daily, weekly and monthly basis. Some even watch for hourly and minute basis to see a decent break and make fast money. One should find a period of time where a Forex pair is contained within small channel or a range and wait for it to be broken. It can be Asian session low and high or weekly top or bottom of any security depending on what Forex market hours you like trading most. 

There are too many false breakouts nowadays and if you really want to trade well the currency trading system you should have a number of filters to determine when to stay and when to get into the market. It is good when some fundamental news event makes the price go out of its’ range and the breakout is not only a technical one. I tend not to trade breaks that are not backed up by some fundamental news. 

4. Swing trading as an alternative of trend following

The difference between swing and range trading is very narrow. Some would even say that it can be the same. It is also following a move that is usually shorter than a trend. Some say it could be from a few days to a few weeks. Trend on the other hand usually lasts from a few months to a few years (some Forex brokers can provide you with Forex trading software with a big choice of swing trading techniques by various providers). Traders who want to catch this kind of move tend to wait for some kind of news event which will give stimulus for a pair to move forward without stopping at least for a few days. This brings us to another strategy.

5. Forex news trading system for admirers of volatility

Economic news releases tend to catch markets by surprise and we usually see huge volatility in the markets when NFP or interest rate decision is announced. You should not be shocked to see 200 or even 400 pip moves in one minute during these events. It is intelligent to be out of the market if you are not sure what you are doing though. Some, however, love it and take advantages of the events by placing buy stop or sell stop orders minutes before the event happens. 

Beginners should avoid this trading method as it takes great skill to manage problematic situations that occur when news comes out. Your stop order might not be filled (it happened to me once when I was trading on Refco company platform) and you might be looking at the market going against you without being able to change anything. That’s when Forex trading online becomes dangerous. However, it is good to see what happens during these volatile sessions in the market and just analyze without any financial commitment. You will see the currency market in various aspects of it.  Lots of my posts on the blog contain my comments on how you could have traded this or that Forex news event. (Free Forex charts with live Forex quotes are available at dailyfx.com or metaquotes.net (metatrader platform, one of the best Forex platforms that I often use in my examples).

6. Forex scalping strategy

As Forex is a very liquid market and traders can open and close huge positions within minutes or even seconds making hundreds of trades per day has become popular among lots of day traders. When one is scalping he/she is making hundreds of trades per day and the average length of them is only a few minutes. As soon as the trader gets minimum profit (a few pips) he runs out of the position. It is a dangerous way to trade if one does not know how to control risk. Depending on your trading style: more aggressive or more conservative, you might be willing to choose one or another pair. For more aggressive traders gbp/jpy pair might be good way to scalp fx. If you are a more conservative trader you might be willing to find how to trade eur/gbp pair (the most orderly Forex pair in the market). 

When scalping you would want to have as low spread as possible (that’s why eur/gbp is good). You want to grab your few pips as fast as possible without having to wait too long till you break even due to unfavorable spread (15 pips or more). 

Problems with this kind of trading systems arise because stops are usually larger than take profits targets and one has to win many more trades just to break even. You should be careful and not go against theory of probability in terms of making profitable trades by scalping. Too many Forex scams turn around this way to trade the market and one must be aware of that in order not to be deceived. 

7. Overbought and oversold levels trading strategy

This is indicator based Forex trading system that a trader may use to make reversal trades when indicators give signals about a security being overbought or oversold. This works on various time frames and the most popular indicators for trading the method is RSI and MACD. I do not trade that way, but I often put RSI on my charts to see whether it is above 70 level (overbought) or below 30 (oversold) to know what I can anticipate in the coming days or even hours.

You should also have in mind that when Forex pairs are in a trend state all technical indicators will be at extreme levels and stay there for quite some time. This strategy is good in range bound markets and is not good at all when you a tendency is in place. 

If you look at various Forex signals providers you will notice that most of them widely implement these support and resistance levels in making predictions about move of securities they trade.

8. Turtle trading strategy

The name to the system was given by a famous trader Richard Dennis who trained around 10 traders to use his trading methods to make money in financial markets. Turtles would buy a security when it exceeded twenty day high by a one tick and sell when price broke lower than 20 day low. They would do the same with 55 day high and low (a more secure way to trade a breakout move). It is a good way to trade, but I would recommend putting some more filters to enter your trades. Turtles, of course, had some rules for position sizing, placing stops, entries, exits and also tactics. Search internet and you will find out full description of their system. 

Like any other strategy it has its’ advantages and disadvantages. On the one hand, you would not be making too many day trades, on the other you might skip too many swing trading opportunities or enter the market at the end of the move. This is a Forex investing type of strategy rather than a speculative one. Practice makes perfect and you might be willing to test trade this system on a free Forex demo account. All brokers will be able to offer it for you. You might visit forex.com, oanda.com or fxcm.com to open and download it for free. I would recommend mt4 though. 

9. Trading chart patterns

You have probably heard about various chart patterns such as: head and shoulders (also inverted head and shoulders, triangles (ascending, descending and symmetrical), cup and handle, flat base, parabolic curve, wedge formation, channel formation, flags and pennants. Understanding what these mean and how to trade them can make you a really successful Forex trader (and not only Forex). These help to identify important reversals and markets turns as well as help you to predict if market will continue its’ course or not. A top stock trader Dan Zanger made millions of dollars trading various chart patterns in combination with volume index. So can you! (I personally find head and shoulders pattern to be the most powerful one)

10. 123 Forex trading strategy

123 trading pattern has been known for decades and successfully used in futures and stock markets by many traders. This is a reversal pattern that indicates that a major change of trend is coming. This pattern maybe found on various time frames but works best on long term charts, especially monthly. When you see it forming on a monthly chart you can be pretty sure that a major tendency shift is at hand and you can prepare for a few years of a different type of trend a trade accordingly. You will see this structure on small time frames too (all over the place), but they are not very reliable. I fully described this trading system here.

I am convinced that you have to use this method together with a few technical indicators such as RSI or MACD and it is recommended to draw trend lines on important support and resistance areas to see if the pattern forms at those levels. By no means make it an automated Forex trading system based just on one Forex technical indicator. 

11. Regular and hidden divergence Forex trading strategies.

Divergence is a mismatch between price action and technical indicator action. In other words, if price goes up, indicator goes down. That is often considered to be a sign of a pending reversal. In a prolonged swing indicators such as MACD or RSI (and a few others) start changing direction while price is still going in the same direction. They indicate that market has overstretched itself and a change of tendency is coming. So, if one sees price going and RSI declining (let’s say on 4 hour chart) one may assume that a swing has exhausted itself and it is time to prepare to opening short positions. This strategy works well in a range bound market and can cause you problems when there is a long term trend in place (market can stay in overbought or oversold area for a long time). 

Hidden divergence contrary to regular one shows not possible change of direction, but possible continuation of direction. Quite often when market is in a swing (let’s say up) you will see fast counter trend moves that cause indicator to collapse lower than previous low (in the same indicator), while price low is higher than previous low (which indicates that upward move is still strong). From the middle of January till the middle of March (2012) gbp/jpy was in an up swing and in the process it formed a number of hidden divergences. You can see them below on the chart. One could take advantage of that by waiting for a pullback to finish and re-enter long trades. Some do Forex hedging to protect themselves from risk in these kind of situations. I hope to expand more on this and other trading techniques when I prepare a full Forex tutorial for beginners. 

12. Forex trading strategies with daily RSI indicator

There are a lot of techniques that one can apply for making trading decisions with any technical indicator, but I consider RSI to be the best for both long and short term trading systems. For catching bigger moves it is good to use 14 day RSI. One would wait for daily RSI to go above 50 to go long and below 50 to go short. It works pretty well when markets develop big ranges and swings and not so good when it goes sideways. The most recent example with gbp/aud is quite good for that. Check the chart below to see how this type of strategy could have been traded. You may also do your own analysis of gbp/usd (of April and May (daily chart)). 

13. Bollinger bands trading system

Bollinger bands is a pretty powerful indicator and can be used in various types of strategies both long and short term. I like using the indicator on weekly charts to identify possible resistance and support levels and trade a reversal. You most probably know that John Bollinger does not consider bands to be working as support and resistance, but they fulfill this function when trends exhaust themselves and ranges start. That’s what I am waiting for in order to trade BB. When there is a prevailing tendency in a market, price slides through BB and one should not expect the indicator to act as support or resistance, but when price finally finds a top and starts going down, or a bottom and start going up, BB start flattening and form a nice channel to trade support and resistance. So, you need for price to hit the same are for the second time to be able to trade a reversal in a BB channel. (See the weekly chart in gbp/usd below). I heard that some guys include this trading pattern in their automatic Forex robots to identify tradable situations. 

14. 200 sma trading system

200 simple moving average is probably the most known indicator above all others. Even Dow Jones took it pretty seriously in predicting important stock market shifts (some managers of Forex managed accounts use it too). In range bound market I mostly pay attention to 1 hour 200 sma to identify possible breakout levels. What I want to see is a break of two points of resistance and price go up above 200 sma in order to go long and a break of two points of support and price to go below 200 sma in order to go short. Of course, when a reversal is coming you will see price cross 200 sma on lower time frames (10 min, 15 min, 30 min charts) first. Wait for that to happen on 1 hour. It is a more reliable signal. See the chart of eur/gbp below (as an example how can this strategy be traded). 

15. Pivot points trading strategy

This is mostly a day trading strategy that traders use in all financial markets. When I started trading currencies I used to calculate pivot levels each day, but I switched to swing trading five years ago and do not look at those levels anymore. However, they might be of interest to you if you are a short term trader and search for daily opportunities to trade financial markets. One tries to define the pivot point and a few support and resistance levels for today by calculating open, high, low and close of the previous day price. You end up having a pivot point and three levels of support and resistance (7 pivot points all in all). A general idea is: if the price goes above the central pivot point you would be buying (for that day) and if the price goes below the pivot point you would be selling (for that day). Trading usually happens between central pivot point and support 1 as well as resistance 1. Day traders would look for price to go from pivot point till support 1 and reverse there or till resistance 1 and reverse there.  As any other strategy it requires various filters such as moving averages, additional support and resistance levels confirmations or some other indicators to avoid bad and select only the best trades. 

Conclusion

There could probably be as many trading systems as there are traders in the world. You could probably make a list of one hundred or even more methods to trade Foreign Exchange market and they would probably work. The main thing is to adapt any one of them to your individual trading style and your personality. 

So, it has been quite a long post on Forex trading strategies. I will be coming back to the topic as I did in the past by describing some of the above mentioned strategies in detail and you can find them on this blog. I will repeat myself by saying that having a good trading system is half the job and you should not think that it is al there that could be about making profit in currency trading. My post Forex factory discusses other necessary components that might help you to achieve success in any financial market of your choice. Remember success in this business lies not some exterior factors but in a trader who decides to trade. Good luck. 

Source: By Vytas Zilenas, http://trend0.blogspot.in

Guide to Trading

1. Set a Stop Loss: Before entering any trade, decide beforehand the amount you are willing to lose and stick to it. Set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in a losing trade. During times of extreme volatility it can be difficult or impossible to execute orders. Stop orders become market orders when executed, so the order may not be filled at the desired price. As a result, the initial risk can be estimated, but not guaranteed.

2. Let your profits run: Do not be emotional about a trade – you will lose some and win some. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan – move your stop loss as the market moves in your favor and let your profits run. During times of extreme volatility it can be difficult or impossible to execute orders.

3. Don't be influenced: You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind. Learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.

4. Keep your position sizes within your limitations: Successful traders know that in order to profit you trade for the long term. Trading is a game of probabilities, and over the long run as long as you stick and implement sound strategies and stay consistent – success is much more likely to come. To be a successful trader you should never take a position that puts substantial capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. You might want to start small and increase your trade sizes as your confidence grows.

5. Know your risk vs. reward ratio: The minimum ratio you should be using is 2:1, so if you are successful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and you want to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order to make 10 pips. If you do, you’ll make a lot more successful deals then unsuccessful ones, but the poor ones will ruin any of your chances for profit. Your risk vs. reward analysis is extremely important to trading successfully.

6. Have adequate capital: You should never trade with money that you cannot afford to lose. Always make sure that you have enough credit. For example, you should can ask yourself the following question: “if I were to lose 50% of my opening balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading, click to open trading account. One of the keys to successful trading is mental independence, which means your trading freedom must not be influenced by your fear of losing.

7. Trending or Neutral: Learn to analyze the forex market – is it a trending market or a neutral market? In a trending market, follow the trend. In a neutral market, buy on lows and sell on highs. As long as you use stop-losses you are controlling your risk.

8. Don’t fight the trend: Don’t try to buy on dips and sell on highs in a trending market. The old saying "the trend is your friend" is a good one. Why fight it – go with it!

9. Averaging – don’t do it: One of the most common mistakes traders make is the continuing adding of a losing position. Averaging will be the death of short-term trades. For short-term trades, preserving capital is the most important thing, and putting too much capital at risk will jeopardize success. In short-term trading, if a strategy is right the market should move in the correct direction within a relatively short period of time. However if it's wrong, the short-term traders should realize that they traded incorrectly, and they should take the loss and move on. There is not much room for pride in short-term trading. You should never add to a losing position.

10. Chasing a bad idea: This happens all the time. You see a potential trade and then decide to wait till the next day to see if it sets up. By the time you see that it did exactly what you thought, it may be too late. Review your reasoning for the trade, make sure your initial reason is still there and if not, forget about the trade. There will always be trading opportunities, so be patient and strike.

11. Understand the way the market thinks: You should understand that all the information (except for newly released information which the market adjusts to within a short moment) is already built into the price of the cross. You should know what indicators are coming, particularly the majors, and you should know what is already anticipated by the market. There are many publications of market anticipation for major indicators.

12. Trading - a game of probabilities: You will not be correct 100% of the time – it’s a fact. Good, experienced traders all know this. It’s a numbers game, and you’ll make some and lose some. The idea is simply to win more than you lose, not to catch all the fish in the pond. Understand that trading is a game of probabilities, and if you do the right thing, in the long run you will come out ahead. Learn from mistakes. When you start forex trading, you may well lose more than you make. Think about what you did wrong and try not to be emotional about the trades. If you stick to your game plan and learn, hopefully your profits will out weight your losses.

13. Know why you are in the trade: Keep a trading log, and write down why you entered a trade. Don’t be impulsive. Have a plan. This way you will learn which strategies work for you in the long run and which don’t. If trading before or after releases works for you, look for them and trade those.

14. If the logic goes you go: If the reason you entered the trade disappears then so does your reason to remain in the trade. If you think you’re at a low and it breaks through, get out. Then reevaluate and decide once more.

15. Have a maximum run: If you have 4 or 5 bad trades in a row, take a break. Something isn’t working. Go away and regroup. Don’t be afraid to take a break.

16. Study: Learn new ideas, keep up to date, and don’t trade other people’s ideas. You should always know why you are in the trade.

17. Have Fun: Enjoy what you do. Keep calm and stay as unemotional as possible – you will be more successful.

Source: www.avafx.com