Simple Forex Trading Strategies

Simple Forex Strategies:

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Making trading decisions and developing a sound and effective trading strategy is an important foundation of trading.

Sample Strategy 1 - Simple Moving Average

Successful trading is often described as optimizing your risk with respect to your reward, or upside.  Any trading strategy should have a disciplined method of limiting risk while making the most out of favorable market moves.  We will illustrate one decision making model which uses a Simple Moving Average ("SMA") technical study, based on a 12-period SMA, where each period is 15 minutes.  This type of study is available in the CFX trading charts. This is one example of a trading decision making strategy, and we encourage any trader to research other strategies as thoroughly as possible.

We will use a simple algorithm: when the price of the currency crosses above the 12-period SMA, it will be taken as a signal to buy at the market.  When the currency price crosses below the 12-period SMA, it will be a signal to "Stop and Reverse" ("SAR").  In other words, a long position will be liquidated and a short position will be established, both with market orders.  Thus this system will keep the traders "always in" the market - he will always have either a long or short position after the first signal.  In the chart below, the white line represents the price of USDJPY, the purple line represents the 12-period SMA of USDJPY, and the red line indicates where USDJPY crosses above the SMA, generating a buy signal at approximately 129.90:

This is a simple example of technical analysis applied to trading.  Many strategies used by professional traders make use of moving averages along with other indicators or "filters".  Note that the moving average method has an element of risk control built in: a long position will be stopped out fairly quickly in a falling market because the price will drop below the SMA, generating a stop-and-reverse signal.  The same holds true for a sell signal in a rising market.  Note that the SMA is generated automatically by CFX's integrated charting application.

Sample Strategy 2 - Support and Resistance Levels

Another of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels.  The concept here is that the market will tend to trade above its support levels and trade below its resistance levels.  If a support or resistance level is broken, the market is then expected to follow through in that direction.  These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.

For example, in chart below EURUSD has established a resistance level at approximately .9015.  In other words, EURUSD has risen up to .9015 repeatedly, but has been unable to move beyond that point:

The trading strategy would then be to sell EURUSD the next time it gets close to .9015, with a stop placed just above .9015, say at .9025.  This would have indeed been a good trade as EURUSD proceeded to fall sharply, without breaking the .9015 resistance.  Hence a substantial upside can be achieved while only risking 10 or 15 pips (.0010 or .0015 in EURUSD).

Source: www.charterfx.com

Profit Yielding Strategies: Applying the 80/20 Rule

Profit Yielding Strategies: Applying the 80/20 Rule

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The implication of the 80/20 rule in the realm of forex trading is that you should focus more on high quality trades that pay off handsomely rather than trading more frequently. This is actually one of the most common errors that most novice traders make when they are starting out to trade online... Too much trading. They will go for day trading, hedging and scalping for low odds trades which result in more losses than gains.  

This mentality is due to the way we were educated and brought up to think in the sense that the harder you work, the more you will stand to gain. Unfortunately, the illusion of hard work doesn’t pay off when we are dealing with forex trading. The market is always changing and our flawed ingrained philosophy cannot cope with the dynamics of the financial markets. We need to adopt a paradigm shift in the way we think if we ever hope to profit from trading forex. This is the main reason why we get the forex veterans making most of the money in online forex trading. Research and surveys have proven such is the case.

Professional or experienced forex traders on the other hand tend to go for long term trades but pay off with high profitability. It is not uncommon to find these experienced traders making just a single trade once a week or even a month and still get a 100% return on their investment. The key toward profitability is to look for long term trades and learning how to use the forex charts properly to look for long term trends which could last for months.

Once you have identified such a long term trend pattern on your charts, stake your market position, hold on to the position and trail your stop loss to follow the long term trend. With the application of the 80/20 rule in your trading strategy, you will get to make more money, have less stress and also waste less time on unprofitable efforts.

Source: www.etoro.com

The Science of Scalping

The Science of Scalping

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The science of scalping is a trading strategy which is essentially very quick in and out trading where the scalper steadily increases the balance of his account. Scalping traders only keep an open position for a few seconds or up to a few minutes. There is a very fine line between scalping and day trading suffice to say that scalping is the risky side to day trading.

Scalping is highly risky because the scalper is only in the trade for a short time and because they want to make a lot of money they use a high leverage so that just a few pips maybe a 1 to 5 pip profit gives them a reasonable monetary profit. In addition scalpers have a number of trades open at the same time and during the day could easily accomplish more than 50 trades. This is why it’s risky. When trades go with you it's good but when the market goes against you with many high leveraged trades open you can take a heavy beating.

Not all forex brokers support trades that are open for a few minutes as they cannot move fast enough to turn a profit so you have to make sure your broker supports such practices otherwise they will first warn you and then close your account.

Of course scalping is not an exact science but there are some strategies which can give you winning trades. As with all strategies you must lay down the rules you are going to follow and stick with them. First of all scalping cannot be done away from the computer. You can’t open a position then go and make a cup of tea. You may find that when you return you have lost a lot more than your thirst. When trades are open stay glued to your screen. Secondly, decide on the loss you are willing to put up with. Don’t forget that you don’t have much time to put in stops so you have to have your finger on the trigger at all times. Thirdly, decide how many pips profit you want before you close out the trade. If the profit rises above the number you have decided on don’t wait, close the trade because it can easily go 5 pips against you before you know it.

source: www.etoro.com

The Best Kept Secret of Trading; The 10:00 am Rule

The Best Kept Secret of Trading; The 10:00 am Rule

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Forex trading is not only about using appropriate strategies, but also about proper timing. Yes, it’s true that the Forex market is open 24 hours a day but it isn’t always active. This means that while you can make money when the market is going up or down, you’ll find it difficult to make a profit if the market isn’t moving at all. Hence, it is important that you learn about the different market hours as well as the best times of the day and the best days of the week to trade.

The Forex market has 3 major trading sessions: the Tokyo Session, the London Session and the US Session. Between each session is a period when two sessions are open at the same time. For example, both the Tokyo and London sessions are open between 3 AM -4 AM EST while the London and US markets are open from 8AM -12 PM EST. These, then are the busiest time for trading since traders who wish to purchase currency from another continent can do so.

Of all the trading markets, London usually shows the most movement because it involves a number of countries such as UK, EU member countries and many others. The US market comes next. Hence, it is during the intersection between these two markets which usually provides the greatest return for trading.

Many Forex expert traders believe that the best time to trade is actually at 10 AM since this is the period when the London market is getting ready to close and more buyers and sellers have started moving to participate in the US market. During this time, currencies experience volatility as buyers and sellers bid for prices and turn out last minute wagers before the London market closes. The drastic change in market prices during this period allows traders to create profit from these movements.

The best day of the week to trade

There are also days in the week when markets show the most movement. According to researches by expert traders, the most movement in the 4 major pairs (EUR/USD, GBP/USD, USD/CHF, USD/JPY) is experienced in the middle of the week, from Tuesday to Wednesday. Fridays are also busy but it is best to trade until 12 PM EST only since currency movement tends to be chaotic after that.

For many traders, the best way to earn huge profits is to ride the market movement. By this statement alone, we can already see that many traders live on volatility – the more the market moves, the greater opportunity there is to make money.

source: www.etoro.com

Asymmetric Risk- Taking. Are you guilty?

Asymmetric Risk- Taking. Are you guilty? 

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Why we cut profits early and let losses run? In this article I would address the real trading psychology behind it. Lets start with a simple test !

Most traders new to Forex are often guilty ofletting their losses run and cutting their profits short, even experienced traders do it every once in a while. Before we begin, answer the two questions below. When faced with a scenarios below which option would you prefer?

A. 80% chance of winning $2,000 and a 20% chance to win nothing
B. $1500 Profit for sure

A. 80% chance of losing $2,000 and a 20% chance to lose nothing
B. $1500 Loss for sure

Most traders would chose Option B in Scenario 1 and Option A in Scenario 2. Compare these results with your own answers. If you chose the same then unfortunately you will be among 95% of traders who fails at Forex. Read Forex Loser’s Checklist, and see if you qualify. Lets look at psychology behind your decisions.

The two scenarios are quite interesting. Our perception of gain and loss changes our behaviour. When the options of a risky scenario involve profits, traders are risk-averse (risk-avoidance); however when options of a risky scenario involve losses, traders are risk-seeking. The other words, traders tend to seek risk in face of possible loss and avoid risk when profits are at stake.

This asymmetrical way of risk-taking has great implications on trading decisions we make as a trader. Our decision are based “subjectively”, taking in account recent events rather than looking at overall net trading balance. Let me explain:

After a profitable trade, the decision to close trade and take profit on next trade depends on gains made on previous trade. A trader starts to think ” I’ve made enough on the first trade, lets not lose it all and give away all the profits. Take early profit and call it a day”. At the same time, on a losing position trader delay cutting losses and hold on to trades hoping that it will reverse. The result is that trader realize profits way too early while allowing losses to accumulate.

A professional trader just need to act opposite to typical human behaviour. By considering the impact of losses on net trading balance and not on recent history of trading , a trader can make right decision of letting a losing position go early while keeping the profitable position running. Trading Robots have this advantage over manual trading as they help avoid implications of trading psychology.

Another interesting aspect of trading is the impact of losses on our minds. The feeling of losing an amount is much worse than pleasure gained from winning the same amount. Hence traders, hate losing 10,000 more than they love winning 10,000. Psychologically losses have twice the impact, no wonder why a trader don’t want to close a loosing position and willing to risk more.

A good trader is not a trader who makes millions in fraction of a second. A good trader is one who know where to cut his positions. It is not about making money; it is about losing as less as possible when we are wrong. Thus managing the psychological asymmetry in risk-taking is the key for succeeding as a trader. Bottom line “An experienced trader stands out from a new trader not by how he makes money, but how he loses money”

What should you know about Forex Signals ?

Apple's iPhone, Germany, the Fed: Why It's All Irrelevant to the Market's Trend

Apple's iPhone, Germany, the Fed: Why It's All Irrelevant to the Market's Trend R.N. Elliott's other major insight: News events do not impact market price patterns

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A lot of people know that R.N. Elliott discovered the Wave Principle. 

Yet few are aware that Elliott made another observation during his years of studying the stock market.

As the Wave Principle forecasts the different phases or segments of a cycle, the experienced student will find that current news or happenings, or even decrees or acts of government, seem to have but little effect, if any, upon the course of the cycle. It is true that sometimes unexpected news or sudden events, particularly those of a highly emotional nature, may extend or curtail the length of travel between corrections, but the number of waves or underlying rhythmic regularity of the market remains constant [emphasis added].

R.N. Elliott, R.N. Elliott's Masterworks, pp. 158-159

What a stunning insight: Even major news does not alter the market's main wave pattern! This seems to defy logic because most people believe that news and events are the very things that drive the stock market.

Yet, it was barely 100 years ago when most people believed that only birds could fly.

And even then, most people would never believe that a steel-encased object weighing nearly a million pounds (Boeing's 747) could get airborne and fly at 500 miles per hour.

Yet, natural law is what governs airplane flight, the buoyancy of metal ships, the incandescent light bulb, radio transmission over the air and, yes, the Wave Principle.

Natural law is inherent in the pattern of stock prices. That's why outside events do not materially influence the pattern's behavior.

This is particularly relevant today: Recent news covered Apple's new iPhone, which is expected to boost U.S. GDP; the European Central Bank's pledge to make "unlimited bond purchases"; Germany's Supreme Court approving the eurozone's permanent bailout facility; and the expected Federal Reserve announcement on whether to initiate more quantitative easing.

None of this will have an effect on the market's overall price pattern.

Charts of the Dow Industrials reveal that changes in interest rates, the deficit, the price of oil, terrorist attacks, Fed announcements and even wars do not change the market's main trend.

How about government bailouts of troubled financial institutions during the 2007-2009 financial crisis?

Please try to pick out on the chart below when those bailouts occurred.

 

According to the exogenous-cause model, these historic pledges and bailouts should have had immediate results. ... According to the economists’ beliefs, the only rational place for them to have taken place would be at the bottom of the market. The minute the authorities began flooding the market with liquidity is the minute it should have turned up.

[The chart below] shows that in fact these actions took place in the early portion of the biggest stock market decline in 76 years. These actions did not push stock prices back up. The market finally bottomed months later, at a time when nothing along these lines happened.

The Elliott Wave Theorist, March 2010

Now, look at this labeled chart to see how you did.

 

In the 70 years since R.N. Elliott observed that news does not alter the market's wave pattern, his insight has been proven time and again.

It's wise to keep your market eye on what really matters: the Wave Principle.

R.N. Elliott drew a chart by hand 70 years ago and the final label is the year 2012! Amazingly, today's wave analysis confirms that his decades-ago analysis may be precisely on target.

Trailing Stop Loss Tips

Trailing Stop Loss Tips

A trailing stop loss is calculated in a manner like the way we calculated our initial stop loss. The only difference being that while we calculated our stop loss from the entry price, we're calculating our trailing stop loss from the highest price since entry. The key to the trailing stop loss is that you need to make continual adjustments to make sure that the stop is moved in your favour.

The method that you use to set your trailing stop loss can vary dramatically. However, if we use the ATR method that we used to calculate our initial stop to set our trailing stop loss, we'll have the ability to lock in the profit as the share price increases.

For example, if you bought a share at one dollar, and your initial stop was set at 90 cents, your trailing stop would also have a value of 90 cents. If, after the first day, the share price moves in your favour and moves to $1.10, you would recalculate your trailing stop loss by subtracting two times the value of the ATR from the new high price of $1.10. For simplicity, let's assume that your stop size hasn't changed, and is still ten cents wide. When you calculate your new trailing stop loss, by subtracting the 10 cents from $1.10, it would be set at one dollar.

At this point, your initial stop was at 90 cents, and your trailing stop loss is now at a dollar, with the share price is at $1.10. Since your trailing stop loss is higher than your initial stop, the initial stop becomes obsolete, and our trailing stop loss becomes your active exit.

Now, my question is, How much profit have you made on this trade? The share price is at $1.10 and we entered at one dollar. If you thought, No, I haven't made any money, then you'd be right on track. Remember, our stop loss strategy gives the share price a little bit of room to move.

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You're not going to exit this position until the share price reverts to one dollar. I'ts important to note that when you are valuing any open position, you should always value it based on its stop loss value, since if you were to exit this share, you would wait until that price point was breached.

Let's go back to the example. Now, what happens if the share price begins to fall? Let's say that the share price falls from $1.10 down to $1.05. What does your trailing stop loss do? Would it move down also? Here's another important point. A stop loss will never, ever move down. A trailing stop loss can only move up. This ensures you lock in profit and that you'll also get out of the shares once they start to turn. A trailing stop loss is always calculated from the highest price since entry, so the highest price is still $1.10.

It's not until the share price makes a new high since entry that the trailing stop loss would begin to move in your favor again. However, if you're using the ATR method, there's another way for our trailing stop to move up. This would occur when the volatility of a stock begins to decrease. If a share price were to begin to move sideways, the ATR value would start to drop off. This would cause the trailing stop to move up as the share price became less volatile.

The best way to understand these concepts is to print out a chart with the ATR values along the bottom. Then on the chart, identify the point where you would have received an entry signal, and mark your initial stop loss and your trailing stop loss.

As the trend progresses make sure that you recalculate the value of your stop so you can begin to get a feel for the way this method of using a stop loss works Seeing how the changes in stock price affect you trailing stop loss will give you the confidence to make them a key part of your trading system.

About The Author David Jenyns is recognized as the leading expert when it comes to designing profitable trading systems. His most recent course Trading Secrets Revealed is a step-by-step trading road map to having excellent money management. Learn how *you* can become one of his students. Click Here ==> http://www.trading-secrets-revealed.com

Get a Free Forex Strategies eBook

Download free Forex Strategies eBook:

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Tools and techniques of Forex Trading

The top Tools and techniques of Forex trading

Know the Language

In Currency Trading, traders often use technical language that can be intimidating when you're just starting out. When you see a word you don't understand, you should refer to the Commonly Used Forex Terms. As you familiarize yourself with the language, you'll find that your understanding of Forex concepts as a whole will improve.

Technical Analysis

To develop a strategy, traders use a variety of tools and techniques. Some traders perform Technical Analysis by using Currency Charts to study the market. This technique assumes that past market movements will help predict future activity. The effectiveness of Technical Analysis makes it a very popular trading technique.

Fundamental Analysis

Other traders use Fundamental Analysis for their trading strategy. They follow the effect of economic, social and political events on currency prices. Reading specialized Forex News can help keep you in touch with the Forex community to find out how events might affect currency prices.

Practice makes perfect!

Every trader makes mistakes, so it's a good idea to familiarize yourself with a trading environment before you invest your money. To improve your trading skills, try opening a free demo trading account with a Forex company.

Know the Risks

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, it is advisable to seek advice from an independent financial advisor.

Source: http://www.xe.com/currencytrading/tools.php
What should you know about Forex Signals ?

How to read a Forex Quote

Reading a Forex Quote

  Quoting Convention

 Quotes in the currency market can be a bit confusing because any position you take in the market is actually two different positions. In FX you’ll see currencies listed in Pairs. This permits you more options in FX then you get in other markets. For example, you may be bullish on Euro and will therefore buy want to buy the Euro. In FX, you can chose what you want to buy those Euros with. You can buy them with USD, or you can buy them with JPY if you prefer. You can buy Euros with a long list of other currencies that we offer. So a currency pair will be displayed in this manner.

 EUR/USD The first currency listed is referred to as the “base currency”. The second currency listed is considered the “counter currency”. So for EUR/USD, the Euro is the base currency and the US Dollar is the counter currency. If the pair is trading at 1.4700, that quote tells us how much of the Counter currency it would cost to buy one unit of the base currency. So it would cost $1.47 US to buy one Euro. When it comes to placing a trade, keep in mind that any time you take a position you are doing so in terms of the base currency. So if you buy a pair, you are buying the base currency. If you sell a pair, you are selling the base currency. Then it’s easy to keep in mind that you are always doing the opposite with the counter currency. So, if you buy EUR/USD, you are buying Euros and selling US Dollars. If that is still a bit too confusing, you can think of it simply this way. Buy if you expect the rate to go up. Sell if you think the rate will go down. Simple as that! You will always see a two-sided quote in FX. In your FXCM account you will always be shown a Buy price and a Sell price. They can also be referred to as the “bid” and “ask” respectively.

 The Buy price is the rate that you can buy that pair at, and the Sell price is the rate at which you can sell that pair. The difference between the two prices is called the “spread”. The spread is determined by the price providers and liquidity in the markets at that precise moment. FXCM has up to 12 interbank firms streaming prices into our platform. The platform filters those feeds for the best Buy price and the best Sell price, and passes them on to account holders with a small mark up. A spread exists for all tradable instruments, stocks, bonds, futures, options, etc, it just isn’t always visible to the trader. So now you hopefully understand how currency pairs are quoted and what you are buy and what you are selling when you place a trade.

Source:www.dailyfx.com 

What should you know about Forex Signals ?

The A-Z Of Forex Trading