Tape Reading. The term refers to the times when the stock quotes came to the trading houses (more like the modern betting firms) in a form of a tape telegram. Traders analyzed the changes in the quotes, their speed and volume and, basing on this analysis, issued their trade orders. Modern tape reading in Forex is somewhat different — you just analyze the quote as its displayed in your brokers terminal and then trade using your analysis of the data. Its the most basic way of trading and some new traders start from it without knowing how is it called. Tape reading is mostly suitable for scalping and cant be used for the long-term entries.
Japanese Candlestick Patterns. Many different patterns, formed by the Japanese candles, are recognized by the Forex traders. Such patterns are usually quite small (they consist of 1 to 4 candles) and can be spotted on all timeframes. Japanese candlestick patterns arent too reliable but the abundance of symbols compensates the low winning rate. This type of trading is a part of price action but it requires some basic chart analysis.
Chart Patterns. Patterns formed by the price fluctuations of the chart are numerous — triangles, wedges, double-tops, double-bottoms, head-and-shoulders and many others are all part of this trading technique. Opposite to the Japanese candlestick patterns these patterns are usually formed by many chart bars and often serve only for the long-term market evaluation. Chart patterns sometimes have a strong fundamental basement and are thus valued by the professional traders and the Forex market tends to «follow» them simply due to their popularity.
Point-and-Figure Charts. This type is a bit more difficult than everything else in the price action domain. Its also arguable that point-and-figure can be considered a price action technique at all. P&F charts are built based on the price changes, independently on time. The columns of Xs are formed when the price is rising, while the columns of Os are formed during falling trends. The columns of Xs and Os follow each after another. A price should pass a certain amount to form an O or X or reverse in an opposite direction for a significantly higher amount to start forming a new column. Trends can be easily read in such charts and many Forex traders use the strategy to buy and sell exactly at the new columns start to catch the new trend.
Not all traders can use price action techniques successfully, the same as not everyone can trade with the indicators profitably. Price action can be used alone but it also can be interesting for other methods confirmation. With price action techniques you can always scale in and out and flexibly change your strategies as well.
For example, the simple point-and-figure chart could look like this:
The green Xs are the price increases (by some certain value) and the red Os are the price decreases. A column of Xs represent an uptrend, while the column of Os represents a downtrend. In each given column there can be only Xs or Os. When one trend ends a new column starts. As you see, there is no time scale in this chart. Each column can last an indefinite period of time.
So, how are these point-and-figure charts drawn? To start drawing a point-and-figure chart you should first set two important parameter values of the chart — the box size and the reversal distance.
The box size is the height of each of the Os and Xs in pips. For example, if you set a box size to 10 pips, each X will mean an upward movement by 10 pips, so a column of 6 Xs is an upward movement by 60 pips. The same would be correct for the Os.
The reversal distance is the amount of boxes that should be passed by a price in a reverse direction for a trend to reverse (to start a new column). The most common reversal distance is 3. That means that on a rising trend (a column of Xs) a price has to go down by the amount of pips in three boxes for a new column (this time — of Os) to start. For example, if you use a box size of 10 and a reversal distance of 3: the price goes up by 60 pips, you draw 6 Xs, then the prices goes down by 30 pips (thats more than 3 × 10), you draw 3 Os down starting a new column from the level below the last X. If the price would go down by less than 30 pips you wouldnt have to draw anything new. Basically, after drawing an X or O you just wait for the price to continue going in the direction for a box size of pips or in a reverse direction for a reversal distance * box size of pips.
If we consider 10 pips box size and reversal distance of 3 for the image above then we can say that first the price goes up by 50 pips during the first uptrend, then it goes down by about 50 pips, then goes an uptrend for 70 pips, then go two equal bearish and bullish trends for 30 pips (exactly the reversal distance). Then a price declines by 50 pips, then goes up by 30 pips and finally falls by 40 pips. It ends at +10 pips (if you sum up all the values) and, as you see on the picture, the ceiling of the final O is 10 pips above the bottom of the first X. Thats exactly +10 pips. The «effective price» is located at the bottoms of the Xs and at the tops of the Os.
Using the point-and-figure charts is simple. Almost all chart patterns and analysis techniques that work with the classic time-based charts work with the point-and-figure charts too. The trends are very easy to visualize in the P&F charts because the square dimensions of the boxes (Xs and Os) form nice 45-degree angle trendlines. Look at the example:
Apart from the chart pattern analysis, P&F charts offer a sort of trading signals. When the trend direction changes, a new position can be opened in this new direction with a stop-loss equal to the reversal distance. But such trading technique requires some thorough optimization of the box size and the reversal distance for the given currency pair and the market conditions.
If you have any questions or comments regarding point-and-figure charting, feel free to reply in the commentaries to this post.
Trading the daily chart requires patience, lots of it. That is what most of us lack. Patience. If you look at the longer timeframe charts, you will see that price will stop or hover around certain areas. That is your key point. Always start or stop trading around these key point.
The next indicator I use is CCI. CCI alone is a bit of a headache. So I smooth it out with MA. With the MA, I can see the direction of trade clearly. People say MA is a lagging indicator but I dont want to be early going to a party. I like to enter when the party already started.
The last advice is, there is no such thing as holly grail. You just cannot win all the time. The best that we can do is try to win as much as possible and lose a little as possible. In the long run, it would be profitable enough to stay trading. Otherwise you need to find another business to run.
Its not as aggressive and thrilling as trading on the shorter time frame but the result is about the same minus the headache. I'm beginning to like daily trading. I need to make decision once in a while and the rest of the time I just hold my position.
On a daily chart, the candlestick is much easier to read and pattern is much clearer. On 13th August I opened 3 position. 2 of which is still holding while 1 has been closed. At the moment all position are in profit.
Daily trading is not for everyone. It took me sometime to adjust on the requirements of daily trading, but once you are there you never look back.
Till next time, good luck everyone
The drawdown is a difference between some local maximum point in your balance chart and the next following minimum point in that chart. Its the risk amount by which your strategy can go down during a streak of losses. There are two types of drawdown that are considered to be the important properties of expert advisors (for instance, in MetaTrader platform) — absolute drawdown and maximal drawdown.
Absolute drawdown is the difference between the initial deposit and the minimal point below the deposit level during all test period. It tells you how big your loss can become compared to the initial deposit during the trading. If this value was 0 during the test, then your deposit wasnt at risk at all.
Maximal drawdown is the maximal difference between the local maximum extremum in your equity chart and the next local minimum extremum in your equity chart. It tells you how low your strategy can go after getting some profit. It can also be called a depth of a losing streak. Generally its a good idea not to trade with EAs with the maximal drawdown higher than the profit. But I dont recommend trading even with strategies or expert advisors that have maximal drawdown at levels higher than 25% of the net profit. Mind your own risk-to-reward ratio and dont trade with EAs that dont comply with it.
Now you know what drawdown is and how its calculated in Forex trading. Unfortunately, the current version of MetaTrader 4 (Build 225), the strategy tester incorrectly calculates the drawdowns, so if you are testing your EAs, its better to calculate both the absolute drawdown and the maximum drawdown manually.
If you have your own opinion or questions about maximal or absolute drawdown, feel free to leave it in a comment to this post.
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Generally, its a bullish continuation pattern but the breakout in each direction is possible. If you like taking risk you can go long immediately after you spot this pattern. But if you want to be careful its recommended to wait until breakout appears in either side. The most important parts of the ascending triangle are the horizontal line and the upwardly sloping line. Its also important for the price rate to touch each of those lines at least twice before breakout. This rule is vital for all of the 5 Forex chart patterns presented in this article. As you can see on the image, the price has touched the sloping line three times and the horizontal line two times and then broke out through the latter. Stop-loss should be placed slightly below the horizontal line. As the moderate pull-back is possible, consider placing stop loss near 70% level on the way from the sloping line to the horizontal one in place of the breakout. Take-profit should be placed according to the auxiliary sloping line, which runs from triangles top-left angle parallel to the main sloping line. Consider placing your target at the auxiliary lines level in place of the breakout.
Generally, its a bearish continuation pattern but the breakout in each direction is possible. As with the previous pattern you can go short immediately after you spot it. Wait for breakout in either side to enter a high-probability position. The most important parts of the descending triangle are the horizontal line and the downwardly sloping line. The price rate should touch each of those lines at least twice before breakout. As the image shows, the price has touched the sloping line three times and the horizontal line two times and then broke out down. Stop-loss and take-profit levels are placed using the same principles as with the ascending triangle.
Generally, its a continuation pattern that breaks out in the direction of the previous trend, but in practice breakout in every direction is possible. As always, you may decide to open a position in the direction of the previous trend immediately as you spot this triangle. If you wait for breakout then you have better chances of success. The most important parts of the symmetrical triangle are the downwardly and upwardly sloping lines and the horizontal line that bisects the angle created by the first two lines. The last line should be really horizontal (several degrees of error are allowable) or otherwise its some kind of a wedge but not a symmetrical triangle. As always, the price should touch each of the main sloping lines at least twice before breakout. Symmetrical triangle, which is shown on the image, breaks out downwardly after touching the bottom line three times and the top line multiple times. Stop-loss should be placed near 70% level on the way from the opposite sloping line to the horizontal line in the basement of the triangle (not the breakout point like before). Take-profit can be set near the auxiliary horizontal line, which runs from the top or bottom base angle (depends on the breakout direction) of the triangle and is parallel to the main horizontal line.
Usually, this chart pattern signals a reversal from the previous trend, but both upward and downward breakouts are possible. You can enter a risky trade immediately when you see this pattern. Wait for a clear breakout to enter a more probable trade. The crucial parts of the rising wedge are the two upwardly sloped lines that form a wedge. The price should touch each of them at least twice before breakout. On the image below you can see that the price touched top line two times and the bottom line multiple times. The downward breakout is shown. Stop-loss can be set at the auxiliary line that bisects the angle of wedge; set it near the level of the auxiliary line at the breakout. Take-profit is set near the auxiliary line (not shown on the image) that runs from the top or bottom base angle (depending on the breakout direction) of the wedge and is parallel to the opposite sloping line. E.g. in the pictures example wedge the line should start at the bottom angle of the wedge and be parallel to the top sloping line. Take-profit should be placed near the level of that auxiliary line at breakout.
As its rising cousin, this chart pattern often signals a reversal from the previous trend, but both upward and downward breakouts are still possible. To enter a risky trade, open it immediately as you see this chart pattern. Wait for a clear breakout to enter a more probable trade. The main parts of the falling wedge are two downwardly sloped lines that form a wedge. The price should touch each of them at least twice before breakout. On the image you can see that the price touched the bottom line two times and the top line multiple times. Upward breakout is shown. Stop-loss and take-profit levels are set using the same principles as with the rising wedge.
If you have your own opinion or questions about Forex chart patterns, feel free to leave it in a comment to this post.
The result as you see is superb. There are actually 2 part of testing. The early trades are done on a shorter time frame, 5 minute to be exact. The later part of testing is done on a longer time frame, 1 hour.
I must say the system looks promising on the longer time frame. On the shorter time, I just dont have the time to monitor the trades.
As of now the system is running on my live account. At the moment on 4th June my account is up 40%. Hopefully everything goes well and I will have good profit by end of the month. Will keep you inform on the result later.
NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission) are obligatory regulating organizations for the Forex brokers that are based in United States or want to legally deal with the U.S. residents. While spot Forex trading has nothing to do with the futures or commodities, these organizations set the rules for how the retail Forex market should work in United States. Some of the rules protect the traders (e.g. by setting high own capital requirements for the brokers) and some just make traders life harder (e.g. the tons of documentations required to register with a broker and the latest no-hedging rule). Anyway, traders (even those from U.S.) still have the option not to trade with the NFA-registered brokers, so, theres nothing bad in having such institutions as NFA or CFTC.
FSA (Financial Service Authority) regulates the Forex brokers that are based in U.K. or are dealing with the British traders. The U. K. regulation is much lighter than the one in U.S., so traders usually find no difference when they are dealing with the FSA-registered broker. If you want a regulated U.K. broker, just look if its registered with FSA. But dont expect it to be much more reliable than the unregulated brokers.
SFBC (Swiss Federal Banking Commission) requires all Forex brokers that are based in Switzerland to obtain the real Swiss banking license and thus become a regulated banking institution. Thats a good thing for those traders that are registered with the Forex brokers that got such license, because Swiss banking regulation is one of the best in the world and those institutions that fulfill all the requirements can be certainly considered reliable. On the other hand, obtaining such a license is a long and expensive way; this fact is making some of the Forex brokers to move out of Switzerland.
Some Forex brokers are regulated by the European and other banking laws as they are registered as the banking institutions in the respective countries. Such brokers can be considered the most reliable ones, but for the common retail trader dealing with them isnt easy as they usually require high minimum account deposit and a lot of paperwork.
The majority of other regulatory bodies provides almost no strict requirements for the Forex brokers and is plainly nominal. If you see a broker registered on Seychelles or British Virgin Islands, or some other «offshore zone» it doesnt mean that its thoroughly checked and audited. Of course, it doesnt also mean that its a scam broker. Some Forex brokers prefer to stay offshore for a lot of advantages and some traders prefer those brokers for their own reasons. When you choose your broker, be sure to select the one with the appropriate type of regulation that fully fits your trading needs.
If you have your own opinion or questions on Forex market regulation, feel free to leave it in a comment to this post.
In my quest to adapt my existing system to a new time constraint trading requirement, I accidently stumble onto a new system. Its a very simple system that has shown good result for the month of April and May at the moment.
Just to show you what I have stumble upon, here is a screen shot of my demo account that I have used to run the test. It doesn't show high accuracy but it shows a return of over 100% last month and a small return this month so far.
Here is the hard part. What if I say that I can actually have an accuracy of 100%. Meaning I can win all the time with this system. The numbers you see there is me using a demo account trading with limited time with no regards for the system rules.
Would it be nice to actually win all the time. I will keep you guys posted on the result by the end of this month. In the meantime I cannot be online as long as I like to. For my friends, I know my YM is not online for a long time but just leave a message and I will answer when I have the time.
For those of you who love to experiment, try putting LWMA 55 on a chart and see how price actually interact with the line. Its not magic but its a mathematical calculation.
Dont get me wrong, you may not be able to trade using MA 55 alone. Try putting LWMA 13 in there as well and remember they are not signal generators. Treat them as dynamic support and resistance.
Put it into a simple formula. If price > LWMA 13 & LWMA 55 = long. If price < LWMA 13 & LWMA 55 = short.
Try it, you may like what you find. Just needed to add in a filter to improve accuracy.
Forex is not a quick rich scheme.
Forex is not easy even though my blog says so.
Forex is not a place for newbie
Forex is not something you can learn overnight
If you needed the money, dont put it in Forex. Seriously. Go somewhere else.
Forex is a journey, enjoy it.
There is no such thing as holy grail coz there is no perfection in this world. If perfection exist in this world it would be boring. No more room for improvement.
Forex is not rocket science. There is no right or wrong. There is only probability.
This week I am going to talk about numbers only. Forex is after all based on numbers. Example, I have a long position on GBPUSD @ 1.4700 with a profit of 320 pips at the moment and still holding.
What I am going to say is big players only see big number. The do not see the last 2 digit. The last 2 digit is for scalpers. Big players only see the 1st 3 or 4 digit only. So if a bank wants to buy or hedge a currency they will give an instruction to buy at 1.47. Thats it. Simple yet people fails to see it.
So what happens at 1.47? The price will bounce of or hover around it but things arent always what they appear to be. What happen is price will have a range between 1.46 - 1.48. That is almost 200 pips wide range. Imagine what happen to your 50 or 100 pip SL?? Now you know why people lose money even though they have the right direction.
These big players have big money they dont mind to stand few hundreds negative pips coz in the end they will profit big time. What they do is they will have a standing order to trade at certain level. Because the total amount of order, the market cannot fill the order in 1 transaction and so price will hover or bounce of a certain level. This is where double top or bottom appear. Behind it is the action of filling orders by these big players.
Example EJ currently have a top of 1.34 and a bottom of 1.30. Big players are playing the game here. At the moment EJ is climbing and there is a big possibility that it will reach 1.34 again. I have a standing order to buy EJ at 1.30. If it hits there is a very big chance for 400 pips gain. Only time will tell.
Attach is a chart of GBPUSD. If you look carefully, you can see my actual entry point. I will explain the rest of the chart in due time.
Once you have successfully downloaded and installed the MT4 software, launch it. It may seem a bit complex for beginners, but all the information is very clear and divided by windows that allow you to control all your orders and a different number of pairs simultaneously. From the Market Watch feature, normally positioned on the top left size, under the menu bar, you have all the pairs available on the server, and with a click and drag mouse movement you can make that pair to appear in any of your chart windows, making it easier and faster to switch from one pair to another, and you, as trader, know how decisive can time be, when you have more than one order opened, mainly during news and market events.
One of the best features that MT4 offers is the option to create templates that fit better each and every trader needs. The profiles can have one or multiple charts. For example, 3 EUR/USD charts with different timeframes, or 3 different pair charts, in which you can totally customize them using the indicators of your choice. From colors to templates, the MetaTrader 4 offers the trader full interaction with his orders, which is often not possible in many broker platforms.
The main disadvantage that MT4 has against other web-based trading platforms is the fact that you have to download it. Many traders have to often check their orders from different places, such as: office or university. So if your broker only offers the MT4 or other downloadable software, it can be quite complicated for you to manage your orders, if you fall into this category. The optimal situation would be the possibility of using MT4 while you are on your computer, and at the same time, the option to open or close orders through your browser, in situations where arent using your computer.
Finally MetaTrader 4 is, doubtlessly, a tool that every Forex trader should at least download and be familiar with, in most of the cases, you will make it part of your trading experience, considering its features, for the moment, MT4 has a wide superiority against other trading software.
In the next few weeks I will show you how to trade using only MA. As usual what works for me may not work for you. This is because some of you may not be able to follow the rules of the game.
RULES OF THE GAME
1. Trade based on your capital and the time that you have. The bigger your capital the longer the TF. The more time you have the longer the TF. Vice versa.
2. Only trade at the direction pointed by the MA pairs. If the MA pairs is showing mixed direction, do not trade. The MA pairs must be pointing at the same direction.
3. If a trade suddenly change direction, do not hesitate to close it at a loss and turn the trade. This is the hardest part where most of you failed. Free your mind or become a loser all your life.
4. Keep in mind, there is no such thing as winning all the time. Just make sure you win a lot more than you lose. In the end your profit will grow along with your confident.
Simple system with simple rules. I like to keep it simple. No point of having the most complex system when simple system can have the same result. With this system you will be out of the market most of the time. This is because you will only be taking the big move and avoiding the small move and market noise.
Last advise. Do not anticipate. Forex is not a game of inteligence eventhough this system at full swing will show you possible turning point. I am having a possible turning point for audusd at 0.7200 but I will not take it coz there will be market swing before the actual turn. Why wast time waiting for the big move when you can actually see when its going to move.
In the mean time, good luck for all of you. I will be back once my pc is online again. At the moment I am posting this on a laptop. I dont like laptop, too small keypad, makes it hard to do speed typing.
As you see, white bodies are the uptrend candles and the red bodies are the downtrend candles. The upper shadows are usually absent on the downtrends and the lower shadows are absent when the trend is going up. There are 5 Heiken Ashi scenarios for trends:
- Trend is normal. Rising white bodies signal ascending trend and falling red bodies signal descending trend.
- Trend is getting stronger. Rising longer white bodies with no lower shadows for ascending trend; falling longer red bodies with no upper shadows for descending trend.
- Trend is getting weaker. Candle bodies become shorter and for ascending trends lower shadows occur, for descending trends — upper shadows.
- Trend consolidation. Small candle bodies with both upper and lower shadows.
- Trend is changing (not accurate signal). Very small candle body with long upper and lower shadows.
Thats all you have to know to trade on the trends successfully if you are using Heiken Ashi charting method. But I also recommend reading some other article on Heiken Ashi if you want to learn more about using it.
What if I tell you that I have a system that consist of Moving Average only. The system can make profit and will minimize you loses or even give you a chance to break even during hard times.
You would be thirll to test it out only to find out that in the end you are losing money and you say the system is crap. The truth is if one person is making money using the exact same system yet you are losing money. So where do you think the fault is? Is it with the system or is it with yourself?
You can never gain profit in Forex until you figure out what is wrong with you. Most of the time when you are losing money you would blame it on the market, news, system etc but never on yourself. Until you figure out what you did wrong, any system no matter how good will fail in your hands. After you realize what you did wrong, then you can make money, seriously.
When you know what not to do, you can trade without any indicator. I myself is trading using only MA now. Took me a while to understand but once you see it, you no longer depending on any indicator. It is your judgement that counts.
I never know what I would learn the further I go in this world or Forex. Right now I am starting to understand why some traders trade without any indicator. The best indicator is in your brain. You just need to develope it. It will take some time. No hurry.
The origin of the overnight interest is the fact that in the retail Forex market the physical delivery of the currencies is absent. If you buy €100,000 with your leveraged $1,000 the broker wont transfer those €100,000 to your bank account. But youve paid $100,000 for those euros, even if you borrowed them from your broker. So, if the Forex broker doesnt deliver the currency to you they technically borrow it from you. In the abovementioned example you borrow $100,000 from the broker and the broker borrows €100,000 from you. And where you have the debt and the loan, there you have the interest rates. The interest rates for the overnight interbank lending (and thats what you are doing when trading Forex on leverage) are set by the central banks. For example, the rate that you pay for borrowing the dollars from your broker is set by the Federal Reserve System, while the interest rate that the broker pays to you for borrowing the euros from you is set by the European Central Bank. The difference between those two rates is the final overnight interest or swap rate.
Lets look at this rate calculation. You buy a standard lot (100,000 units) of EUR/USD with your account being in the U.S. dollars with the leverage of 1:100. The current Fed rate is 0.25% and the current ECB rate is 1.5%:
- You use $1,000 as the margin.
- You borrow $100,000 from your Forex broker.
- You buy €100,000 with the borrowed money.
- You lend €100,000 to your broker (because it wont deliver the currency to you, anyway).
- You need to pay 0.25% yearly or 0.00068% daily for your borrowed $100,000.
- Your Forex broker needs to pay 1.5% yearly or 0.00411% daily for its €100,000 borrowed from you.
- In the end, the broker needs to pay the difference between €4.11 and $0.68 for each day that your position is open. Thats your positive swap or overnight interest.
What would happen if you didnt buy that standard lot of EUR/USD but went short on it instead? Youd have to pay that difference to your broker.
The problem is that in reality brokers dont pay or take the exact amounts for the overnight interest. They minimize the swap if they pay it out and maximize if you do. That way they try to avoid the risks. But thats certainly not very fair.
Why do some of the brokers claim that they dont pay or take overnight interest? Because the interest is viewed inappropriate by one of the most popular religions in the world — Islam. Some Forex brokers offer interest-free accounts by request and charge a fixed commission per trade to compensate their interest-based losses. Some brokers provide only interest-free accounts and usually dont charge any commissions in that case.
How can you gain advantage from the overnight interest? First, you can use it for carry trade. When you feel that the currency pair with the big positive interest rate difference is going to remain stable or move in your favor for a long period of time you can use the brokers leverage to receive some ridiculously high interest rate from the swaps only. Another way is to open an account with two brokers — one that offers no-interest policy and another — with the common Forex broker. This way you can hedge your positive interest rate difference position with the no-interest rate position on another broker. In this case you wont be bothered by the market movement but at the same time you will gain advantage from the positive overnight interest. Of course, such practice is usually considered illegal by the brokers with no swaps, so, I wouldnt recommend using it.
I dont exactly know the entry point but I do know the direction. It is time to monitor the shorter time frame in order to find the best possible entry and to minimize stop loss.
It may take sometime but I dont care. I have been waiting for this moment almost 2 months. Look at the charts and see the formation of daily, 4 hour, 30 minute and 5 minute. You may see something that took me over 2 years to see.
Only time can tell if my calculation is correct. At the moment I am still waiting for the 5 minute chart to give and entry signal.
Good luck to us all.
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