A Few tips On How To Catch The Trend On The Forex Charts

Hello and welcome to another edition of the bulls  and the bears. Today I am going to show you a few tips on how to catch the trend on the forex charts. As I indicated in one of my earlier articles,What is Price Action Trading? no magic indicator, fancy robot,or any snazzy software can help you identify the trend. The forex market pretty much has a mind of its  own. It can turn on you  the same way when lightning strikes. So  the best thing you can do is to look out for the most obvious direction the market ie to take.

Now some of you are probably going like”How can I tell which direction the market is going?” Well you employ a concept aptly called TLS. Basically you  employ a sweet cocktail of trend analysis. Let’s  be clear: Weare not going  to learn how to trade a trend here(You can catch that on Trading Trends With Price Action Analysis).We are merely going to figure out how to catch the most obvious direction the forex  is taking.. We will start with the less complicated techniques and then work our way  to the advanced ones.

First:

Your Price Chart Should Be Free of Indicators  

If you want to catch a   trend without pulling your hair out, just observe a price chart free of indicators.You need to understand that trend identification is not rocket science. You only need to  keep it as simple and sweet possible.  One way of doing that is  watching a naked price chart free of those scary-looking tools called  indicators. Probably the most important  trend to keep your eye on is the daily chart trend. And by the way,you will be employing both short-term and long term analysis.

There is one important question you need to ask yourself when doing this analysis, And it is “What is the chart looking like between the last three months and two years? This is important because this give you a  clear idea of where the chart is headed. And you make sense of this pattern in terms of its movement from left to right on the chart. Now if that doesn’t pan out, just pull up a daily or weekly chart and ask yourself a very important question: Is this chart falling or rising? No need to  sweat the technique on this one.

Let look at the price action of EUR/GBP pair

Image result for forex - identifying trend on price action chart

 

It’s pretty obvious that the overall trend is on heading upwards. However, take a close look at the countertrend retraces or pullbacks within the uptrend.  Check out How to Trade 50% Retracement Strategy with Price Action Analysis

Next Up:

Look For Swing Highs and Lows

Look for the most obvious swing highs and lows. One thing about trends on the markets, is that they leave swing highs and swing lows in their trail. Ever seen jet stream coming out of the exhaust of an airliner? That’s what it looks like when trends leave behind swing highs and lows. The sing highs and lows give you a clear idea which direction the market is trending. Let’s take a look at  a swinging illustration using the EUR/USD pair.

Image result for forex - swing highs and lows on price chart

As  you can the red labels represent the highs and the lows in the uptrend. You can see the swing lows  form a staircase as the trend rises. However, if it were a downtrend, you’d be focusing on the highs instead. In this case the Highs will be creating a staircase in the opposite direction – the downside.

Map Out Your Higher Highs and  Higher Lows, and Lower Highs Lower Lows

Now that you have marked the swing points on your chart, you can now ascertain whether the market is HL,HL or LH and LL.   You should be able to spot the obvious pattern of HH and HL for the uptrend and LH and LL for the downtrend. Let’s take a look at NZ/ USD pair.

Image result for forex - hh hl and lh ll

Voila! You see all the Highs and lows nicely layed out in the price action. Even better the uptrend is already in place. So you shouldnt have any problem identifying the highs and the lows. If you want to learn some more about hiighs and lows,look up Do A Little Swing Trading and Trade Trends With Price Action Analysis.

Next Up

Do You See Price Action Signals Forming?

You need to check whether there are price action signals forming on the  chart. That should tell you   which direction the chart is going.If you keep getting persistent signal failures that should tell you that the market is changing direction. Let’s take a look at such an illustration using the USD CHF pair.

Now this image shows a double bottom pattern as indicated by the blue lines.  Jus so you know the double bottom pattern is a bullish reversal pattern which takes shape once the bears run out of steam. The neck line, labelled in pink represents the price confirmation signal. The green circle represents price breaking the neck, which confirms the beginning of the bullish trend.

However, the price action does an unexpected 360, initiating a strong bearish move. This represents the price signal failure that I mentioned earlier. The  bears are basically saying”Not so fast we’re taking over.”  The moral of the story is  t thathe failure of this signal should clue you in as to a trend reversal about to take place.  For more information on how to separate good price signals from bad price signals, look up Price Confirmation Signals:Weeding The Chaff From The Good. And if you want to know about the double bottom pattern qand other chart patterns, Look up Trading Forex Chart Patterns Part II. You’d be better served looking up Part I also.

Look Out For Change in Trend Direction

Probably the most important factor you want to concentrate on is a change in the market trend direction. You want to pay particular attention to the swing highs, but first start with the swing lows. Why? Because, not only will you catch the overall trend, but through the price action, you should be able to tell whether the trend is holding or not.

Let’s say you have a series of Higher Highs and Higher Lows in an Uptrend. When you see price  break down past the previous swing low, it;s the strongest signal that the bulls are running out of breath. I’m sure you know that the downtrend is made up of Lower Highs and Lower Lows. So conversely when price  breaks above the previous low, it should tell you that the bears are running out of breath. In other words, the downtrend is coming to an end. Let’s take a look at  a typical change in trend  using the EUR/USD pair.

Image result for forex - Change in Trend Direction

This is a typical example of a changes in trend direction on the chart.  As you can see on the chart, the uptrend starts strong, and then runs out of steam, due to price breaking down at the previous swing low.  It’s the same situation with the downtrend.The bears start strong and then run out of steam because price breaks down at the previous swing high.

That’s  a wrap for ”A Few tips On How To Catch The Trend On The Forex Charts”   As you can see,  it’s not that complicated. Once you master the art of identifying the trend/direction of a market then you look for a signal or key level to make your entry.Just remember that the market does have a mind of its own, so you will be better served to ride with it.

Till then take care.

Looking To Join The Forex Trade Gravy Train?

If you’ve stumbled in here looking to join the forex trade gravy train, here is what you need to do . First,  look up  Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis. And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

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Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. if you want to know everything there is to bene know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life. It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including setting your level and margin), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading e-book.

 

 

 

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A Few Rules on Taking Profits From Forex Trades

Hello and welcome to another episode of the forex versus the bears. Today we are going to look at  a few rules on taking profits from  forex trades.  A lot of traders jump into trades like “Hmmm…I could make a lotta doe here.” Yet there is no thought process behind how they are going to mak that profit, or any profit for that matter. They rely on pure emotion rather than logic. Consequently, the market does a 360 on them, r and blows their trading positions to smithereens. And please don’t  blame it on the market. The market is, well, just being the market.

So here is what we are going to do. We will look at a few price set ups and how to profit from those setups. And then we’ll also look at mistakes you should avoid making when trying to profit from the market. By the end of this lesson you should know how to profit from your trades and mistakes you’d do well to avoid,

First off:

Impulse Vs. Sound Decision Making

The one thing you do not want do is to take profits based on emotional impulse. Instead, how about taking your profits based on sound decision., By  sound decision I mean you decide beforehand  where on the price chart you’re going to take your profit, based on an exit strategy. When you exit on emotion, you end up making smaller profits. Because you didn’t pre-determine your profit target, yo hit the panic button the moment the market turns against you. And when you panic, you end up with pocket change rather than a sack load of cash.

And here is another consequence of emotional trading. When you exit emotionally,you are looking to squeeze every last drip out of a trade. Such that even if a healthy profit is staring you in the face you won’t even notice it. But once you accept the cold hard reality that you cannot sweep up every pip there is ou there, you can set  your targeted profit and exit rather than panic at the last minute out of fear of the market crashing on your position.

Let’s take a look at a example of trading with emotion vs sound decision making

Image result for Taking profits on emotion

Take a second look at the second graphic.  This is an illustration of what happens when you sell your profits too quickly. You hit the panic button the moment you  sense(falsely this time) that the market is turning against you. If you had a pre-determined your profit target, there will be no need to  panic. Just wait for the price to hit your target and then you make your exit.

Now take a look at the first graphic.  Here you see sound decision making in effect.  Price has hit the profit target at the very top of the graphic. And once that happens you can pick your profits and head out the door. This can only happen when you  determine in advance  what your take profit in advance. In fact it should be part of your trading plan. Once you do that, there is no need to activate the panic button.. You will be laughing all the way to the bank.

Taking Profits In A Trending Market

There is no better feeling than taking profits in a strong trending market. It’s like hitting  home runs in a baseball game. Once you get hit that ball high into the stands there is no better feeling. It’s a same feeling when you’re taking profits in a strong trend. Once the trend seems to  go on forever, the profits just accumulate like coins in a piggy bank.

But how do you take those profits in a strong trending profit? Forex  wisdom has it you use a trailing stop( For more on trailing stop and other market orders). The only problem  her is that there no sure way of trailing your stop loss. Your stop will get hit no matter how hard  you try to trail it. The moral of  using a trailing stop is to give the market some room to breath while you pile up the profits. One way of trailing a stop is using the Exponential Moving Average(Look up Moving Averages I and II) We’ll take a look at the 5 EMA and 8 EMA. Let’s see how it’s done.

Image result for Forex - Take profits through trailing stop using ema

 

We have a crossover situation with 5ema and 8 ema. Here is what you do in such a setup. If you’re buying in the uptrend,just place your take profits at the close of the candlestick as indicated by the arrow inside the yellow stick.  When the candlestick is full, consider it closed.

But if you’re selling when the bears are heading down the slope(on the downtrend), Put in your order at the close of the candlestick, as indicated by the arrow in the red circle(I know it sounds repetitive,but bear with me).  And then place your trail stop about 5-10 pips above the candlestick. Like I mentioned,earlier, the whole idea is to give your trading position some breathing space while you rack up your profits.

How Do I Take Profits?

Well you can take your profits in  two ways:

  • Set your profit at least three times the risk on the current trade
  • Or you set your take profit at the previous swing low your bu of your sell order and previous swing high of your buy order. Not sure of swing lows and swing highs, look up Let’s Do  A Little Swing Trading.

How Do I Manage A Profitable Trade?

Well if you want to manage your profits on your open trade using 5 ema and 8 ema crossover, you could try the following options:

  • If you’re still hitting home runs on your trading position and you want to secure your profits move your stop loss and place it behind the high/low of each candlestick that forms. so if you are into short trades, move your stop loss and place it above the high of each candlestick that continues to create lower highs. You could try  a stop loss of loss 50-80
  • But if you are into longer trades, you move your stop-loss below the high of each candlestick creating Higher Lows. For a longer trade you’d be better off with a trailing stop of 25-40 pips.

That’s  a wrap for ”A Few Rules on Taking Profits From Your Forex Trades”   As you can see, it’s possible to take profits from trades if you do it the right way.You have to have a plan in place to take your profits instead of exiting on impulse  or in panic mode. When you do that you leave a lot of money on the table. So make sure you take all your cash instead of leaving some behind.

Till then take care.

Looking To Join The Forex Trade Gravy Train?

If you’ve stumbled in here looking to join the forex trade gravy train, here is what you need to do . First,  look up  Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis. And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe to My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. if you want to know everything there is to bene know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life. It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including setting your level and margin), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading e-book.

 

 

Do A Little Swing Trading

Hello, and welcome to another episode of the bulls versus the bears. Today we are going to do a little swing trading. In other words we are going to learn swing trading today. Swing trading is one of those trading styles that suits  traderswho want to spread their trading horizons.   Swing trading helps  you do the following: Allow you to hold your trades for two days or more, go out and smell the roses, and trade at a slower pace. In other words, if you are a day trader, and looking for other trading frontiers to conquer, swing trading  could be your next trading front.

I mean let’s look at it this way. It’s tough enough finding the right forex strategy. Right? Then you have to twist your brain dealing with even more complicated issues such”Where Do I Start?” and “How Do I know Whether I’ve found the right strategy?”. This is enough to give anybody a major migraine of a headache. And considering the countless number of trading strategies littering cyberspace like satellites in outer space, you’d have to be Houdini to be able come up with all the answers. Add the long trail of technical indicators,and you’ve got yourself an even messier mess.

But the good news is swing trading will solve all this confusion for you. If you’re the type looking for a trading style that will eliminate all that confusion in your head then swing trading could be what you’re looking for. We’re going to define what swing trading is all about, and then we’ll look at  few ways as how to profit from swing trading.

But first off:

What is Swing Trading?

Well, swing trading is basically looking to profit from swings in the forex market utilizing highs and lows in the uptrend and down trend. You are looking to identify swings in the forex market and make your entry only when there is a high probability of profiting from a trade.  So if  you are in an uptrend, looking at swing lows, you may  want to go long(or buy).  On the flip side, if  the market is in a downtrend, also staring at swing lows, it makes logical sense to got short(or buy) Remember when we deal HH HL, LH, LL in Trade Trends Using Price Action Analysis? That’s basically what swing trading is all about.

There are  a few things you should be able to master as a swing trader. First you should be able to identify the past and current trend on the price chart and ascertain if  the trend is still in one piece or not. And he should be able to establish whether there could be a potential reversal once the said trend is broken or the players run out of steam. Also you should be able to identify the previous upswings and downswings of the price. By the way, these upswings can transform into support and resistance levels where  price can ricochet up and down in the future. Not only that, but you should be able to identify the support and resistance levels. Let’s look at the price action of the EUR/AUD

swing trading for dummies

This,ladies and gentlemen, is the price action of the EUR/AUD between January 2015 and April 16.Notice all the highs and lows swinging all over the place between that time period. The uptrend and downtrend look well-defined. See the way the support level zone is well laied out? The bulls are bouncing of it, and the bulls are launching off it. Seems like a lot of activity going on here.

How Do I Enter Swing Trade?

Well,  you can do it a few  ways. If  you are trading in the uptrend just when the downtrend is running out of steam. Why? So you can rake in your profits in the next upswing session. And when you are trading in the downtrend, How do you enter the swing trade? You guessed it, just when the swing on the uptrend is running out of steam and blowing fumes. And Why? so you can cash in on the next bears excursion as the price takes a dive. Let’s see an illustration of a swing trade in action, using the AUD/USD pair.

Ladies and gentlemen, this is the Aud/USD pair in swing action. Notice the bullish engulfings labelled in blue  at the end of the bearish swing?This is where you enter your trade. You enter your trade just when the bears are fizzling out.  Now look at the white arrow at the beginning of th bearish reversal, led by the bearish harami. That’s about the same time the bulls start to fade. And when that scenario unfolds,you enter your trade.  You should have no problem cashing in on the bears slalom run.

Now just to make life more easier for you, I’m going to give you six tips on how to swing trade. Starting with:

Stick With The Daily Time Frame

You’d be better off if you stick with the daily time frame.   Why?because the daily charts in this time frame paint a much accurate picture as what is happening with the price action and they provide more reliable price signals. Now I know some of you are itching to jump into the 4 hr timeframe.But just like anything in life,one step at a time.Once you master the daily time frame can then move on to the 4 hr time frame and beyond till your heart is content. Price action signals become more reliable as they moe up from lower to higher time frames. If you wanna learn how to choose a time frame to trade in,  Read up on Looking at The Big Picture Using Multiple Time Frame Analysis.

Next Up is :

Draw Key Support and Resistance Levels

You absolutely have to draw key support and resistance levels. I’m sure you are familiar with key support and resistance levels. It’s probably the most important component of the swing trading process. Support and resistance levels are akin to laying a foundation to a house. Without these two tools, it will be difficult to find favorable wing trades. There are two levels of support. The first one is:

Horizontal Support and Resistance

Horizontal support and resistance is the most basic levels on the price charts. At the risk of repeating myself, they lay the groundwork for trading swings in the forex market. And  you can find some of the best trading opportunities in these areas. If you’re looking for ideas on how to draw  horizontal support and resistance, Look up Identify Support and Resistance Levels Using Price Action.

Next up is:

Trend Lines

Please, what ever you do, do not ignore trend lines. If you do, you will creating a huge gap, the size of a Black Hole in your forex trading knowledge. Now some of you are like”Why do I need to know how to draw trend lines?” Because not only do they help you identify trends, but they also help spot reversals before they actually happen. It’s like spotting a hurricane before it makes landfall.

Now I believe we’ve already covered trendlines in my post Drawing and Trading Trend Lines. If you want to learn how to draw and trade trend lines, I strongly suggest you read the above post. You would be the better for it.

Assess Trend Momentum

It’s absolutely crucial that you assess trend momentum when trading swings on the forex market. You will definitely need them when looking for swing opportunities on the charts. You will be looking  at three types of momentum changers when hunting for swing trades.They are:

  • Uptrend:Higher Higher highs and higher lows.
  • Downtrend:Lower highs and lower lows
  • Range:Sideways movement- I suggest you read up on Forex Market Goes Sideways.

We’ll look up graphic illustrations of each of the three momentum changers. Starting with:

Uptrend:Higher  highs and higher lows

Image result for forex higher highs lower lows

You should know by now that whenever the bulls are in an uptrend, they carve out higher highs and higher lows(HL, HH).  You see how  each swing point is higher than the previous one? If you want to be a buyer in this bullish momentum you absolutely have to gobble up these swing opportunities. You’d be committing forex trading malpractice if you pass up on such huge opportunities.

Next up is:

Downtrend:Lower Highs and Lower Lows

Image result for forex lower highs higher lows

When the market is in a downtrend, the bears carve up lower highs and lows. Notice how  the swing points start with lower highs and  then descend down to lower lows. That suggests the bears are depressing the price for all its worth. In such a scenario, that;s your queue to put in your entry  sell trade. Of course you’d have to enter at a lower high-around the same time that the bulls are fizzling out. You’d need your head examined if you pass up on this opportunity.

As I indicated earlier, if you want to brush on  your trend trading,  look up Trade Trends With Price Action Analysis. You can also look up Drawing and Trading Trend Lines.

Last but not least is:

Range:Sideways  Movement

Image result for forex- bullish and bearish pin bars in sideways market

 

This is pretty much self-explanatory.This is where the forex market skids sideways within a range. Basically you have a war of attrition where both buyers sellers are caught in a trap trying to figure out their next move. Bullish and bearish momentum have come to a screeching halt. However, it’s possible swing trade opportunities thanks to the defined support and resistance levels. In

Just take a look a the bearish pin bar breaking through the level of resistance and th bullish pin bar doing like wise at the level of support. In both scenarios, you’d do well to enter your trades. However, make double sure the coast is all clear before you enter your trades. Or else, the choppy waves of the sideways range will eat up your trading position.

For more information on trading  ranges, look up Forex Market Goes Sideways.

Look Out For Price Action Signals

You do not want to ignore price signals in the swing trading process. Think of them as the message alerts of the price action. They let you know whether your trading edge is present on the charts. In case you’ve forgotten your trading edge represent conditions on the forex market that need to be present for you to enter your trade.  A very good place to look for price signals is at key  levels of support and resistance.

For instance if you happen to see the bulls in an uptrend you’d do well  to  find price signals at level of support. Why? Because  bulls in the uptrend  start their mountain climb at the support level. So it would  make sense to look for price signals within that locale. Two great  candlestick patterns  are to look for are   pin bars and engulfing candles.  Let’s take a look at graphic examples of these two patterns. Starting with

Pin Bars

Image result for forex - bullish pin bar at key support

This is an example of a bullish pin bar at key levels of support.  Notice the higher low pin  bar labelled with a green arrow at the level of support? That’s what you call the higher low. As you may have noticed the pin bar has a long tail and a slim body. So when you see this pin baring its majesty, that’s a signal for you to get ready to enter. Wait for confirmation from the next candlestick before you enter. The whole idea is to use the pin bar signal to make a trade. As you can see, the bulls are swing upward.With this scenario, you should make  handsome profit.

On the flip side, if the bears take over the market, you want to look out for sell signals along the key level of resistance. Take a close look at the bearish pin bar labeled with a green arrow at  the key level of resistance. That’s the lower high . or swing high.And That should alert you to get ready to enter.However wait for confirmation from the next candlestick just in front of the smallish pin bar before you make your entry trade. Jump in too soon, and you’ll get your fingers burnt.

Please don’t go looking for setups. Let them find you instead. You do not want to sit in front of your screen all day hunting for setups.If you find some, that day is your lucky day. If, not you live to trade another day. Trying to force trades that don’t exist is a recipe for disaster.

For more information on looking for price signals look up Price Signals: Weeding the Chaff  from the Good.  And for more info on pin bars and the engulfing candle look up the Pin Bar Strategy and Dual Candlestick Patterns.

Next Up is:

Plan Your Exits

When I say plan your exit you need to identify your exits. You don’t want to get too greedy out there. So when you make your profit, listen to that still small voice telling you “Get outta here!” Now there are two rules you need to adhere to when it comes to identifying your exit points. First, you need to have a defined profit target and a stop loss level. Please do not follow the crowd by only setting your profit target and dumping your stop loss in the trash. GREED DOESNT PAY!.

The second rule  is you need to follow both these rules before you even fantasize about risking your money. It’s very important that you  be very objective about this. Why? because if your emotions get in the way of  following these two rules, your account may end up being a black hole. You end up placing your profit targets at levels that benefit your trade instead of listening to what the market is trying to get across to you. In other words,your emotions override your logic.

So How Do I Identify My Exit Points?

Easy! Use the support and resistance levels like we discussed earlier. Remember the pin bar illustration we used earlier?That’d be a agreat pattern to use  to identify your exit points. If you need a  refresher. Go over it again. Let me show you a  fairly easy way of determining a swing profit using the pin bar illustration we discussed earlier.

Image result for forex - bullish pin bar at key support

Now let’s take a look at the very first resistance level.   You can place your take profit just above the resistance barrier. The whole idea of the pin bar strategy is to catch the majority of the swing surge. You do not need to catch the entire swing to make your profit. Just get confirmation from the second candlestick and then catch the bullish wave.

You use the same rationale  with the  bearish pin at the support level, You place your profit target in and around the support barrier.

Apply Risk Management

Now that you’ve identified your profit target and stop-loss, it’s time to apply some risk management.  What you’ll be doing is calculating your risk and identifying your profit target and stop loss.  You absolutely have to if you want your sanity in one piece.  Let’s get started with

Calculating Your Risk

.When calculating your risk, you’ll be doing two things – setting your stop loss and profit target. You absolutely have to do this if you value your sanity. Anyways, about the stop loss: If you are using the pin bar, the best place the pin bar is above or below the tail. Let’s look an illustration below.

Image result for placing stop loss above or below the tail

If you are using the bullish pin bar(on the left) setup just place your stop-loss below the tail as indicated  by the arrow. However, if you want to play with the bears(on the right) place your stop loss above the tail of the pin bar. This way your trades don’t take a major hit.

The same strategy applies when trading the bullish and bearish engulfed patterns. Let’s watch an illustration

Image result for stop loss in bullish and bearish engulfing pattern

With the bullish pattern, you place your stop-loss just below the bullish candles tail while. But if you’re playing with the bears stick your stop loss above the tail.  When trading  both bullish and bearish engulfing patterns,make sure the your stop loss is about 10 to 20 pips below and above respectively, the candlesticks being traded. Straight forward. Isnt it?

Now that we’ve figured out how to place your stop-loss:

How Do I Determine Profit Target?

Well the most logical place to place your profit target is between support and resistance levels.That’s where the swing trading action is at. Remember that  your main objective as a swing trader is to catch the swing trading opportunities between the support and resistance levels. So when you catch a bullish  pin bar forming at the level of support, start looking out for the key of resistance. Your conclusion should help you determine where to place your next profit target. If there is no pin bar showing , just sit on the bench and wait for the next trading opportunity.  Let’s see how to place the profit target at both support and resistance.

Image result for forex - how set up profit target with bullish pin bar

As you can see, the profit target at the support level is set above the tail. While the profit target at the resistance level is set below the tail. If you see these two setups. you set your profit targets. Simple as ABC.So if you want to learn risk management look up  Practice Risk Management or Die as a Forex Trader.

 

That’s  a wrap for ”Do Some Swing Trading .”    As you can see swing trading can be very beneficial. But  you need to ask yourself the following questions

  • Do you I want to hold my trades for more than two days?
  • Do you want freedom to smell the roses?
  • Do you want a slower pace to your trading?

If you answer yes to all the questions, then swing trading is for you.

Til next time take care.

Looking To Join The Forex Trade Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up  Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis. And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe to My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. if you want to know everything there is to bene know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change . It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including setting your level and margin), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading e-book.

 

How To Create Your Own Forex Trading System

Hello and welcome to another episode of the bulls versus the bears. Today we are going to learn how to create our own forex trading system. No, we are not going to create a prototype space rocket. We are just going to create a set of rules  that will act as a guide for you as you trade.  In this vast space called life,you need a set of rules to guide you in everything that you do right? It’s no different with forex trading. You need a set of rules  for make trading decisions. This way when you trade, you are trading based on sound logic and not scattered emotions.

Your trading system is also designed to help you wait for solid confirmation of trade and exit signals. Thanks to your trading system, you can quickly locate good entry points, profit-maximizing points, and avoid fake entries and exits. Even more important, you must follow your trading system to the letter.Straying from this system could be very detrimental to your trading prospects.

So what are we are going to do? We are going to go through five steps for creating your prototype forex trading system. The first step is:

Decide Which Time Frame You Are Comfortable With

You need to decide which time frame you are comfortable trading with. The last thing you want to do is to pick a time frame which goes against your trading personality. If you are the type who like to trade quick and fast, then the M1, M15, M30 time frames are just what the doctor ordered. However,  you may be forced to stare at the screen like a security guard  all day looking fo those quick trades. Even worse, getting solid trade signals are very rare on these time frames. And it may cause you  too much stress.

However, if you don’t mind waiting a day or two or even longer, the H1 H4, daily , monthly, or   then longer time frames would fit you just fine. The H1 is more popular among most traders  for it flexibility. You can trade any type of trading system within this time block. What you need to understand is that there is no specific rule etched in stone as to the best time frame to trade in. It all boils down to  what your trading personality is,and how much time you can commit to trading. And please don’t follow the crowd when choosing a time frame to trade in. You will pay dearly for it. You choose a time frame that  suits your trading personality and aligns with your trading system.

If you ‘re trying to figure out which time frame to choose, look up Looking At The Big Picture Using Multiple Time Frame Analysis.

Even more important, you choose the currency pairs you are comfortable with and what hours they trade. If you are  the type who does not like staring at the screen all day you just set the trade, leave the house and let the market do its work.

Next up:

Decide Which Trading Tools To Trade With

You need to decide which tools you are going to trade with. These tools should be trader-friendly such that you should be able to identify trading opportunities at the speed of light. Not only should you choose trading tools that you are comfortable with, but you should be proficient using these tools.For our purposes, since we are using raw price data, the most obvious tools to use would be price action and candlestick patterns.  And as you well know,we just finished a series on interpreting candlestick patterns.If you missed those posts, I suggest you go back to them pronto: Just to remind you, we covered Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns, Dual Candlestick Patterns, and Triple Candlestick Patterns. So if you missed any or all of these posts ,acquaint yourself with these posts as soon as possible.

Another effective tool you could also use is Moving Averages. Just to remind you, moving averages help ascertain the potential  direction of trends. And  most of you are aware that we did a two part series on moving averages.So if you want to refresh yourselves on Moving Averages, check out Moving Averages parts I and II.  And for your information, you can use all of these tools if you so choose.You don’t need to get hung up on just one tool. Who does that anyways?

Anyways Next Up:

Decide How Much You Can Afford To Lose?

As some of you know by now .not all forex  trades end as profits. So you need to decide quickly how much money you can afford to lose on a given trade without shedding tears over it. In so doing it helps you stay within your risk limit. Even more important, it keeps your emotions in check,especially when you are tempted to jump back into the market after losing out on a trade. This is where risk management and position sizing comes in real handy.

Speaking of which? have you read my recent post on Risk Management? If you havent, do so as soon as possible if you do not want to risk your whole account go up in smoke.

Make Up Your Mind When To Enter And When To Exit

You have to make up your mind when to enter and when to exit. In other words, decide when to enter and when to exit each trade. The price action on the price chart usually does a good job of alerting you of a good entry point. The logical solution will be to wait until the candle signalling the trade has closed.

If   you want to adopt a cavalier approach, you can make your entry before the candle closes. However, you could  be committing suicide as the market could easily do a 360 on you and swallow your trading position like a whale swallows seaweed. And as  I’ve said before the forex market has a mind of it own. It’s very unforgiving towards adventurous traders who think they’re smart. So don’t make outsmarting the forex market part of your trading system. For more information about how to enter and exit trades, read up on Find, Enter, and Manage Forex Trades.

Last But Not Least:

Test Your Trading System

You’d be crazy  implementing your trading system without testing it first. It’s a no brainer. It’ll be like buying a shotgun without testing first. You have two options.  You can back test  your trading system through a strategy testy.Or you can use the manual route by recording possible trade entries and exits.Considering that we’re working with  raw price data, I suggest the latter. Why?You want to get a natural feel for how your trade entries are working. Not to mention the fact that you also want to get a close understanding of the workings of your trading system. Which is exactly what you are aiming for right?

If you are satisfied with the test results you then try your trading system on a demo account to  get a feel for the trading system.You also  want to get a virtual feel of how to  try out your trading system  as you are trading in a  live environment

By now you should be close to getting satisfied about the results from testing your forex trading system right? Well if you are satisfied, clap for yourself. Because  you are  nowready to graduate to trading  with a real account. But if you still have any lingering doubts, put your decision to trade on hold. Keep tweaking your trading system and retest it until you are satisfied with the results.

 

That’s  a wrap for ”How To Create Your Own Forex Trading System .”    Creating your own forex trading system is not rocket science. You are just creating a set rules out of the trading concepts that you’ve been studying. So long as you follow all the rules of your forex trading system, you will experience forex prosperity for the rest of your natural life. If you decide to ignore your trading system and trade on a crazy whim, you’re asking for trouble.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. if you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change . It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including setting your level and margin), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading e-book.

 

 

The Double Edged Sword Called Leverage and Margin

Hello and welcome to another episode of the bulls vs the bears. This week, we are going to tackle the double-edged sword called Leverage and Margin. I call it a double edged sword because it can make or break you if you don’t handle them properly. Not only is it a deadly double edged sword, but it is also another elephant in the room that  rookie traders don’t want to talk about.  They are in so much of a hurry to gamble their money away and they fail to understand the grave impact that their kamikaze me might have on their trading accounts.

So  guess what we’re going to do? We are going to find out what leverage and margin are. And then we are going to learn certain things we absolutely have to avoid doing when using leverage and margin. But first:

What is Leverage?

Basically leverage is the power to control a humongous amount of money with very little of your capital and borrowing the rest. Say you control a $100,000  trading position using the GBP/USD currency pair. And by the way, the money was borrowed from the broker, not a bank. Your broker then sets aside $1000 from your trading account. Since leverages are expressed in ratios, your leverage will be expressed as 100:1. Meaning you are controlling $100,000 with $1000.  Let’s assume out of nowhere, your $100, 000 investment climbs up to $101,000 on that same  $1000 account. Since your broker only has to set aside only $1000, you’d have gained cool 100%. Meaning you’d have gained $1000 on your initial $1000 investment. Let’s take a look at a leverage graph.

leverage

Now here is a nice little graph various leverages and their corresponding investments. Like I said, leverage  can work for you and work against you. You just need to curtail your greed when deciding which leverage ratio you want to work with.

Now let’s assume $1000 on that same $100,000 investment. You’d have ended up with a humongous -100% loss on  100:1 ratio. Now you see why I say leverage is a double-edged sword? Next up is:

What is a Margin?

Well, basically a margin is the amount of money needed to open a trading position. It is usually used by your broker to maintain your trading position. How does your broker do this? Well your broker takes all other traders’ deposits, pulls these deposits with those everyone else, and then uses this huge deposit to be able to place trades. Margin is also viewed as a percentage of the full  amount of the trading position. For instance you hear a lot of brokers say they require 2% 1 % or .5 margin.

Based on the margin required by the broker you calculate the maximum leverage you can mater with your trading account. So if your broker requires a 2% margin,you have a leverage of 50:1.  Going back to earlier example,the $1000 deposit is now your margin you need in other to get your leverage. Below is an illustration of tempting leverages that some brokers offer:

MARGIN REQUIRED MAXIMUM LEVERAGE
5.00% 20:1
3.00% 33:1
2.00% 50:1
1.00% 100:1
0.50% 200:1
0.25% 400:1

These leverages look very tempting. But  like I’ve said, it can be a double-edged sword and detriment to your trading account. So watch out. But there are a few margin calls you need  to know. First off:

Margin Required – Money broker requires from you to open a trading position.

Account Margin –Total amount you have left in your trading account

Used Margin – The amount of money that your broker has locked up to keep your trading positions open. Basically your broker is telling you”your money is still yours. But we can’t let you touch it, untill you close your current positions or you receive a margin call. Speaking of which:

Margin Call

Margin call is where the amount of money in your account is unable to cover an impending loss.This happens when your equity falls below your used margin. In such a scenario, your broker will close all open positions at the market price. Let me explain the margin call a little bit.  You open a $10,0000 account. Upon login in to your account you see the $10000 nicely published in the “Equity column” of your “Account Information” window. See it below.

Usable Margin = Equity - Used Margin

As you can also see,your used margin for now  is indicated  and your usable margin(Cash available) is $10000.While balance and equity is the same amount.  If you want to find out what your usable margin is  the formula is simple: Usable Margin= Equity – Used Margin.

Get one thing straight. It’s your equity,   that used to determine the usable margin. It’s definitely not your balance. The size of your equity will also determine when the margin call alarm goes off. So long as your equity is greater than your used margin,you wont get that margin call from your broker. And when you do get that margin call,you’d be better off going back to your demo account and re-learn all your price action strategies. Jumping back into the market will cause you a major nervous breakdown.

 

That’s  a wrap for ”The Double Edged Sword Called Leverage and Margin .”  Leverage and margin look enticing.But they can suck you dry if you get too greedy. So when ou calculating your leverageand margin, make sure you don’t cut your nose to cut your face.

Til next time take care.

 

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. if you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including setting your level and margin), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading e-book.

 

 

Practice Risk Management Or You Die As A Forex Trader

Hello and  welcome to another episode of the bulls vs the bears.  Yes, you do need to  practice managegement or you will die as a forex trader.. No, you wont die a physical death, but you will die a financial death through taking reckless risks on your trading position and your trading account. If you’ve gotten the hint by you you’d know that  we are going to be touching on risk management Now what is risk management? risk management is managing your losses so you don’tbow your entire account into smithereeens.Risk management is absolutely crucial for your trading account for it teaches you discipline and patience as far as deciding how much money you can afford to let go without getting a hernia in case the trade goes south.

Unfortunately risk management has become this elephant in the room that nobody wants to talk about. Why? because a lot of traders just   jump into the forex market with total disregard for the size of their trading account . They just decide how much of a humongous loss theiremotional    shock absorbers can handle and then hit the “trade” button. Of course,their money ends up in a Black Hole, and then they blame  forex market for it.  Newsflash! You played yourself on this one. You need to follow risk management rules that will help you make profits. If not, you’ll end up gambling your entire account away.

So here are a few risk  management rules you need to follow. First,

Never Risk More Than 2% of Your Trade

The rule of thumb in the forex trade is that you never risk more than 2%of your trade. Let’s take a look at an illustration of a table comparing a 2% risk to a 10% risk.

TRADE # TOTAL ACCOUNT 2% RISK ON EACH TRADE TRADE # TOTAL ACCOUNT 10% RISK ON EACH TRADE
1 $20,000 $400 1 $20,000 $2,000
2 $19,600 $392 2 $18,000 $1,800
3 $19,208 $384 3 $16,200 $1,620
4 $18,824 $376 4 $14,580 $1,458
5 $18,447 $369 5 $13,122 $1,312
6 $18,078 $362 6 $11,810 $1,181
7 $17,717 $354 7 $10,629 $1,063
8 $17,363 $347 8 $9,566 $957
9 $17,015 $340 9 $8,609 $861
10 $16,675 $333 10 $7,748 $775
11 $16,341 $327 11 $6,974 $697
12 $16,015 $320 12 $6,276 $628
13 $15,694 $314 13 $5,649 $565
14 $15,380 $308 14 $5,084 $508
15 $15,073 $301 15 $4,575 $458
16 $14,771 $295 16 $4,118 $412
17 $14,476 $290 17 $3,706 $371
18 $14,186 $284 18 $3,335 $334
19 $13,903 $278 19 $3,002 $300

See the difference between risking 2% of your account compared to risking 10% of your account on a single trade? Let’s say you lost 19 trades in a row,  on 10% risk, you’d have lost as much as 85% of your trading account, leaving you with a paltry $3002. Whew!That would definitely have cost me a  few sleepless nights, not to mention major migraine headaches. On the other hand if you had risk the 2% like we suggested, you’d have lost only 30% of your account.- leaving you a healthy $13,903. Now although that’s money lost, it’s a whole lot better than losing a whopping 85% of your account.  And you will have enough money to trade with.Also, you don’t dwell too much on this loss.You move on and learn from this loss because you  can afford to sleep at night without having recurring nightmares, unlike the 85% bust.

What’s the point of this illustration? you need to set up risk management rules such that you still have enough money to trade on the market. Now assuming that you blew up 85%  of your trading account, you’d have to make up an insane 566% of the balance in your account in order to break even. Now why would I want to put myself through this stress?This is why I stress the importance  of not risking not more than 2% of your trading account. Now I guess the next question some of you want to ask is:

How Do I Get Back to Break Even Point?

This table ought to show you how to get back to break even point.

LOSS OF CAPITAL % REQUIRED TO GET BACK TO BREAKEVEN
10% 11%
20% 25%
30% 43%
40% 67%
50% 100%
60% 150%
70% 233%
80% 400%
90% 900%

As you can see, when you lose money, You end up having to make up for lost cash. And nine times out of 10, it’s an uphill struggle. It’s also the more reason why you do everything in your power to protect your trading account like a lioness protecting her cubs. Because you lose your money to the Black Hole, it is near impossible to make it all back.  By risking a smaller percentage of your account you give yourself the opportunity to  get over your losing streaks and avoid a total meltdown of your trading account. The moral of the story is  be calculating with your risk taking or you’ll end your money away.

Set A Risk/Reward Ratio

Another method of  managing your trade risk is to set a risk /reward ratio. Now a  risk/ reward ratio is basically the amount of money expect to gain on a trading position relative to what you are risking in the event that you incur a loss on your trading position. One thing you need to understand is that the risk-reward ratio is not a set formula. You need to find a positive ratio for your risk strategy. This way you increase your profit margin when you hit the jackpot as compared to losing your money when you strike out.

Some of you are probably wondering”Why do I need to set a risk-reward ratio anyways?” Well,the simple truth is you do  not want your losses exceeding your profits. A  lot of traders risk too much of their cash on losing positions han they do on winning positions.  In so doing, they end up using negative risk/ratio, which requires a higher winning percentage to make up for your losses. You do not want to be in this situation. Just create a workable winning risk/reward ratio that you can live with. Most experts say a 1:2 ratio is the minimum formula for maintain healthy profits. In other words, you only need to have one winning  trade for any two given losses to net to break even. This way,you maximize on winning profits while avoiding potential tsunami-size losses should the trade do a 360 on you.

Let’s look at the EUR/BP pair in action

Risk_Reward_Ratios_for_Forex_body_Picture_2.png, Risk Reward Ratios for Forex

This is a sample range on   the 4 hour time frame  for the EUR/BP pair. As you can see traders are looking to make their entry at the resistance barrier around the .8575 level. When setting your stops,make sure you set them just outside the support or resistance level. So in this instance you set it at the resistance level. So that in the event price breaks through range, you lose no more than 50 pips. However, you can make at least  twice as much in profit by placing a limit order near the level of support at .8475. In so doing you create the  1:2 ratio that I was talking about earlier.  Like I said earlier, it depends on the conditions at the time Some go for 3:1, others go as high as 4:1. You just need to use prosper discretion when setting your ratios.

If you want to know more about setting stops, limit orders and other kinds of market orders look up Forex Basics – Top to Bottom Part II

 

That’s  a wrap for ”Practice Risk Management or Die As A Forex Trader .”   I hope you ‘ve understood the importance of risking what you can afford to trade. You need to manage your risks for the health of your account and for your own sanity. The last thing you want is to play catch up just to make up for the Black Hole you’ve created for yourself.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

 

 

 

P.S. if you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including How To Read Triple Candlestick Patterns), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading e-book.

 

 

How To Get a Read on all Candlestick Patterns using Support and Resistance Levels

Hello and welcome to another episode of the bulls and  the bears. This week we’ll look at using all the candlestick patterns that we’ve studied this past few weeks to  interpret support and resistance levels.In plain English, we’ll find out how  a read on all the candlestick patterns  we’ve studied so far using support and resistance. Some of you may have some inkling about support and resistance  reading my post Identify Support and Resistance Levels with Price Action Analysis.  If you haven’t I suggest you do it real quick before reading this post. Or else you will be totally lost in the wilderness here.

But  before I go on, a little reminder. If you havent read my previous candlestick posts do so as soon as possible. Because if you try to make sense out of this post without reading the others, you may end up pulling your hair in utter frustration. Just so you know, we started by  learning Fundamentals of Learning Candlestick Patterns.  Then we touched Then we touched on How To Read Single Patterns To Identify Potential Market Moves . We then moved on to Dual Candlestick Patterns, and finally we ended on Triple Candlestick Patterns.  So there you have  it.

Now to today’s lesson

Applying Candlestick Patterns With Support and Resistance

Some say the  easiest way to interpret  candlestick patterns is by applying  them with support and resistance levels.  Some of you may be wondering”Now why is that the case?” because support and resistance levels reflects psychological areas where the bulls(sellers) and the bears(sellers) have set up their stalls.  Also, trading candlesticks in isolation can be detrimental to the health of your trading positions, not to mention your trading account. You need to know the market environment and what price is trying to get across to you.

Also , Getting to know  how   candlesticks react to these psychological areas will help you establish which direction the price will head to next. To help clear the confusion, let’s  look at a live price action situatio using the  three inside down pattern..

 

As you can see the  resistance  barrier has set up  stall at the 1.49 level. You’re probably like  like “Hmmm…. Looks like the breakout   is on here. I better jump in” Not so fast buddy! See the  bullish candle massaging the resistance barrier? You’d be better of waiting first for further confirmation. Jump in right  now,and you’ll suffer a massive  nuclear hit on your trading position and your trading account. Now let’s see how your patience is rewarded.

Three inside down formation forms. Time to sell!

It’s a good thing you waited,. Because two candlesticks later, here comes a nice Three Inside Down formation knocking on the door. Now  if you’ve been paying attention you’d know that a three inside out formation is a  bearish reversal. It suggests the bears are taken over because the bulls have run out of steam. Since you smell blood, you decide to go short on the currency pair. This means you want to enter a trade to sell the pair.  Now you know the    breakout  is really on here. And since you prefer to be safe than sorry you put a  nice stop loss above the resistance pair as indicated by the red line.

By  holding out for the Three Inside Down formation,you increased the odds of a making a nice profit. And your patience was also greatly helped by your knowledge  you acquired from studying candlestick formations. Let’s see how your decision to sell panned out.

Now you see why it pays to be patient? By holding out for the Three Inside Down Formation the pair has immediately netted you  a humongous profit. Time to buy that SUV you’ve been fantasizing about.. Even though you’ve made  a huge profit,you still have this lingering  question at the back of your head going like “Why do I have to trade candlestick patters with support and resistance levels when I could get more signals and make more money with candlesticks alone. Well another look at this chart using only chart formations might catch you to rethink that option

See all the various candlestick patterns shaded in pink and blue? If you had traded based solely on these formations, your trading positions and your trading account would have suffered a nuclear hit so massive that  it would have probably plunged you into a major depression  . So  now you know it pays to pair up candlestick formations with support and resistance? You will be doing your forex account a whole world of good if you don’t jump straight into the fray. Just wait for confirmation from the bears or bulls depending on the direction of the  trend.

Just so you know, this illustration does not apply  to the three inside down formation alone. You can apply this illustration using the various formations in all the candlestick patterns that we’ve studied so far-be it bullish or bearish reversals. All you have to do is to wait for confirmation signals that these patterns have broken through the resistance and support barriers, and then you make you make your move. Anything less will be a monumental disaster.

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That’s  a wrap for ”How To Get A Read on All Candlestick Patterns Using Support and Resistance Levels  .”   It also  means we have come to the end of our candlestick pattern series. Hopefully you’ve gained a full understanding of how to read candlestick patterns on the price charts.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. if you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including How To Read Triple Candlestick Patterns), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook.

How To Wrap Your Head Around Reading Triple Candlestick Patterns

Hello and welcome to another edition of the bulls versus the bears. Last week  we covered How To Get The Reading on Dual Candlestick Patterns.    This week we continue with our series on how to read candlestick patterns by tackling  how to wrap your head around reading triple candlestick patterns. Easy! Easy! I’m not saying wrap these patterns around your head like you’re wearing a bandanna. In plain English, I’m merely saying we’re going to learn how to read triple candlestick patterns on the price chart to identify potential market moves.

But before we move on to this week’s lesson, let me sound a little warning. If you have not  read the previous posts, you’d better read them quick before reading this post. Or else you’ll be pulling your hair out til there is none left. First learn the Fundamentals of Reading Candlestick Patterns. Next you need to know How To Read Single Candlestick Patterns To Identify Potential Market Moves. And, last but not least, get the handle on How To Get The Reading on Dual Candlestick Patterns. So there you have it. Now back  to the post at hand. First question we need to ask is:

What is a Triple Candlestick pattern?

Well a triple candlestick pattern  is  a specific candle formation  consisting of three candlesticks A three candlestick pattern helps you make sense of how a currency pair is likely to behave  within subsequent trading periods. Triple candlestick patterns could also signal  a continuation of bullish or bearish dominance on the market. At the same time, they could also signal reversal patterns. Meaning, that the end  of a bullish trend could usher the beginning of a bearish trend and vice-versa.

Regardless of the signal, triple candlestick  patterns produce, they have distinct features which should help you identify the appropriate pattern and interpret it accordingly. These formations should help you make  solid trading decisions based on what is generated on the chart.

With lout much ado,  let’s take a look at illustrations of some triple candlestick patterns. Starting with

Morning Star/Evening Star

Just so you know, the morning star and evening star are not just  celestial bodies of the universe.  As you can see they are they are also triple candlestick patterns who appear at the end of a trend. In the case of the morning star, it’s at the end of the downtrend. Whereas with the evening star it’s at the end of the uptrend. Let’s take a look at some of the physical attributes of both the morning star and the evening star, starting with the morning star

Candlestick Patterns: Morning and Evening Star

  • The first candlestick is a humongous bear, signalling the end of the previous bearish slalom.  ever, just like the evening star.
  • the second candlestick will also throw in a skinny body for equal measure.  This means the bulls and the bears are stuck in limbo as to what to do next. In others words, they’re stuck in indecision.
  •  The third and final candlestick is the ace in the whole. It confirms the inevitability of a bullish reversal as it closes in near or above the midpoint of the first bearish candle.

The evening star is the complete opposite.

  • With the evening star, the first candlestick is always a bull. And nine times out of 10, it’s usually part of a prevailing trend.
  • But then the second candle throws in a much smaller body. This means that both bears and bulls are  struggling to make up their minds on their next move. In other words they are in indecision mode.
  •  However the third candlestick is confirmation of an imminent reversal as it moves the midpoint of the first candle.

 

Next three candlestick pattern is:

Three White Soldiers and Three White Crows

Please the three white soldier and three white crows is not  the name of an acid rock band. The Three White Soldiers and Three White Crows is a   triple candlestick patternsformed  at the tail end of bullish and bearish trends. Let’s see this  patterns on price action duty, starting with the Three White Soldiers.

Candlestick Patterns: Three White Soldiers and Three Black Crows

The Three White Soldiers  pattern is very powerful, and screams right in  your face.  Why? because it unfolds after a long downtrend and a short period of consolidation. In case you’ve forgotten consolidation is when both bulls and bears are take a slight pause to decide their next move. Consolidation could also be interpreted as a time of indecision as both buyers and sellers struggle to make up their minds as what to do next. For more information on on consolidation, read up on Forex Market Goes Sideways.

Now you need to take note of the following characteristics of the Three  White Soldiers as indicated in the diagram above..

  • The first bull is known as the reversal candle. It lets everybody know that the bearish run is over or the period of consolidation following  bearish run is at an end.
  • To validate the bullish pattern, the second bull should be bigger than the first bull(or reversal candle). Also the second candlestick should be closing in on the high  of the first candle, thus creating a tiny,almost invisible wick.(That little rod jutting at the top).
  • The last bull should be a full harami. There should be not even a whiff of a shadow and must be roughly the same size of the first candle(reversal candle).

As to be expected, the three black crows are completely opposite. They show up  after a  strong uptrend has come to an end. That tells everybody that a bearish reversal is about to kick in.   Here are a few characteristics about this pattern that you should pick up when interpreting it.

  • The second bearish candle is bigger than  the first bearish candle. And it closes at or near the first low of the first candle. The third and final bear is what I’d call the confirmation bear. Not only does it formally announce the formation of the black crows, but it’s also the biggest bear of the lot.  Also it has a n almost non-existent shadow, So anytime you’re looking for a black crow formation, get confirmation from this humongous bear first.

Last but not least is

Three Inside Up and Three Inside  Down

The Three Inside Up and Three Inside  Down Pattern is another trend reversal pattern which can be spotted just when the downtrend is ending its cycle. This tells everybody who cares to know  that the bulls  are about to start their climb up the hill.  Let’s look at The Three Inside Up and Three Inside Down Patterns  in action on the charts.

Candlestick Patterns: Three Inside Up and Three Inside Down

  • As you can see, the first candle of any  Three Inside Up  pattern is a humongous bear found at the end of the bearish downtrend.
  • The second candle is a bullish candle and usually measures up to the midpoint of the bearish candle
  • The third candle  is confirmation that the bulls have gained the upper hand. And for the confirmation to take place, it has to close above the high of the first candle.

The Three Inside Down is the complete opposite of the Three Inside Up. The Three Inside Up  pattern kicks off at the end of the uptrend. And as usual it means the bulls have run out of steam and that the bears are about to start their downtrend. This usually means the price starts tumbling down. Watch out for the following pointers when interpreting the Three Inside Down Pattern

  • The first candle should be up top on the uptrend and should be a bull. /that signals the end of the bullish run. Anything else is a distraction.
  • The second candle should reach the midpoint of the first candle. This usually suggests  indecision on the part of both bears and bulls.
  • However the third candle is the  confirmation candle. It signals the formation of the Three Inside Down pattern. It also tells everybody that the bears have overpowered the bulls. But for that to happen, the third candlestick needs to close the first candle’s low.

If you want to up your game on how to recognize price  confirmation signals on trades and how to identify trends, read up on Price Confirmation Signals: How To Weed The Chaff From The Good and Trade Trends With Price Action Analysis respectively.

 

That’s  a wrap for ”How To Wrap Your Head Around Reading Triple Candlestick Paterns   .”   So if you  spot or even a get a whiff of any of the patterns forming, get your bullets ready.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. if you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine.

And if you are looking for   a place  to put your price action trading strategies into practice(Including How To Read Triple Candlestick Patterns), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

 

 

 

 

How To Get The Reading On Dual Candlestick Patterns

Hello People

Before we move on today’ installment, let’s recap on what we’ve covered so far. First we started with The Fundamentals of Reading Candlestick Patterns. Next we moved on to How to Read Single Candlestick Patterns to Identify Potential Market Moves . Today we are going to learn how to get the reading on dual candlestick patterns on price action chart. In plain English, we are going to learn how to read candlestick patterns on the price chart.

Now some of you are probably wondering “What in the world are dual candlestick patterns?” Well dual  candlestick patterns are formed by a combination of two candlesticks –  a bull and a bear. Dual candlestick patterns come in  very handy as far as analyzing currency pairs on the forex market are concerned.   With dual candlestick patterns, you gain an  edge  by getting  information on price action speedily without any hustle.

Dual candlestick patterns are generally considered the best price action analysis tool.  They are considered the best because they accurately reflect the state of mind of forex traders Whether it’s bullish or bearish trend, you get immediate information as to the intentions of the traders. However,when you have a second candlestick forming, it could mean a couple of things: Either, the bulls and the bears are undecided what they want to do next. Or the prevailing trend is going into reverse.In plain English, a reversal of the current trend is unfolding. Now let’ take a look some illustrations of  dual candlestick patterns.

First off:

Engulfing Candles

Now engulfing candles  are very powerful candlestick patterns humorously tagged by one forex website as carnivores.  And I tend to agree with that assertion.Because not only do the engulfing candles cut through the  price levels like a knife, but they completely swallow those candles  the way a whale swallows a  lobster. Now there are   two types of engulfing candles: They are the bullish engulfing candle and the bearish candle. Let’s watch the bullish and bearish candlesticks on price action duty

Candlestick Patterns: Bullish and Bearish Engulfing

To our immediate left is the bullish the engulfing candle.  The bullish engulfing pattern is a two candle pattern signalling the imminent unfolding of a strong bullish offensive. As you can see, the bullish engulfing pattern takes off at the end of the bearish pattern. By that time the bears run out of momentum The last bearish candle is immediately followed by a humongous harami candle, kicking off the bullish offensive.  See the way the bullish harami candle completely overshadows the bearish candle. That’s what we mean by engulfing. And it suggests that the bulls(or buyers) are sharpening their knives in readiness for their uphill surge.

However, the bearish engulfing  pattern, to our immediate right, is the complete opposite of the  its bullish counterpart. It looks like the bears are paying the bulls back in their own coin. The bearish engulfing pattern is a two  candle pattern signalling the bears own surge  down the slopes.The bearish engulfing pattern commences at the end of the bull’s offensive drive as they lose steam. Now see the way the bearish candle  completely swallows the bullish candle. When that happens it can only mean one thing:That the bears have finally overrun the bulls and are starting their slalom run. In forex speak,it means they’re going to depress the price.

The next set of  dual candlestick patterns is

Tweezer Tops and Bottoms

Now the tweezer tops and bottoms derive their name from the pliers that we use to pick up small unreachable objects. When you think about it, the candlesticks do look like tweezers. They are similar in  and you don’t see one overshadowing the other.  The tweezer tops and bottom patterns are what we’d call reversal patterns. You find them after the bulls and the bears have enjoyed sustained periods of dominance in the uptrend and downtrend respectively. This should alert you that a reversal is on the way. Let’s see both tweezer tops and bottoms  on price action duty.

Candlestick Patterns: Tweezer Bottoms and Tweezer Tops

You can see why both tweezer bottoms and tweezer tops look like the tweezer pliers. They are all of the same size. You don’t see one candle devouring the other candle for lunch as is the case with the engulfing candle pattern.  As you can see, the tweezer bottom formation unfolds at the end of the bearish run. When that happens, it means the bulls, through the hammer candle  are sharpening their knives for their uphill push. The twee tweezer tops  on the other hand, kick into action once the bulls run out of steam. Whenever you spot this scenario, know that the bears shift is on.

Just remember these few characteristics when reading  both tweezer top and bottom formations:

  • The first candlestick is similar to the overall trend. if price is moving up then it mean  the first candlestick is bullish. And when you  have a bullish candlestick, it can only mean one thing:  That the bulls are about to head up the mountain.
  • However, the second candlestick is completely opposite the prevailing trend. So if price moves up,then the candlestick is bearish. /and when you have a bearish trend, expect the bears to heading down the slope and depress the price further.
  • The shadows of the candlesticks(or wicks sticking out of the butts of both candlesticks) are of equal length. equal length. That’s the standout characteristic of the tweezer tops and bottoms.
  • Tweezer tops have the same highs. While tweezer bottoms have the same lows. No need to scratch your head over this one.

 

That’s  a wrap for ”How To Get The Reading on Dual Candlestick Patterns   .”   Hopefully can recognize the Engulfing and  and Tweezer patterns . You can also put what you’ve learnt into practice in an EasyMarkets demo acount. Next time we’ll continue with our series on reading  candlestick patterns by tackling triple candlestick patterns.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. if you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine.

And if you are looking  a place  to put your price action trading strategies into practice(Including  Reading Candlesticks to Identify Potential Market Moves), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets.  But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

How To Read Single Candlestick Patterns To Identify Potential Market Moves

Last time we touched on  The Fundamentals of Reading Candlestick Patterns.   This week we are going to learn how to read candlestick patterns to identify potential market moves. By potential market moves, we are referring to the direction  the market is likely to take. If you  haven’t read the fundamentals post from last week, I strongly suggest that you go back and read the post-otherwise you’ll be lost like you’re walking through a maze. Anyways,back to today post.Single candle patterns are just that, single. They are formations consisting of just one candle. And, just like I mentioned, they are useful in helping you identify potential market moves. Thee are four single candle patterns that you need to know like the back of your hand. The first pattern  is

Single Candlestick Pattern: Hammer and Hanging Man

If you’ve walked in here thinking I’m talking about  Hammer the famous rapper.,Sorry,  you’ve dialled the wrong station: This is a different kind of hammer. This hammer is very similar to another candle called The Hanging Hammer, except they post different results depending on previous price action. As you can see both have  small bodies (black or white) supported by long skinny lower shadows and almost non-existent upper shadows. Now let’s take close look at both the hammer and hanging man on price action duty.

Hammer at the end of a downtrend and Hanging Man at the end of an uptrend

As you see the hammer is circled in red on the left. The hammer is also  known as a bullish reversal candle. And anytime the hammer shows up at the bottom, just know that the bulls are about to start their climb again. The long shadow says the sellers depressed price, but that buyers withstood the pressure of the sellers and closed their session at the open. A word of warning! Just because you see a hammer in a downturn does not mean you throw your buy order into the hat.  You risk being eaten alive by the market.Instead, get more confirmation from the bulls before  placing your buy order,as indicated by the two bullish harami candles. If you want to find out how to get confirmation on trades read up on Confirmation Signals:How to Weed the Chaff From The Good.

 

So here is a recap of  the things to look for in a hammer

  • It has a long low shadow three times that of the body
  • It has next to no upper shadow
  • The actual body is at the upper end of the trading range
  • The color of the hammer is irrelevant. If it satisfies the above criteria, it’s a hammer.

 

We can’t forget the hanging man in this conversation. Can we? The hanging man is a bearish reversal pattern, as indicated by the red circle. The formation of the hanging man pattern means the sellers are outnumbering the buyers. The long skinny lower shadow reflects sellers sending the price into depression mode during the trading session. Buyers then fight back by pushing prices back up, but only near the open area. Unfortunately this momentum is short-lived as there are no more buyers in the neighborhood to keep the price staying up. So the bears(or sellers) fill in to send the .price further down.

So here is a recap of the things to look for in a hanging man.The criteria is similar to that of the hammer

  • A long skinny lower shadow three times the size of the body
  • Next to no upper shadow.
  • The actual body is at the end of the trading range.
  • The color is irrelevant. A hanging man is a hanging man. However, a hanging man is more of  a bear than a hammer.

Last but not least:

Single Candlestick Pattern: Inverted Hammer and Shooting Star

The Inverted Hammer and the Shooting Star are also identical twins. The difference being that the inverted hammer is a bullish reversal candle,while the hanging man is a bearish candle. Now let’s see both candles on price action duty.

Single Candlestick Pattern: Inverted Hammer at the end of a downtrend and Shooting Star at the end of an uptrend

The inverted hammer is circled in red right in front of us. Whenever it shows up at the tail end of the bearish trend, it can only mean one thing: The bulls are getting ready to take over. In other words, a reversal is about to occur. Price has been falling,but the bears are starting to lose steam. So it’s only right that the bulls take over the show. The long shadows  tell us that  the bulls tried to force the price further up.

But then, the sellers are like “Not so fast.” And so in an act of desparation,  they tried to force the price down. Fortunately the bulls have enough energy in reserve to close the session near the open area. Since there are no more sellers left, it can only mean that all the sellers have jumped off the train,leaving the buyers to  pretty much run things.

Now the shooting star is  a bearish reversal candle, circled in red, at the end of the uptrend.Although it shares the same inverted personality as its hammer sibling, it shows up after  the bulls run comes to an end. With its shape you can tell that the price opened low but pulled back at the bottom. This means the bulls tried to force the issue but the bears reacted and overwhelmed them. Since there are no buyers available, The only solution here is for the bears to take over from the bulls.

If  you’re looking to refresh on your trend  trading,  revisit Trade Trends With Price Action Analysis

 

That’s  a wrap for ”How To Read Single Candlestick Patterns To  Identify Potential Market Moves  .”   Hopefully can recognize hanging man and co anytime a reversal is imminent.  Next time we’ll  touch on dual  candlestick patterns.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. If you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine.

And if you are looking  a place  to put your price action trading strategies into practice(Including Including  Reading Candlesticks to Identify Potential Market Moves  ), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

Fundamentals of Reading Candlestick Patterns

Hello People

Remember earlier in our price  action charting when I did  a post on Ten Candlestick Patterns You Need To Know? Well I  have been having thinking deeply lately. How about we do a whole series on candlestick charting? I say this because I have this sick feeling of some readers saying ” Well it’s all well and good that you are giving us all these candlestick fancy candlestick patterns. But what the heck is a candlestick?”  I know it may be a bit late in the day.But it makes sense to get into the fundamentals of  reading  candlestick patterns. Because  the last thing  we want is readers pulling their hair out blowing steam out of their nostrils saying” I’ve no idea what you’re talking about.”

So here is what we’re going to do. We’ll get started with a definition of a candlestick and then we’ll delve in fun stuff such as the anatomy of a candlestick, and  basic candlestick patterns.

But first things first.

What exactly is a Candlestick Chart?

Well, a candlestick chart is a graphical representation of traders and financial institutions that track the price range of currency pairs using a combination of a line and bar chart.  The candlestick chart records the open high, low, and close of every trade for each specific time period. The figures making up the lin chart are known as the candlesticks.

The candlesticks  are very useful for visualizing price action patterns, from the 5 minute time frame all the way up to the 1 month time frame. Candlestick charts are also used by traders to identify simple trends as well as complex price patterns.

Which brings us to the next question:

 

How Did Candlestick Charts Originate?

Well candlesticks came about way backin the 18th century through a Japanese rice trader by the name of  Munehisa Homma.  Now at that rice had just been adopted as a standard currency of exchange. Some of you are probably  wondering “Well, Why rice? Didnt they believe in paper?” Because no standard currency existed at that time. And so they agreed to adopt rice as the currency of exchange.  Subsequently all the  rice barons stored their rice in huge warehouses in Osaka, one of the premiere cities of Japan at that time. The rice barons would then sell or trade  their rice coupon receipts among themselves. Automatically this feverish trading made rice the first futures market.

Now Homma was a pretty smart guy. Not only did he make a huge fortune out of rice and dominate the rice market, but he also studied the entire spectrum of rice trading from the fundamentals to the psychology of trading.  Homma’s trading techniques eventually morphed into the candlestick methodology, which was then adopted by Japanese market analysts round the same time that the Japanese stock exchange came into being in the 1870’s. It so happened that Charles Dow, inventor of  the Dow Jones Average,  himself  stumbled  on the candlestick methodology in 1900. He probably said to himself” hmmmm..   I think these candlesticks could be very useful for my business.”

However, the individual who really introduced Japanese candlesticks to the forex world was a gentleman by the name of  Steve Nison in his book “Japanese Candlestick Technique s.”  He learnt the candlestick methodology under the able tutelage of Homma Nihesa. The rest as they say is   candlestick history. And as most of you know by now, candlestick charts remains the most popular technical analysis charts  as far as financial instruments goes.

I guess the next question some of you want to ask is

Why Candlestick Charts?

Well unlike bar and line charts(Watching a line chart is like looking at a heart monitor) ,candlestick charts  represent a more accurate thorough, and graphical  description of the price action on the price charts. Candlestick Charts do a better  graphical job visually, as far as letting the traders know who has the upper hand between the bulls and the bears. Candlesticks also show us another dimension of the a specific time frame’s price action through pictorial revelations of the strength(or lack thereof) behind each price movement.

Now these beautiful graphical representations makes it easier all those single bar and multiple bar representations. This improves your chances of catching high probability trade setups. Also because candle stick setups use the same data as bar charts(open high,low,close),  you can also apply the same bar chart signals on a candlestick chart as well. You know the saying, anything a man can do,a woman can do better? The same dynamic applies to the relationship between  candlestick charts. Anrt can do, acaything a bar chart can do, a candlestickchart can magnify it a thousand times better. You getter better clarity, not to mention additional  trading signals.Candlestick charts are more exciting to look at.

Now that we’re done with the history lesson, let’s take a look at a few pictorial examples:

 

 

Japanese Candlestick Anatomy

As you can see, we have two candlesticks – White one to the left, the  dark one to the right. The white candlestick is bullish and is found on the uptrend. The white candlestick usually opens low and  closes on a high. The black candlestick on the other hand is bearish and   can be found on the  downtrend. It starts on a high price and closes on the low. Here are a few things to take note off:

  • The white hollow candlestick comes about when the close is above the open. In other words the currency pair starts on a low and finish strong on a high. This explains the huge bullish surge up the hill by the bulls.
  • The full black candlestick on the right comes about when the bears start on a high and then dissipate on a low. This comes about around the same time the bulls run out or steam and the bears take over the show. This triggers the bears downward slalom down the slopes Consequently the bears  depress the price to the consequent low.
  • The “body” refers to the hollow section of the white candlestick and the filled section of  the black candlestick.
  • The skinny lines poking above and below the body are popularly known as shadows, or wicks. And they record the high and low prices of the currency pairs.

 

A Further Breakdown of The Candlestick’s Body Parts

Candlesticks are very similar to us humans. They have various body sizes,slim,fat,medium-sized, tall, short e.t.c. Let’s take a look at the various body types – starting with:

 

Long vs. Short Japanese Candlesticks

Anytime you see a long white candlestick, think bullish buying pressure. This tells you the bulls are in town and running amok. A long candlestick translates into a higher close above the open. This suggests an aggressive stance by the bulls, causing a strong price increase.In plain English, the bulls are all over the bears.

However, long black candlesticks suggests the bears are getting back at the white bulls. And it also suggests strong selling pressure  on the part of the bulls. The longer the black stick, the further the closing price is below the open price. This causes price to plummet as a result of the bears open hostility. In plain English, the bull are galling the bears with their sharp horns.

Next Is:

Those Creepy Shadows

If you think I’m talking Halloween, get your mind out of the gutter.  I’m talking about the upper and lower shadows  you find in the anatomy of candlesticks.  They drop important clues about the happenings  during the trading sessions. Upper shadows suggest a stronger trading session while lower shadows reveal a weak trading shadow.  Long shadowed candlesticks tell the story of trading action occurring completely outside the open and close areas. While short-shadowed candlesticks tell us that the trading action was centered close to the open and close arena. Let’s take a look at an illustration of the long shadows

Japanese candlesticks with long shadows

If you see a candlestick with a long upper shadow and  long lower shadow it can only mean one thing. That the bulls(buyers) are turning the screws on the bears(sellers), causing prices to jump sky high. But all of a sudden the bears(sellers) came out of nowhere and drove the price down, and ended  the session  back at open price.

On the flip side, a candlestick with a long lower shadow and short upper shadow spells doom for the bulls. That the bears have sharpened their horns and knocked the bulls off their perch and further depressed the price. But then the bulls mount a comeback,drive price sky high to end the session near the open price.

Next up is:

Basic Candlestick Chart Patterns

The first candlestick pattern we’re going to look at is:

Spinning Tops

The makeup of spinning tops are a long upper shadow, long lower shadow,and small upper bodies. Dont worry too much about the character. Just remember the shadow and body types. By the, way The makeup of spinning tops are a long upper shadow, long lower shadow,and small upper bodies. Dont worry too much about the character. Just remember the shadow and body types. By the, way when you see a spinning top, just remember that the buyers and sellers are in a war of attrition. In other words they are in a state of indecision. They’re not sure whether to bu or sell. Let’s take a look at an illustration below:

Forex Candlestick Pattern: Spinning Tops

As you can see there is little movement   between the white hollow body on the left and the black filled body on the right. Even though the trading session opens and closes with barely a whimper, there is significant movement of price on both sides. Since both buyers and sellers are unwilling to budge, we end up with an eventual standoff.

There are a few things you need to take note off:

  • If you see a spinning top in the uptrend, it means  the buyers are losing steam  and that the sellers are about to take over the show. In Forex trade speak, a reversal is about to start cooking.
  • If you see a reversal in the downtrend, it’ the complete opposite. The sellers are also running out of breath and that the buyers are about to take them out for the count. In forex speak, it can only mean a bullish reversal is on the cards.

I

Next Up is:

Marubozu

If you’re thinking Marubozu is a Halloween chant, please get your mind out of the gutter. The Marubozu pattern has no creepy shadows sticking out of its body. Regardless of whether the candlestick is hollow or filled, the price’sopen and close is pretty much the same. It’s always consistent. Let’s look at two types of Marabozus.

Forex Candlestick Pattern: Marubozu

As you’d have noticed,the white Marubozu  and long with no shadows sticking out of its butt(or body) The formula is simple as ABC:Open Price = Low Price. While Close Price =  High Price. The fact that the White Marubozu is a bullish candle suggests that the buyers  are pretty much running the show. And when that scenario is playing out, it can mean one or two things: Either a bullish continuation or a bullish reversal.

And just like the White Marubozu, the Black Marubozu has no shadows sticking out of its butt either. But since the Black Marubozu is bearish looking, it connotes the impression of bearish dominance of the price action by the sellers. You don’t need anybody to tell you that this scenario suggests one of two possibilities: Either a bearish continuation or  a bearish reversal.

Next up is:

Doji

Now when you hear the name Doji you’d probably be thinking “Hmmm…Sounds like some exotic name in the South.” Nah,  Doji is all Japanese.In fact there is nothing exotic about it when you see it for the first time on the charts. The Doji is so small and  skinny it could be easily be mistaken for a scare crow. And just like the spinning top,  The sight of a doji on the price chart spells war of attrition between  the buyers and the sellers. In other words they are undecided whether to buy or sell.

Yes, prices do move above and below the open price. But it only happens at or close to the open price. And since neither side is unable to deliver the knockout punch we call it a draw. Now there are four types of Doji candlesticks that can be spotted on the price charts. Let’s see what they look like:

Forex Candlestick Pattern: Doji

As can see there are four variants of  the skinny Doji, depending on the length of the upper and lower shadows. On the far left is the long legged doji, shaped like a crucifix. Next is the dragonfly doji(No relation to the dragon fly) shaped like a T. Next is the gravestone doji shaped like an inverted T  Last but not least is the four price doji. This only happens where all four prices(open close high,low are all the same). Usually the transactions in this scenario are ver little.So you need to break a sweat atall over this set up.

Now if you see a doji on your chart ,keep a close eye on the preceding candlesticks. If a doji appears after candlesticks with long hollow bodies(such as the White Marubozu), it tells us the buyers are losing stamina. Since there are no buyers around to shore up their offense, the sellers start sharpening their knives and look to depress the price further downwards. Now let’s look at a few scenarios.

Forex Candlestick Pattern: Long White Candle and Doji

As you can see, a Doji forms after a White Marubozu. And when that happens The Doji’s  presence spells doom for the sellers as their resolve will start weakening. For price to continue dip, the sellers need reinforcements, but the these reinforcements are nowhere to be found.This will definitely be music to the ears  of the buyers as they look to cash in on their breakthrough.

Forex Candlestick Pattern: Long Black Candle and Doji

When you see a dark knight(or long black Marabuzu) being led by a doji, it can only mean one thing – trouble for the buyers. The buyers are  losing momentum, and the sellers are just looking to swoop in like hawks  catching their helpless prey. In plain English, expect a bearish reversal.

If you are a bit rusty about trading trends, just revist Trade Trends With Price Action Analysis

 

That’s  a wrap for ”Fundamentals of Reading Candlestick Patterns.”  Hopefully  this post has helped demystify the mystery behind these candlestick patterns. And that you can recognize like the back of your hand the moment they show up on your  chart.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S.

If you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine.

And if you are looking  a place  to put your price action trading strategies into practice(Including learning the basic fundamentals of  reading candlestick patterns), and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets. But  if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

MetaTrader 4 Part II – How To Place Trades in Price Action Trading

Hello people

Last time we learnt how to download and set up the Metatrader 4 platform for price action trading. Today we are going to do  Part II, by far the most exciting part. We are finally going to learn how to place trades on the Metatrader 4 platform for price action trading. I’m sure most of you have been fantasizing about this part all week long. No need to wait any longer the moment has finally arrived.

I know  I said the last time that the Metatrading platform 4 platform is so user-friendly that anybody can use it.But at the same some people may be so intimidated by the numerous tabs and buttons splashed across the screen on the platform. But not to worry! If you are in that category of people, I will hold your hand right through this  post so you don’t fall. So onward:

How to Enter A Trade Via Market Execution

 

Image result for MT4 How To Enter A Trade Via Market Execution

  • First click on “New Order” .It’s right underneath the window label.

Image result for MT4 - select currency pair

  • Upon selecting your order, you select  the currency pair you want to trade from the menu at the top. Just click the arrow and make your selection.
  • Upon making your selection, you click on the menu label “Type” and select “Market Execution”
  • Next you indicate the size of the position you want to buy  by clicking on the menu labelled “Volume”. Keep in mind that one standard lot(1.0) is worth 100,000 units. So if you intend on buying 5,000 units select 0.5
  • If you have anything to say about your trade  just fill the ‘Comment’ column. But that’s optional.
  • Finally decide whether you want to buy or sell the currency pair.A dialogue box will then show up to inform you that your trade has been executed.

 

Next Up is:

Entering  A  Trade By Way of Pending Order

Image result for MT4 How To Enter A Trade Via Market Execution

Click on “New Order”Image result for MT4 - Entering Trade Through Pending Order

 

  • Next you choose your currency pair of choice from the topmost menu.
  • Your next task is ti select “Pending Order” from the menu labelled “Type”
  •  you  will want decide whether to buy or sel the currency pair in the order type drop down list.

 

Once you’ve made that decision, you will then be presented with 4 options:

And they are as follows:

Buy Limit – if you plan on going long at a level lower than market price

Sell Limit – if you plan on going short at a level higher than market price

Buy Stop – if you plan on going long at a level higher than market price

Sell Stop – if you plan on going short at a level lower than market price

  • Once you make your selection, fill in the price at which you want to make your appearance in the market.
  • After filling in the price, enter the size of your trading position in the volume field.
  • Next fill in your stop loss and take profit fields.
  • Keep in mind that you also have the option of setting an expiration date on your order. Better safe than sorry.
  • Once you have checked all the boxes,click the “Place”button to enter your trade
  • A dialogue box will then pop up to say “Voila! Your trade has been entered.”

If you’re not sure of your pending orders I suggest you read up on You Need To Protect Your Trading Position and Profits with Pending Orders

 

How To Modify Trades

CaptureSelect “Trade” tab at the bottom of the metatrader platform.  This contains all your trades including your entry prices, position sizes, stop losses,and profit targets.

However,if you want to add/modify your trades,here is what you do:

Image result for MT4 - Modifying Trades

  • Right click on the trade you want to modify and then select “Modify’ or “Delete.”
  • Next you fill the stop loss and take profit fields with your desired levels. And when you’re done, hit the “Modify” button.
  • A dialogue box then pops up to tell you that”Guess what,your adjustments have been Executed.”

 

And Finally:

How to Close Open Trades

Image result for MT4 - How to close open trade

 

  • Right click the  trade that you want close
  • If you want to close the entire position, select the yellow button below the “Buy” and “Sell” options.
  • After hitting the close button, you should see a change in your profit balance, reflecting  your profit or loss you made on your closed trade.

Long-Tailed Pin Bar – A Pin Bar With A Difference

Hello people

Today we are going to learn about how to trade a pin bar with a long tail-some will call it a long-tailed pin bar.  This is a definitely a pin bar with a difference. Why? Because it has this long wick that you can’t miss.  I call it the peacock of candlesticks  in terms of the majesty with which it stands out among the rest of the candlesticks on the charts. Not only does it know how to make an appearance but it plays a great role in making you a decent profit too.

I can hear” Wait a minute, I thought  all pin bars were the same.” Well,sorry dearie, in life, not everybody is created equal. Yes, all pin bars may be simple as  strong as pit bulls and very reliable. But the long-tailed pin bar is the top dog of them all.   After you are done reading this post, you’ll come to why the long-tailed pin bar is the top dog of all pin bars.

But first:

What’s the Difference Between  Normal Pin Bars from Long-tailed Pin Bars?

Well  Let me show you using the price action chart below:

Image result for long-tailed pin bar

 

Now this is what the long-tailed pin bars look like up close and personal at the end of the bullish trend just before the bears take over. The long tail  sticks out from the surrounding pin bars. It looks so obvious and conspicuous that there is no way you can miss this one. It has a small, or skinny body and a longer wick ,hence the nickname, long tailed-pin bar(The ‘Small Body’label’ says it all).  When on a bullish trend the long tail of the pin bar  sticks out from the top  like a tower. However if it were on a bearish trend,the long tail will stick out from the bottom.You’d think it was doing a head stand..

The normal pin bar on  has a bigger body and short wick, as indicated by the red arrow.  It’s probably jealous of all the attention is long-tailed sibling is getting.

A  Few Things  You  Need To Know About Long-Tailed Pin Bars

Their tails are a lot longer than the surrounding pin bars. Think of Jack and the Bean Stalk when looking out for long-tailed pin bars. And they are also  valuable high probability signals. In other words, they provide great opportunities to make a profit. However, a word of caution: Their appearances are very irregular but when they do show up they do  cause the market to make major moves. They’re like shooting stars.They’re here today, gone tomorrow.

Long-tailed pin bars are more than just  fancy trade signals. They help us gain valuable insight into the mindset of the majors in the market and the dynamics of the market itself. As much as  a long-tailed pin bar is majestic, it also signals it’s running out of gas. However, if it’s a trend continuation setup, it’s a strong indication that the trend continues. And at that point, the players are either bullish or bearish, depending on the mood of the market. And as a trader you’d most certainly have to keep that in mind as you scan the charts.

I guess the most appropriate question to ask will be: What Signals Do I Look When Trading Long-Tailed Pin Bars?

Look for Evidence of Confluence

I guess the best way to trade long-tailed pin bars is  to look for evidence of confluence.  By confluence I mean look for evidence of  trade signals converging on the same key level at the same time.  These key signals go by the simple acronym TSL – Trend, Level , Signal. If you can get at two out of these three indicators, you’re good to go. Let’s take a look at an example of confluence using the EUR/USD pair.

Image result for long-tailed pin bar with confluence

 

This a classic illustration of TSL in effect. The three circles indicate major confluence along the level of support which is also transforms into a level of resistance after a series of reversals/.. The first label indicates the bearish long-tailed pin bar touching the level of support.Along this same level of support the second circle points to a bullish long-tailed pin bar caressing the level of support. And lastly the third circle points to another bullish  long-tailed pin bar .

Like I alluded to earlier, all these long tails fit the TSL requirements.  Although the first pin bar looks a bit suspicious, the second and third long tails look more defined and inviting. It wont be such a bad idea to place buy pending orders above the highs of two either of these two long tails until the first close of the first candle. You’d most certainly  see substantial profits heading in your direction. at

Look For Long-Tailed  Potrusion At Key Levels

Yep! Look out for   long-tailed protrusions  by these celebrity pin bars at key levels. Doesn’t get simpler than that does it? You know often times long-tailed pin bars  will counter a trend after a strong move whether up the hill  or down the slope. It’s the nature of the beast so to speak. In that case look for these long tails to slice through these key levels within a ‘cant miss’ range. Or you look for a long tail protruding through a key level at a false break ensuing as a result.  Veteran traders would definitely  get a kick out of a false break as a lot of rookies tend to fall through this trap quite often. Not to mention the fact that these protrusions also lend themselves as  confluence for these counter-trend long tails. Let’s take a look at an illustration using the USD/JPY pair.

Now take a look at the bullish long tail underneath third arrow along the  new level of support. It’s in the midst of the obvious range that I alluded to. Now  a closer look at the bearish pin bar along that same level of support. Now that sparks a brief fakey as traders anticipated a bullish trend. This is the kind of protruding scenarios you should look  out for when trading counter-trends.

But then again we could see a sharp U-turn after sustained pressure, regardless of whether it’s the bulls or the bears  going on a trend. Again,  the long-tailed pin bar takes shape in this scenario.  It’s just the market’ way of cooling off after heating up for a while. Let’s take a look at a long tail inspired sharp reversal using the GBP/USD pair.

Image result for long-tailed pin bars in sharp reversals

Now take a look at the long tail pin bar at the tail end of the bears run at the first level of support. The long tail suggests the bears are losing steam because they’ve gone one step too far, causing the bulls to step in and start their own fire as they try start some fiery momentum of their own. The long tail also represents the market’s way of correcting itself when the engine is overheating..

Look for Long-Tailed Pin Bars With Trend and Confluence

Be on the look out for long-tailed pin bars with trend and confluence. Hmmmmm Now I can hear someone saying “What in the world is that?” Well what I really mean is look for long tails with good trend continuation signals as well. Of course they must have that look of confluence as well. There must b a coming together of these signals. You will most certainly find them  after a pull back or at or close to key swing points. Let’s take a look at an illustration of this scenario.

We see a gorgeous illustration of  trend and confluence along the first level of support.Take a look at the bullish long-tailed pin bar touching the level of support towards the far left . It’s basically saying “Get ready for a bearish run.” Now let’s takes a look at the nicely clad long tail at the resistance end , as indicated by the arrow. This suggests the beginning of a bullish offensive. However, a  word of caution though:  Don’t always jump in just because you see a nicely decorated long-tailed pin bar. It could be a sign of a negative reversal or a major meltdown. So to be forewarned is to be forearmed.

And  last but not least:

How Do I Enter Trades On Long-Tailed Pin Bar Signals

You can enter trades on long-tailed pin bar signals a few ways:

Market Entry

This is very basic. Just go to your MT4  platform and place a ‘buy order’ if it’s bullish pin.If it’s a bearish pin you don’t need me to tell you to place a ‘sell order.’Do you? Below how to   place a buy order

order window in the MT4 forex platform

 

 

Stop Entry

Just place a stop entry at the level you want to enter the market.   A word of caution though: For the market  to trigger your stop entry the market should move up to touch your  buy stop or move on down to touch your sell stop. You also need to understand that your sell stop order must be under the current market price(including the spread) while your buy stop must be above the going price(including the spread). In layman’s language, in a bullish pin bar formation you out in your buy order when you see the high of the pin bar break for the hills. Whereas in a bearish bar formation you put in your sell order when the low of the pin bar breaks down the slope. Let’s take  a look at both scenarios

Image result for forex - buy order in bullish pin bar formation

As you can see the buy stop order is placed above the high of the long-tailed pin bar,as indicated by the white bar, in light of the bullish surge  up the hills.  You then place the stop order at the low of the  bearish long-tailed pin bar on the heels of a bearish break down the slope.

Limit Entry

You place the limit entry below the going price if you are buying. And you also place the limit price above the going price if you are selling.  Some of you may be wondering”Well,what’s the rationale behind placing a limit entry on a long-tailed pin bar”?  Well trading wisdom suggests that some pin bars pull back or retrace at the 50% level.  So it makes sense to make your entry at that level with a limit order.  In light of this interesting revelation  you place your stop loss just above or below the pin bar high or low.Of course this creates the possibility of a huge profit. This is perfect for long-tailed pin bars largely because of this ‘cheching'(Sound of cash register) possibility. Let’s take a look at how the limit entry works with the long tails

Image result for forex - buy and sell limit entry orders on pin bars

As you can see the  buy stop  for a bullish pin is placed below the low of the long tail. Why the sell stop for a bearish pin is placed above the high of the long tail.  However, as I alluded to earlier, you make your entry at 50% retracement for both the bulls and the bears. This is because some pin bars.especially the long tails are most likely to retrace, creating huge profits  possibilities.

For more information on trade entries, read up on You need to Protect Your Trading Position and Profits With Pending Orders . And if  you are confused about long-tailed pin bars I suggest you read Pin Bar Strategy – How To Trade It

That’s  a wrap for ”Long-Tailed Pin Bar – A Pin Bar With A Difference .”  As you can see, long-tailed pin bars definitely know how to an appearance. Their long taily wicks stand out so obviously that you can’t miss them. If you’re not still flummoxed or confused about which trade setup to choose, just stick with the long-tailed pin bars. You can’t go wrong with those.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

 

P.S. if you want to know everything there is to know about price action trading   Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life as a trader. It sure did mine. And if you are looking  a place  to put your price action trading strategies into practice, and get a simulated feel of  live forex trading conditions   before  trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

You Need A Forex Trading Plan To Trade Forex Price Action

If you want to  be successful at trading forex   price action on your price charts, you most certainly need a forex trading plan. It’s as simple as that. Soldiers draw up a battle plan before going to war right? So forex trading, s is no different. You need to draw up a plan as to how you are going to attack the price action. You absolutely do not want to dive in head first into the lion’s den called the forex market without any weapons. The forex market is very unforgiving towards naive rookies who think they can just wing it at the snap of their fingers.  You must get into the market, knowing what you’re looking for,what your objective is and how you intend on accomplishing your trading goals.

So what are we going to do? We will first define what a forex trading plan is and why you need one. Then we look at the body parts  of a trading plan.And finally we’ll look at an example of a trading plan.

First off:

What exactly Is A Forex Trading Plan?

Well a forex trading plan is nothing more than a template for trading the forex markets.  Think of your template as a checklist containing  a step by step sequence of your trades which act as a guide to trading the forex markets. In other words, your trading plan should define in plain English, your general trading goals as a trader and a clear checklist of how you intend to accomplish those goals.

A note of caution though: Make sure your trading plan does not balloon into a telephone directory. If you’re hinging your trading plan on price action trading, make sure your trading plan is exact and to the point. You don’t want to beat around the bush too much on your trading plan to the point where you are so confused like a deer caught in the head lights. Make your trading plan so precise that you’re able to capture all aspects of your plan. You can also include graphics of your trading strategy as part of your plan. This should go a long way in bringing some clarity to your direction of your trading plan.

I guess the most appropriate question will be:

Why Do I Need Forex  Trading Plan?

Basically you need a forex trading plan to keep you out of trouble. You need a forex trading plan to help you keep your emotions in check. The last thing you want to do is to wing it every chance you get,like you’re gambling in a casino in Las Vegas.   If you do not follow a pre-defined trading plan you will end up blowing up your account  the same way a volcano throws up molten lava. In other words, you will be trading with your emotions instead of your brain. And whenever you lose a trade,you end up jumping back into the market to make up for lost cash. Trust me it’s happened to me before, and it’s not  fun at all.

Probably the most important reason for having a trading plan  is to stay out of trouble.  You know, the market can be very unpredictable and it can do a nasty 360 on you. So unless your trading edge is present,don’t even bother taking the plunge. Even more important a forex trading plan will help cut down on losing trades and  spike(improve) your winning percentage. Instead of trading like a gambler,how about trading like a sharp shooter? You leave your emotions under your sleeve and put on your thinking cap through your trading plan.Even more important with your trading plan there will be no need to make appearance on the market on a daily basis. You can trade less with high probability trades and make substantive profits using higher time frames.

Now that we’ve covered  the what and why of a trading plan let’s look at:

Body Parts  of a Trading Plan

  • Spill  your short term and long-term trading goals
  • Lay out your trading strategy and how you’ll go about analyzing and trading the markets
  • State clearly what your money management strategy is all about. You may want to include your risk and reward per trade, how much money you can afford to lose, and how much money you plan on withdrawing from your trading account
  • other additives you could include are your preferred trading pairs, trading time, e.t.c.

 

Now let mes show you an example of what a forex trading plan looks Image result for image of forex trading plan

As you can see everything has been labelled nicely from the trading system(strategy) all the way down to the trading log.  You’ll most definitely need to do something similar if you want to  reap the harvest of your trades. Trading like a gambler will definitely lead you into Forex Armageddon

Now let’s break the strategy even further:

Is The Market Trending or Consolidating  ?

First establish where the market is trending or consolidating. If the market is trending  look out for higher highs and higher lows in the uptrend and lower highs and lower lows in the downtrend. If the market is consolidating, it means the market is strapped between the support and resistance levels. You have a situation where there is a war of attrition between the bulls(buyers) and the bears(sellers). You should have graphics of both conditions as part of your trend so you know what you’re looking for  come time to  put in a trade.

 

Market Trend

Image result for Forex-image of trending market

 

 

Consolidating Market

Image result for Forex-image of Consolidating  market

If you need help with identifying trends look up  Trade Trends Using Price Action . Analysis . If you’re having difficulty with consolidating markets look at Forex Market Goes Sideways.

Next we have:

Indicate Your Support and Resistance Levels On The Charts

Once you have established your support and resistance levels you then indicate these levels on the price charts.  These levels will form at the confluent area that you watch for your price action strategy to roll out where you trade in the direction of the dominant trend, or if it’s a sideways market, towards the opposite end of the range.  But first you have to draw these levels though before indicating them. It’ll be a bit strange doing this backwards. Wouldn’t it? Let’s take look at how it’s done

Image result for mark core support and resistance levels on chart

See how the support and resistance levels have been drawn and labelled.In so doing you know what you’re looking for when you enter the market. if these levels are not evident, don’t bother throwing your hat in the ring. Need helpwith support and resistance levels, Pay a visit to Identify Support and Resistance Levels With Price Action Analysis.

 

Look For Price Signals at Confluent Levels

You absolutely need to look for price signals at confluent levels as part of your trading plan. You need o know exactly what price action strategies you are seeking before you even put pen to paper to start your  building your trading plan. And just as I indicated earlier, you should have images of all the  setups that you intend on incorporating into your trading plan. . If you are confused about confluence levels,  I’ll strongly suggest you look up Something Called Confluence.  If you are even more disoriented as far as price signals go, look up  Price Signals:Weeding The Chaff from The Good.

Let’s take look at a price signal  at a pin bar set up

Image result for Obvious price signal at resistance at pin bar setup

As you can see there are multiple confluent levels indicating a price signal at the  level of support.  The bulls have latched on to this development with salivating intent as evident by the surge up the mountains. If you have this kind of setup in your trading plan you’ll be worth a million dollars.

Next up is

Money Management

You need to know to put a premium on money management as part of your trading plan. First off, you need to decide the safest spot to place your stop loss in your trade setup. This absolutely crucial because  where you place the stop loss  could be the difference between preserving your account and blowing your account like volcanic ash. Also you need to decide how much money you can afford to part with without shedding crocodile tears when the market   does a 360 against your trading position.  You do not want to risk money you need to pay your kids tuition fees. That’ll be insane.But if it’s disposable cash lying around doing nothing, knock yourself out.

Even more important,you need to include an exit strategy in your trading plan. Once you hit your Take Profit target you have to seriously consider high tailing(orexiting) out of the trade. Greed make seem good for a season.But if you get too greedy, the market will make you pay dearly.As part of your exit strategy, consider which risk reward ratio you want to adopt.Conventional wisdom suggests  that a 1:2 reward will be the best option.

That’s  a wrap for ” You Need A Forex Trading Plan To Trade Price Action”  Hopefully this post has convinced you about the importance of having a trading plan in place before taking the plunge into the market. Like I said earlier, it does not make sense going to war without a strategy. You  must have a well thought out plan before hitting the battle field. Having a trading plan will help you achieve your trading goals faster than most people without a trading plan.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. if you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

How To Trade Price Action Without The Indicators Part II

Hi people

A few days ago, we tried to learn How To Trade Price Action Without The Indicators. Let’s recap what we learnt:

  • Read The Price Chart
  • Identify The Trend
  • Spotting The Range Market

This week we are going to continue with “How To Trade Price Action Without The Indicators Part II.” Now I though long and hard about  doing Part II next week. But I didn’t want you guys screaming in my ears saying”WHY ARE YOU LEAVING US HANGING IN SUSPENSE LIKE THIS?” Well, I guess it’s better to speed up momentum than to slow it down. We don’t want you starving for too long. Do we?

So onward:

Be On The Lookout For Probable Turning Points

If you want to be a successful price action trader , then you need to be constantly on the lookout for probable turning points. By that you need to spot the most likely areas prices are going to do a U-turn or reversal. Although a lot of people use tools such as Fibonacci levels, pivot points,e.t.c. I prefert to get back to basics using  support and resistance levels and trend lines. I guess mist people prefer to stick to basics rather than complicate things with th Fibonacci’s of this world. Let me show you a few illustrations

range turning point

See the initial support level is set up at the bottom of the chart and the old support level support  further up.  The resistance level  is also setting up shop at the very top.

Two scenarios are unfolding here. First, price pulls back a the old support level and converts the old support into a new resistance level resulting  to a price reversal at that level. Second, the bears continue to sell off  as the bears charge towards  the major range support level. At the very least price may bounce of or ricochet off the support barrier.

Now let’s take a look at how trends are utilized highlighting  potential reversals.

optimal trend area

This is a classic illustration of how sticking to basic chart analysis can really help you perfect your chart reading skills. You can see the uptrend  nicely  lined up  with the HL  and HH levels neatly  decked out. Also keep an eye on the resistance and support levels and the probable  bearish reversals in those areas. When the reversal occurs, it can only mean one thing –  a bearish slalom run and  anopportunity to sell..

You can also tell that the bulls are in a bad place as indicated by the rounded box at the top. This is how a lot of traders easily get baited. Their mentality is “As long as the bulls are still on the rise let’s jump straight in.'” Well as you can see,the bulls have run out of steam at the top. You only jump in when the  bulls are   strong.Make sure the candlesticks are full and upright..  If you do otherwise, you risk buying out of position and losing a lot of money in the process.

We can also tell that price is about to pull back and convert into lows. Remember when I said  “Buy low sell high” in last week’s lesson? This where you make use of that adage. Basically you use the trend’s retracements to your advantage and enter the market at a smart price.

But there are times when support and resistance levels can drive you up the wall. Especially when you have to wait and wait until you get confirmation. So to cut out all that anxiety, just employ the services of a trend line. Just make sure you don’t get carried away with the trend line because you may end up forcing trades that don’t exit. Let’s see how the trend line is used.

trendline turning point

As you can see, the trend line helped ascertain the bears annual slalom or bearish downtrend. The constant pattern of LH(lower highs) recording LL(lowerlows) illustrates the bears downward spiral. We see a few price signals alright, but they ended up being ‘unlucrative trades.” In other words, they are not profitable-as indicated by rejection label.

The long and the short of this illustration is just make sure you are not caught in the middle of nowhere in this scenario.Keep your eye on the likely turning points and use the support/resistance tools to mark out the most likely areas for price reversals or bounces,as they call them.

 

If you want to strengthen your suppor/resistance knowledge catch up with  Identify Support/Resistance with Price Action Analysis

Wait For The Signal

Wait for the trade signal. It’s that simple. Ever heard of the situation where an undercover cop waits for the signal of his partner when the coast is clear?  It’s almost along the same lines  where price action trading is concerned. You’re waiting for your chart to signal you of a probable price reversal. And the most common price signal is the pinbar  rejection candle. Now the rejection candle is price action’s equivalent of a message alert. And it’s the best tool for learning how to trade without indicators. Now let’s tie in everything we’ve learnt so far using the rejection candle as an illustration,starting with the chart layout

step 1 highlight market structure

We see LH and LL as suggested  by the bearish trend line. However, the market is in consolidation. In other words, the bulls and the bears are taking a breather and considering their next move. You’d be suicidal to enter a trade in  a consolidation situation. So your best is to wait for a breakout before making your next move.

Once a breakout  takes and more positive action occurs on the chart, we move on to to our next graphic for spotting probable trading points.

If you want to introduce yourself to trading breakouts read up on Break Out Trading Breakouts

 

step 2 turning points

Remember the adage”Buy low and sell high”In this scenario, you most definitely want to sell high.But to do that, the market must move up to creat HH(higher high). And the most appropriate spot for that to happen is at the previous consolidation support.

 

 

3. naked chart trade signal

Voila! Here is the sell signal we’ve been waiting for –  thanks to the rejection candle. After some excruciating  patience and discipline, we;ve finally gotten the trading signal just where we want it. The key here is using your instincts. You do not want to think too much. Once the signal is lit, take steps to enter your trade.

 

That’s  a wrap for ” How To Trade With Price Action Without The Indicators Part II”  It’s been fun doing this exercise with you all. I hope by now you are convinced that trading with law price action and not the indicators is the way to go. Hopefully you’ll use these carefully laid out procedures  to your advantage as far as profits go.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

 

P.S. if you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a fre forex trading ebook

 

How To Trade Price Action Without The Indicators Part I

I’ve been making a lot of noise lately about the fact that price action analysis without indicators was  the best  way to succeed as a forex trader. I’m sure some of you are  muttering yourselves  saying “That’s all well and good but can you show  us how?” Sure I will. I’m going to use a two part series to  show you how to trade price action without the indicators, starting with Part I today.  Let me let you in on a little secret. THERE IS NO SUCH THING AS A SILVER BULLET FOR PRICE ACTION SUCCESS. Those nasty indicators and software will drive you to the point of destruction.

And what happens when the silver bullet fails to fire on all cylinders? You find yourself looking for the next quick fix.  In so doing, you waste so much energy looking for the next quick fix which can do better than the previous  failure. I expect someone hooked on steroids to behave this way, not a forex trader armed with trading information at his disposal. At some point you have to tell yourself ” I have to learn how to trade without those nasty indicators.” You can’t run away from this fact. That’s the only way you are going prosper as a forex trader.

If you think  I am putting together a complicated puzzle, keep your mind at ease.  I’m not going to rework the laws of gravity here. All I’m going to do is show you step by step how to trade with price action without the so-called help of those indicators.

 

So onward we go: First

Read The Price Chart

It may sound simplistic but you must be able to read the price chart if you want to prosper as a price action trader. And when I say read the chart, I’m not saying read the chart like you’re reading a Steven King novel. You should be able to deduce what each candlestick is telling you. All you are doing here is analyzing the combination of higher highs(HH) higher lows(HL) on the uptrend and lower highs(LH) and lower lows(LL)  for the downtrend.

Let’s take a look at an illustration using the EUR/USD  chart

money pattern

Take a look  at the upward trend .  HL  start from the bottom of the chart and end up  with HH  further up.  This suggests a strong surge by the bulls.   On the left hand side you have LH  and LL  taking shape. This suggests a  strong slalom run down the slopes by the bears. What we are doing here is analyzing the highs and lows of both the uptrend and the downtrend. Now imaging throwing these indicators on the screen. What you will see is just one ugly looking  mishmash that will drive you insane.

Also by identifying the high and low points on the price chart, you are laying the building blocks for your price chart analysis. In so doing you avoid the fatal mistake of overlooking the layout of the price action which results in your failure when the market is trending or which direction the market is blowing to.

If you want to know what the candlesticks are trying to tell you  refer to Ten Candlestick Patterns You Need To Know

Identify The Trend

You know the  saying “The Trend Is Your Best Friend.” Well your job is to identify  the trend. Surprisingly this is one  rope that beginning traders keep tripping over.  They keep asking over and over again”Well how do I Identify the trend?” Consequently, they look to the silver bullet indicators to do their bidding. Well, news flash! These indicators have no f don’t have the capacity to think rationally either. They are only as good as their creators can make them. You, on the other hand hhave the capacity to make rational decisions as far as identifying the trend goes.

Just follow these two simple formulas for identifying the trend. A bullish trend = higher highs and higher lows,while a bearish trend = lower highs and lower lows. Now let me show you two illustrations of these two formulas:

bull market

This is what a bullish trend looks like. The higher lows start from the bottom  with the higher highs taken shape as the price of the currency as the price strengthens.So when you see such a trend, your instinct to buy should immediately kick in. Make your entry when the price is low such that as he price reaches the HH barrier, your profit margin increases   Pretty straight forward isn’t it? You don’t need  any indicator to tell you that.If you can apply these  simple formula,you should be able to identify such  a trend like clock work.

Now let’s take a look at what the bearish trend looks like.

bear market

Now the bearish trend is the complete opposite. The downward slope suggests the sellers have seized the initiative from the sellers. The lower highs start from up top with the lower lows taken shape as the price drops further. Whenever you see a slalom race like this, your instinct to sell should immediately kick in.  You put in your entry to sell at the LH point(lower high). You start sellin You don’t need to think too much on his. And you CERTAINLY do not need some fancy indicator to think for you on this issue either.

Look, identifying a market trend is like solving  a crossword puzzle. Just map out the highs and lows and connect them as indicated on the above graphic,and everything becomes crystal clear. But be very careful that you do not misread the trend or make the wrong entry. Do that,and you will be severely burnt -not to mention put a major dent on your trading account. remember this simple phrade: Buy low and sell high. Just wait for price to pull back into swing lows or swing highs and then make your entry trade.

If you want to dig deep into identifying the trend, read up on Trade Trends With Price Action Analysis

Now next up is:

Spotting The Range Market

Spotting the Range market can be hair raising sometimes. markets or sideways markets, can blow hot and cold sometimes. It’s a case of “Now you see me now you don’t.” You see ranging markets take shape when price is trapped between two key levels.  This happens when there is a war of attrition between the bulls(buyers) and the bears(sellers). Consequently, the trend is skidding all over the place with highs and lows forming at the same horizontal level. Let’s take a look at what I mean,using the graphic below.

text book range

As you can see, this is one huge mess staring us in the face. However,this scenario rarely occurs in the markets-unless for some reason they run out of stamina.  If you wanna identify the range,just mark out the highs and lows within the range. Let’s see how a real range looks like.

realistic range

Now this is how the ranging market  looks like. As you can see,there are no clearly defined highs and lows. This of course makes looking for reversal  trades look like you’re going on a treasure hunt. There is so much noise around the boundaries that you can be tricked into jumping into the deep end and letting the chips fall where they may. And when you do take that jump, nine times out of ten,you risk getting your fingers burnt.

In fact, I’d strongly suggest that you  do not jump into the fray. Why? because there no trades to be found in this market structure. It’s nothing but noise. You have loud music  just shaking the speakers. Unless the ranges are clearly defined, and the trading opportunities are visible(Which are quite rare), dont bother taking that jump.

If you want to clarity on range markets look up Forex Market Goes Sideways

Don’t Bother Trading A Senseless Market

When I say don’t bother trading a senseless market I’m merely saying don’t enter on a trend that doesn’t make any sense. Do that,and that and you will incur a huge black hole in your trading account. Some charts look so out of whack that they’re not worth the aggravation and hair loss.If they don’t make any sense to you, don’t bother filling your market order. Let me show what I’m talking about

confusing market structure

There is absolutely no rhyme nor reason to this chaos.Even after marking out the highs and lows, it still doesn’t make any sense. It’s basically a dead end. It does not make any sense trying to outwit the market in this situation. If you do, the market will bite you real hard like a hungry rottweiler. Just wait for the mist to clear up and then enter the market with all the gusto that you can master.

You don’t need to feel bad if you can’t make sense out of the chaos. It is what it is on the market sometimes. If the opportunities aren’t there, don’t force the issue.

 

That’s  a wrap for ” How To Trade With Price Action Without The Indicators Part I”  Next week we will continue with Part II of the discussion dealing with topics such as  how to Identify turning points Waiting for a trade signal, e.t.c

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. if you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine.

And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets.  But if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook.

 

 

Why Price Action Trading Still Rocks

A Long time ago we discovered What Price Action Trading Was All About. Now I want to remind you why price action trading still rocks.Maybe it’s just me. But I have this gut feeling that some of you have one eye on those nasty indicators that clog your screens. I mean imagine your brains being messy! You can’t think straight can you? I can foresee your brain cells screaming “Spare us all this garbage, we can’t take it anymore.

So How Am I convince you doubting Thomases out there? I’ll just spell out the benefits of trading from a simple straightforward chart on the chart and its ability to improve your trading  at the speed of light.

But first I’m gonna start with a question.

Why Should I Trade With Price Action Anyway?

It’s very simple. The whole idea behind price action trading is to spot previous repetitive price patterns that can can give you great profits in the future.  You then use these same repetitive patterns to predict future price movements when they appear in real-time.  Once you crack the code as to how to t read price movements on the charts, you start getting a hang of how the markets rides. Before you can say jack, you  will be reading the market mind before it makes its next move.

Now what  do you need to get started? Not much. Just a simple price chart, free of those cluttering indicators to compress your screen. Once you accomplish that, you’re on your way to getting started.  Now let’s get this straight.You only start to taste the sweet pudding of forex trading success once you perfect trading strictly off price itself. By fixing your gaze solely on those cute candlesticks, you can make sense out of the weird mood swings of the forex market. Also trading from those naked price movements will transform into the  price chart whiz t hat you hope to become.

 

Now let’s see the difference between a clean price chart and a cluttered price chart  littered with indicators – starting with a  clean chart

Image result for forex -clean price chart

Doesn’t this clean price chart  look pretty? It looks nicely dressed with clean swing highs and swings lows penetrating both support and resistance levels. With such a  clean-shaven appearance,you pretty much have an idea of where the market is going and you can make a reasonable prediction of what is going to happen next.

Now let’s take a look at the  messy messy indicator-laden price chartImage result for price action charts with indicators

 

 

Ladies and gentlemen, here is the indicator-infested price chart for the USD/CHF currency pair. As you can see, this nasty looking cesspool is enough to give you a heart attack. Unlike the first price chat, you have a cluster of indicators which completely takes the focus away from the candlesticks.  Dont be surprised if you hear yourself asking yourself this question”Am I analyzing the indicators or the candlesticks?” And when that happens,that’s a clear sign that you’re losing your mind.

You only start to taste sweet pudding of forex trading success when ou stick solely to the candlesticks. By zeroing in on the candlesticks you gain a clear insight into the workings of the forex market. And when you do trade using the raw price movements,you should become a  forex trading whiz in no time.

Price Action Trading Is As Simple ABC

Yes, I said it.Price Action Trading is as simple as ABC. You don’t need a fancy  college degree to be a successful price action trader. Far from it. People have this s conception of forex trading being as complicated as the Laws of Gravity.  In fact, Even the garbage man can succeed as a forex trader. All you have to do is to  analyze price charts for what they are. Just don’t overcomplicate things by trying to chew up on every factor behind the market’s every move. Headache anyone?

. The neat thing about price action trading is that it’s an equal opportunity profession.The simplicity of  clean-cut price charts makes it possible for anybody on this planet earth to succeed with price action trading .Whether you are a single mum or the cable man,, you got a chance at forex prosperity. The benefits of price action trading are so immense that you will surely be transformed.

 

Image result for price action trading is simple

 

This is another illustration of just how simple and straight forward a price chart using EUR/JPY.  From the left side you see how the high lows(HL) and Lower Lows(LL) of the downtrend ? And on the right side you have the lower highs(LH) and higher(HH)  nicely spaced out without any outside interference. IT’s not rocket science. All you have to do is interpret the information in front of you and then make your trading decisions based on your analysis.Just  make sure your trading edge exists before you make your entries.

If you’re not sure about identifying a trend read  Trade Trends With Price Action Analysis . And if you don’t know what I mean by trading edge read up on You Need To Sharpen Your Trading Edge.

Candlesticks Have All The Information You Need To Know

You don’t need look at any indicators or robot software for help. The candlesticks have all the information you need to know about the goings on in the market. If you want to know where the trend is going, which way the market is going, and where the support and resistance level are,  you will find all this precious data in the candlesticks. You don’t need to look too far. In fact a lot of traders make the whole trading process look like rocket science.You feel you have to concoct some complicated formula to identify all this data.No, you don’t have to. It’s all right in front of you.

Let me show you a few illustrations.

Image result for forex uptrending market with higher highs and higer lows

 

Now this is a graphic for an uptrending market. And as I’m sure you know by now, uptrending markets are made up of higher highs and higher lows. These are nicely laid out on this graphic. You don’t need an indicator on steroids or some robot software to tell you that.They’d just  lull you into a false sense of security. For some of you may be thinking ” This looks like a carton.”  But seriously all the information that you need is in the higher highs and higher lows.You don;t need some weird indicator or a robot to do that for you.

Now let’s look another illustration-this time showing  a downtrend.

Image result for forex downtrending market with lower highs and lower  lows

This, ladies and gentlemen  is the downtrend of the uptrend As you can see the bears are tearing the bulls to shreds here. How are the bears achieving this?By pushing the price lower through routine lower highs and lower lows.Now do you need a scary-looking indicator to tell you this? No. All the information you need about a bearish downtrend is staring you in the face.  You don’t need to look any place else.

Now let’s see how you can recognize a sideways market(or ranging market without those indicators

ranging market simple

Now this what a sideways market looks like. You have both highs and low trapped in between the resistance and support levels? Why because there is a war of attrition happening between buyers and sellers.  This stalemate has also  created a period of consolidation as both sides take a breather and look to  continue once price stabilizes. Again, do you need. an indicator to reveal this information to you.?

Now if you wondering “How do I spot a ranging market?” Just look out for the big trap holding the highs and lows in between the support and resistance levels.  Now notice the bulls trying to break out of the range  up top on the chart.That happens quite a lot on the market.But they do face a brick wall and end up in the dreaded sideways trap.

Now in case you’ve also forgotten the sideways trap is popularly known as a fakeout.  Now for some of you who may not know, this traps traders,especially rookies into bad trading positions. They see what they believe is  hot bullish trading position only for the bears to pull a fast one on them. This is the big boys; way of trying to suck unsuspecting rookies into these tempting positions and make huge profits off their naivety.

But there is good news. The market does break out of the range and head for. And when that happens, they are a sight to behold. One more thing. When you see a sideways pattern, dont risk your money on this pattern.There is nothing available. Only when the bulls break out of the range do you make your entry on the market. Now let’s see what a range breakout looks like.

Image result for forex - breakout of range market

Now this is what a range breakout looks like. The bulls catch fire, thanks to a solid price and head for the hills. Notice that tight trap in between the black lines. A higher low forms. triggering a mountain climb by the bulls.

By the way, if  you’re not sure of what a sideways market(or sideways trend) is, read up.on on Forex Market Goes Sideways   , And if you want to to know more about fakeouts read up on Trade The Break

That’s  a wrap for ” Why Price Action Trading  Still Rocks”  I hope I’ve been able to convince you that those fancy indicators will not help you with your trading decisions. Only solid price action analysis will help you. Just watch the candlesticks as they speak to you about the happenings on the market. When you do that,you can never go wrong.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine.

And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

London Breakout

This week we’re going on a London Breakout. And it’s not because the iconic London Bridge is falling down(as the famous nursery rhyme suggests). We’re going to learn how to trade the London Breakout Strategy.  The London Breakout strategy is traded during the first three hours of the London trading session. According to forex folklore, that’s where all the action and the money is. The only pair you need to trade is the GBP/USD pair.It’s perfect for rookies looking to make a quick 50 -100 pips. Just make sure you don’t turn into a gambler. When hit your target, just bow out gracefully.

If you live in a weird timezone I really feel for you. You may have to forgo much valued sleep if you want to experience the excitement of the London Breakout.  For some of you, I guess sleep is no object where profits are concerned. Solong as you allow your body to get some much needed rest.

I guess the first question some of you are asking is:

Why In the World Should I Trade the London Breakout?

Very simple. The London breakout is the forex market’s biggest mover. And, not only does most of the trading takes place in the London breakout, but it also carries the most volume as far as currency trading is concerned.  The voluminous nature of the London breakout creates huge trading opportunities for both veteran and rookie traders alike.  No wonder, traders around the world deny themselve beauty sleep at night just to get a piece of the London action

So what does all this volume mean? It means the trend direction of the GBP/USD pair during the first three hours will determine  the overall trend direction for the remainder of the London trading session. Besides the name of the game is catching the upside or downside moves during this 3 hour window. Now let me show you a glimpse of what the London Break Out looks like.

Image result for london breakout strategy

This is a classic illustration of the London Breakout Strategy. We have the bulls breaking out of the level of the resistance and heading for the hills.And with such a strong breakout,this is the perfect opportunity to pick up  a quick 50-100 pips..  And like I said earlier, if you are a rookie looking for a head start, you’d be crazy not to take advantage of this opportunity.

I guess the obvious question to ask is

Where and How Do Place Break Out Trade Orders?

Let me break the process down nice and easy so you understand better.

  • First draw a support and resistance line around the last three candlesticks formed during the Asian Session
  • Place a buy order 2-5 pips above the resistance zone
  • Next place a sell order also 2-5 pips below the resistance zone.
  • Once an order is activated,you immediately cancel the previous order.
  • To protect your trading position you gently place a stop order in the location of the previous order.

Now let’s see how this work.

London Breakout Forex Trading Strategy

Now take a look at the Asian swing. The 1 23 labels represent the previous three candlesticks I was talking about. Pay close attention to the red support  drawn underneath  the candlesticks.   Now look at the resistance /suport levels in the London market..Place your  buy/sell  above and below these spots respectively.. Once on order is triggered,  cancel the previous pending order.  If you want  to be safe than sorry, place your stop loss order, place your stop loss in the location of the previous order.

If you’re not sure of  how to draw support/resistance levels, read up on Identify Support and Resistance Levels With Price Action Analysis   

 

Now to the most important question of the day is:

How Do I Manage My Trade?

Again, let me break this down nicely for you to understand.

  • If price moves at twice the amount you risked,move your stop loss to break even point. Let’s say  your stop loss is 30 pips, and price moves up to 60 pips. You immediately move your stop loss to break even point. It’s just like claiming partial profit. And you’ll be preventing your position from being wiped out.
  • The next thing you can do is to use a trailing stop to secure the profits as the trade moves in your direction. You can do it two ways.
  • The first trailing technique you can use is by applying the trailing stop when price moves at the same amount that you risked or if price moves at twice the amount that you apply your trailing stop at half that amount.. So let’s say if price moves by 30 pips you place your trailing stop by the same number of pips.
  • However, if price moves up 60 pips,you move the trailing stop by 30 pips.
  • The second technique and best technique to use is to simply put the stop loss behind the high/low points as price moves in your direction. If you don’t want to risk losing your money and your hair at the same time(That is if you have any) This the best way to go.

If you’re still not sure about trailing stops  and other market orders read up on Forex Trading Basics- Top to Bottom Part II.

Close The Trade

Once the London session ends, close the trade and go take a nap. Even if you made only ten pips,(And I’m  only using this as an example), just shut  up shop and  And if you re thinking of adding to your ten pips during the U.S session, you. could be laughing at the wrong side of your face. The market may not move in your direction. Besides, you’ll live to trade another day. So take your profits for the day and put it away for safe keeping.

 

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

That’s  a wrap for ” London Breakout”. As you can tell,  it’s not about London Bridge falling down. It’s about the London Breakout Strategy which touches on huge trading opportunities during the first three hours of the London session. Like I touched on earlier, if you’re a rookie looking for a quick head start, the London Breakout session is IT for you.

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies (includig “London Breakout”) into practice, and get a simulated feel of live forex trading condnitions  before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets

 

 

The Three White Soldiers And The Three Black Crows

Now when you hear “The White Soldiers and The Black Crows” What exactly comes to mind? Some of you will probably be like  “”hmmm….. Sounds like the title of an apocalyptic battle between good and evil.”  Or” They could be the names of two heavy metal bands.” Sorry, to disappoint you, but it’s none of the above..    The Three White Soldiers and the Black Crows are the names of two popular trend reversal patterns,both of which we are going to learn how to trade today. Now some of you are probably wondering “Those are weird names for  forex trading strategies.” Well, I guess forex traders have a morbid sense of humor after all.

So here is what we’re going to do.We’re going to individually take a look at both patterns. Next we’ll see how both patterns play out together on the charts. And,to put the icing on the cake, we’ll learn how to trade  both patterns.

But First

What is The Three White Soldiers Pattern

The Three White Soldiers pattern is a bullish reversal trend,consisting of three bullish candlesticks. This pattern begins at the end of the downward or bearish trend. In other once, the bears run out of steam,the bulls take over the show.  Now how would you know that the Three White Soldiers Pattern is forming? When you have three bulls forming consecutively?And they must open within the body of the previous candlestick.

Also, each bullish candlestick closes higher than the previous candlestick.  This suggests that more traders are jumping on the Three White Soldiers bandwagon. Even better, more traders are also from this trend You definitely want to keep your eagle eyes open for this trend.

Now let’s take a look at how the Three White Soldiers look like by themselves.

Three White Soldiers.svg

This is what the Three White Soldiers pattern looks like. You have three long candles climbing to the heavens with each one unfolding at the same time. And each oneupens within body of the previous candlestick. When you see such a scenario, nobody has to tell you it’s an uptrend and that you need to put in your buy order.

Now let’s see how the Three White Soldiers Look like on the price  chart

THREE WHITE SOLDIERS CHART PATTERN

 

As you will have noticed, the Three White Soldiers take shape at the end of the downward trend. It’s for all intent and purposes a reversal pattern.  as the bears  start to run out of breath at the end of the downward trend the three white soldiers start their upward surge. As I indicated, previously,each candlestick unfurls(or unfolds) in front of  the previous candle.  So as the soldiers keep climbing higher,the opportunity to make huge profits become more apparent.

Next up is:

What Is  The Three Black Crows Pattern?

Well,  just like The Three Black Crows pattern is also a reversal pattern. Except that,  it unfurls on the downtrend. When the bullish White Soldiers eventually run out of stamina, the Three Black Crows take over and begin their downward surge. In this scenario, you have three long candle sticks  trending downwards like a staircase. Each candlestick unfurls  within the body of the previous candlestick. And each candlestick closes lower than the previous candlestick.

So whenever you see the Black Crows taken over from the White Soldiers , just remember that the downward slalom is about to start. Now let’s take a close look at what the Three Black Crows look like  in portrait form

Three Black Crows.svg

This is what The Three Black Crows look like. They are three long candlesticks trending downwards like a staircase.  And just like the White Angels,  each candlestick forms  within the body of the previous candlestick. Consequently the value of each Black Crow  drops. And when that happens,it’s time to put in your sell order.

Now let’s take a look at the Three Black Crows in action on the price chartsTHREE BLACK CROWS CHART PATTERN

The Black Crows have taken over from the White Soldiers as they’ve run out of steam at the uptrend. So their downward slalom begins.Each candlestick unfolds within the body of the previous candlestick. And each candlestick closes lower than the previous stick. And when this scenario unfolds, it can only mean one thin “SELL!”

And last but not the least,

How Do I Trade Three  White Soldiers/Three Black Crows Pattern?

You’d be better off trading the Three White Angels/Three Black Crows patterns in higher times.(If you are not sure about time frame analysis, look up Looking At The Big Picture Using Multiple Time Frame Analysis) .  Let me break down the rules so you understand the process better.

1.If you see the White Soldiers taken shape, place your buy order 3-5 pips above the high of the third candlestick.

2. However,if the Black Crows show up, place your stop loss 3-5 pips below the low of the third candlestick.

3. You may take target your take profits at previous highs at previous highs/lows(or peaks/bottoms).

4. You then move your stop loss order to  breakeven when price hits the amount that you risked or when price has made a high or low.

5. You can also decide  take some of your profits  when price is halfway towards your profit target.

 

That’s  a wrap for ” The Three White Soldiers And The Three Black Crows. As you can tell, The Three White Angels and Three Black Crows are neither a battle between bad and evil nor are they names of rock bands. The White Angels and Black Crows are two popular reversal patterns known to forex traders. So if you hear their names being mentioned anywhere, make sure your minds don’t stray into the gutter for too long.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, including “The Three White Soldiers and The Three Black Crows” and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets

 

 

Trade 123 Strategy – Simple as 123

Don’t let the title fool you.We’re not doing a countdown here. We’re going to learn how to trade a very popular and simple trading strategy called 123. It’s as simple  as 123 if you ask me.  The 123 pattern is a pattern that help s you exploit the prevailing trend.  It’s a pattern comprising of three trade setups which occurs in both the uptrend and downtrend,However,the 123 pattern can also alert you of potential price congestion(consolidation) or trend reversal,depending on the  forex pair you’re trading of course.

So what’re we going to do?We’re going to do s do. what we alway.We’ll first find out what the 123 strategy is all about, we’ll then break down  the pattern for easy understanding, and,to put the icing on the cake, we’ll delve in to how to trade 123 strategy.

But first things first:

What On Earth is the 123 Strategy?

Well the 123 strategy is a very popular reversal formation traded by most forex traders.123’s usually take shape. at the end of trends and they also signal the end of a prevailing trend. You can also catch a a 123 in a ranging market or sideways market. Let’s take a look at a 123 pattern  in an uptrend.

As you can see the candlesticks are conveniently  labeled 123 to reflect the up and down  nature of the pattern. Point 1 is the lowest point and acts as the support. Why?because the uptrend  starts from the bottom. Point 2  is the highest peak of the trend and forms a resistance level to any bullish onslaught. Point 3 represents another support level or the second low point.  The breakout point above point 2 represents the continuation of the bulls upward surge.

If you’re not sure about support.resistance levelsand breakouts, read up on Identify Support and Resistance Levels With Price Action Analysis  and  Break Out Trading Breakouts.

Now let’s look at how 123 shapes up in the downtrend

 

As you can see the 123’s behave differently in the downtrend. Point 1 is the highest peak when price runs into a brick wall called resistance  and the bears take over the show.  Point 2  is the low point or forms a support level. Point three takes shape when price moves up and puts up a resistance barrier.Take a close look at the price break out below point 2. When the breakout happens, it means the bears will continue their slalom run.

Now that we’ve broken down the formation,  Let’s take a look at the:

Trading Plan

123 Trading Plan

We’re going to take a look at a conservative trading plan for the 123 strategy for some of us who need a little extra confirmation in our trades. However, we do not want to take too long  enter our trades,  since we may end up having to make up for a huge loss.  And by the way,all thorizontal lines that you see on the screen represent the lines of support and resistance in all three trade setups. So here we go:

Trade Setup 1123 Trading Plan

 

I hope your vision is as sharp as mine.Because if it is, you’d notice that price surged from point 3, but run into the brick wall popularly called resistance at point 2 and pulled back or retraced.As a consequence of this pullback, a double bottom pattern is formed. This suggests the bulls are losing stamina. To be certain it’s a double pattern you’re looking at, make sure  price has broken through the point 2 resistance level like it’s nobody’s business. Jump in prematurely, and your trading account will blow up in smithereens.If you want to know what a double bottom pattern is all about and other price action patterns, look up Trading Forex Chart Patterns Part I  and Trading Forex Chart Patterns Part II.

How Do I Trade?

Get your trade in once price breaks out  Point 2. Next   place your entry at the close of the daily candle to confirm a solid breakout. You can also put in a buy order just above the candlestick that broke through Point 2.  To protect your account from any unpleasant surprises place an Average Truth Range Stop(ATR) at the candlestick just before the breakout candlestick. Wanna know what the Average Truth Range is? Look it up on my  post Break Out Trading Breakouts. 

Let’s now take a look at:

Trade Set Up 2123 Trading Plan

 

Notice how the bulls go on a tear at point one and the bears take over at the support level  at Point 2. This of course creates a strong reversal , causing price to retrace or pull back inside the previous sideways pattern or consolidation from Point 1. And as  you ca nsee, price representedbythe bulls has picked up strength at Point 2.

How Do I Trade?

Makeyour entry once the price, represented by the bulls break through Point 2. Ma your entry at the close of the candlesitck, NExt put an ATR stop in the middle of the candlestick just before the breakout candlestick.  If you get it right,you should see the cash flowing nicely.

 

Which finally brings us to :

Trade Setup 3

One to One Targets

Now this setup goes against the grain of a typical 123 pattern. Instead of a defined trend, you have a nasty looking consolidated market or sideways market at Point 3. You can see the bulls have started losing steam after a period of domination. Consequently, it has resulted in a stalemate with neither the bulls nor the bears establishing a clear advantage. Notice the way the bulls break through the support at Point 2 but then fall into the consolidation trap. This exemplifies the loss of steam that I was referring to.

Oddly enough, this current stalemate creates trading opportunities. Make sure the coast is absolutely clear before you make your entries or else your account could suffer a Deontay Wilder-style knockout.

Which finally  brings us to:

How Do I Trade?

To make your entry, you can do that a few ways.You can use a multiple time frame approach and settle on a lower time frame . Or  you  can  get comfortable at highs and lows of breakout candlesticks. By that I mean, breaks of support levels and resistance levels.

Now some of you are wondering out loud”Where Do I Take The Profits?” Well, you can do it two  ways. You can add specific targets in support or resistance levels , depending on the trend prevailing at the time. Or you can use  your trailing stop as means of raking up as much profits as they are available on the market. You should besmiling all the way to the bank with this one.

If you wanna know what a trailing stop is and other market orders, Read up on Forex Trading Basics – Top to Bottom Part II. 

That’s a wrap for  “Trade 123 Strategy – Simple as 123”.  The 123 strategy is a very powerful continuation   price action strategy  for making profits.  All  you’re doing is taking advantage of the prevailing trend at the time. It can also alert you of incoming price consolidation also depending on the currency pair you are trading.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, including the 123 strategy and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

 

Looking At the Big Picture Using Multiple Time Frame Analysis

Hello

Today we’re going to talk trading time frames.And please we’re not going to watch a movie called “The Big Picture.”  We’re going to be looking at the big picture  using multiple time frame analysis. We are looking at the big picture so as to gain better perspective on the direction of the trend. Have any of you seen 1 min 5 min, 30 min 1 hr 4 hr,  time f on your MT4  platform? These are the different time frames that currency pairs are traded in.Think of these time frames as different time zones.

Image result for images of  mt4 platform- forex

Take a close  look at the time frame labels right on top of and  underneath graphic. They’re the time frames that I’m refering to. Each time frame shows the same data but in a different trend. All time starting with H represent hours, and all time frames starting with M represent Maths. However, there are other time frame frame categories for daily, weekly,  and 8 hour time frames.

 

Now why do we want to gain better perspective on the the direction of the trend? because the direction of the trend is different in each time frame.I’s absolute suicide to trade in just one time frame.  WhyYou could have the GBP/USD pair in an uptrend on the 1 hr chart but then reverse to a   downtrend on the 4 hr chart. Even more important it saves you the headache of losing trades on a regular basis.Now that’s one massive headache we want to avoid.Don’twe?

 

So we we’ll do the following. We”ll define what multiple frame analysis is,Why we need to see the bigger picture using Multiple Frames, and how we trade using multiple time frames?

I guess the question of the day is:

What exactly is Multiple Time Frame Analysis?

Well basically, multiple time frame analysis  is the process of looking at the same currency pair and the same price but at different time frames. The currency pair exists on time frames ranging from the 1 minute time frame to the monthly time frame.  It’s like looking at two things with different sets of lenses. The strange thing about multiple time frame analysis is that two traders may have a  difference of   opinion  on a currency pair  as wide as the Grand Canon,and yet they may be spot on about the pair. For instance one trader sees the GBP/USD pair on the downtrend on the 4 hr trade. While another may see the same pair  ranging up and down on the 5 minute chart

However, this poses a major problem. When a trader sees a  signal to sell at the 4 hr time frame, but then  takes a peek at 1 hr time frame only  to see the bulls gradually climb the hill, he immediately develops this puzzled look on his face like, “What the heck is going on here?” Then he asks himself”Do  I go with the 4hr frame, and run with the sell signal? Or do I play Heads or Tails and decide whether to buy or sell”?  Unfortunately both options are recipes for disaster.

Which bring us to the next question?

Which Time Frame Fits My Personality?

One major reason why a lot of traders flop is they fail to ask themselves “Which Time Frame Fits My Personality?” Some trade the 1 minute and 5 minute time frames,hoping to strike it rich. Unfortunately they incur  huge losses and quickly get frustrated because these two trading time frames do not fit their trading personality.

Some forex traders feel at home trading the 1 hr time frame. Why? Because, in his opinion,  this time frame has balance. It’s long but not too long. And it has fewer  trading not signals, but not too few.  This time frame gives them more time to look for trades and not feel like they have to rush to catch a plane. On the other hand, there are som traders who would never trade the  1 hr time frame if the lives depended on it.  They find this time frame so slow that they’d  probably slip into a coma unawares before spotting a trade. So instead they prefer trading in the  10 minute time frame because it gives them just enough time to implement decisions on his trading plan. Ten minutes may not be enough time,but hey to each his own.

There are also another set of traders who are like”Why would  anyone trade on a 1 hr trade”?It’s too fast.” So they only trade on daily,weekly, and monthly charts  which bring stability and solid profits.  Some of you are probably “ How Will I Know The Time Frame That Fits My Personality?”  Well, I suggest you open a demo account where you use virtual cash  try out all the various time frames until you find the time frames that fit your personality best. Once you discover the time frame that fits your personality, you ‘re now ready to go live on the forex market. In fact while trying out your time frames on your demo account, you can try out your  other trading strategies also. This will make you better prepared before you  decide to go live.

Which brings us to the next burning question.

What is The Best Time Frame to Trade?

At  the risk of sounding like a broken record, it depends on your trading personality. If you like to take things slow like a turtle and deliberate on your trades, then longer time frames like  daily, weekly and monthly charts  could be your cup of tea. If you like everything fast like a  Formula I race car driver, the 5 minute charts will suit your fancy. Just make sure you don’t get burnt. Below is a table,courtesy of babypips.com, which highlights the various time frames and the differences  between each of them.

TIME FRAME DESCIPTION ADVANTAGE DISADVANTAGES
LONG-TERM Long-term traders will usually refer to daily and weekly charts.The weekly charts will establish the longer term perspective and assist in placing entries in the shorter term daily.

Trades usually from a few weeks to many months, sometimes years.

Don’t have to watch the markets intraday.Fewer transactions mean less times to pay the spread.

More time to think through each trade

Large swingsUsually 1 or 2 two goods a year so PATIENCE is required.Bigger account needed to ride longer term swings

Frequent losing months

SHORT-TERM (SWING) Short-term traders use hourly time frames and hold trades for several hours to a week. More opportunities for trades.Less chance of losing months.

Less reliance on one or two trades a year to make money

Transaction costs will be higher (more spreads to pay).Overnight risk becomes a factor
INTRADAY Intraday traders use minute charts such as 1-minute or 15-minute.Trades are held intraday and exited by market close. Lots of trading opportunities.Less chance of losing monthsNo overnight risk Transaction costs will be much higher (more spreads to pay).Mentally more difficult due to the need to change biases frequently.

Profits are limited by needing to exit at the end of the day.

 

 

There are two things you need to get out of this tabular explanation.First is that smaller time frames give you the freedom to make better use of your margin and put in safer stop losses. Second, larger time frames require huge stops. To be able to put in these huge stops, you need a larger trading account in order to deal with the market swings without  facing a margin call from your broker.

Some of you are wondering “What’s a margin call?” Well A margin call is a broker’s demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance marginMargin calls occur when the account value depresses to a value calculated by the broker’s particular formula. In other words, your account is running low,and that you need to top it up.

Just remember that your choice of time frame should fit your trading personality. It’s like a man looking for his rib, or his significant order. If the rib doesn’t fit, it means the woman is not meant for him.  It’s the same thing with choosing a time frame.  If your choice of  time frame does not gel with your trading personality, it’s not meant for you. You need to try all the all these time frames,a nd decide which time frame fits your persona.  Once you’v found the right time frame to fit your trading personality then you can explore your horizons by looking at trading multiple time frames.

I guess some of you are like:

Why should I  Trade Multiple Time Frames?

Because it’s good for  yours soul.  And You need to, you guessed it, LOOK AT THE BIG PICTURE.  You  cant get  stuck on one time frame for the rest of your life. Let me create a  nice little scenario.Let’s  say you are looking at a 10 minute chart of the GBP/USD. You see a 200 SMA(Simple Moving Average ) which appears to b resisting  the bears. With resistance holding and  the bulls turning into doji’s, You’d think “Now is the perfect time to sell” as illustrated below.

 

Multiple Time Frame Analysis: 200 SMA holding as resistance

 

 

Well, “Not so fast” says the GBP/USD pair. The pair do a 360 and charge through the resistance barrier, gaining another 200 pips. And then you are like “What’s going on here?”Multiple Time Frame Analysis: 200 SMA holding as resistance

 

Well let’s open up the 1 hr chart and see what  happened.

If you had been paying attention,you’d have noticed that the pair had started inching up from the bottom of the ascending channel. Also, that doji you thought had formed at the resistance was actually announcing its presence at the level of support! An obvious buy trade signal, if you ask me. Take a look below.

Multiple Time Frame Analysis: GBP/USD at the top of the channel

 

 

 

Open up the 4 hour chart and the ascending channel  become a lot clearer as indicated  in the graphic below.

 

Multiple Time Frame Analysis: 4-hour chart: GBP/USD at the top of the channel

If you had been patient enough to check this 4 hr chart first, you would have saved your money the trouble of going short like you did on the 10 minute chart. And I like stated earlier, all the charts are showing the same data except that the data was shown in different time frames/

So do you now understand the importance of  surveying multiple time frames before trading?

As the saying goes,if something is too good  to be true,don’t fall for it. The same rationale pertains in  forex trading also. I’ve fallen for it several times myself. You see while the price grinds  to a halt on the 10 minute chart it can also massage the support barrier in the 4 hr time frame.  The moral the story is the larger the time frame, the higher  the likelihood of a support or resistance level  holding sway.

Trading multiple frames will most certainly save you  from losing needless trades .These frames also help maintain your trading position a little longer, which of course will do wonders for your trading account.  Also,  by  using multiple time frames you get a better  view of the bigger picture. You are able to gauge your trades better as a trader, as opposed to putting in five average trades within a week. Not to mention the fact that you risk losing valuable cash in these trades.

I guess the moral of the story here is  not to get hooked on one time frame and ignore the others. You risk getting distracted by  flash trends that don’t last, and, at the risk of repeating myself,you miss the big picture.

Now that we’ve identified why we need to utilize multiple time frames in our trading, I guess the appropriate question should be:

How Do I Use Multiple Time Frame Analysis to Find Solid Entry and Exit Points

Take a holistic look at,you guessed it, THE BIG PICTURE.  In other words, take a broad look at what’s happening on the market. But please don’t get too chummy with market. Stay as far away as possible from the market. Why?Because a  longer time frame takes longer to develop meaning that it will take a humongous market shakeup for a currency pair to change routes. Also support and resistance levels take on greater significance in longer time frames than the shorter ones.

With that in mind, start by choosing your favorite time frame to trade. And then move up to a higher time frame.Next,you ask yourself “Do I go long or do I go short”? This depends on whether  the market is ranging or trending. Now go back to your  favorite trading time frame to decide on where to enter and exit your trades. In layman’s language, decide on where to place your stop loss and profit targets. Also, Keep in mind that by trading  using multiple time frames,you get an edge over other traders whose vision is stuck on only one time frame.

Now that I’ve shown you how to find entry and exit points using multiple time frame analysis, I guess the burning question on your anxious minds is:

How Do I Apply Multiple Frames Analysis.

Simple.  I’ll show you a practical example of how it works. After a few months of practicing on your demo account , you come to the realization that the EUR/USD pair makes you feel good. And  that you’d like to trade this pair on your live account. So far so good. You first start off with the 1 hr chart because you believe the 15 minute chart runs too fast like a Ferrari, and the 4 hour chart  crawls like a turtle. You’d rather go for the 1 hr chart because it’s not too fast, not too slow.

So you then check out the 4hr chart to help you ascertain the overall trading picture as far as trend goes.

Multiple Time Frame Analysis: EUR/USD in a clear uptrend

 

Upon further reflection, you say to yourself “Hmmm this pair is clearly on the uptrend. I should be looking to buy.” This makes sense because, as the saying goes, the trend is supposed to be your friend.Right? Besides the last thing you want is get caught in no man’s land by way off trading against the trend. The market won’t forgive you for that.

You then U-turn back to your favorite 1 hr chart, hoping to spot an entry point.

Multiple Time Frame Analysis: EUR/USD testing the ascending trend line

You discover a doji sitting comfortably on  on your trendline. You then say to yourself with a thick frown on your face,”Hmmm! Should I go for this?”You’re asking yourself this question because you do not want to make a false move that will bite you later. So you hurriedly  revert back to the 15 minute chart in the hopes of finding a better entry point that will give you better confirmation. You get back to the 15 minute chart line to discover that the trendline is holding the fort quite strongly. Your gut instinct tells loudly and clearly ”THIS COULD BE A GOOD TIME TO ENTER AND BUY.” You realize your instinct was spot on because the bulls continue to rise, causing the EUR/USD to climb the charts. So you gleefully enter your trade,with the view to keep your position open and pick up about 400 pips along the way – not bad for a couple of weeks work.

Keep in mind that you can only do so much with too many time frames. The last thing you want is a slew of charts spread across your PC screen, and  giving you different readings. This is enough to give you  a humongous head ache, not to mention pull youhair out also(If you have any at all).

What’s the moral of the story?Look at no more than two time frames- maybe three. Anything more than that will  send you straight into analysis paralysis followed closely by insanity.

Now is this a better way to do multiple frame analysis or what? Basically you just have to find what strategy works out best for you.  And make sure you keep the big picture in mind.

 

That’s  a wrap for “Looking At the Big Picture Using Multiple Time Frame Analysis . ” It really pays to look at multiple time frames before entering your trades. You get the big picture as to where a trend gets started. And you spare yourself the heartache of of missing out on a trade simply because you failed to do proper diligence without scanning all the time frames.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice including “Multiple Time Frame Analysis”, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarket and get a free forex trading ebook

 

How To Trade 50% Trade Retracement Strategy With Price Action Analysis

Don’t worry! We’re not going to learn how to retrace your footsteps to recover lost cash. Instead, we are going to learn how to to trade the  50% retracement strategy with price action analysis to make a lot of cash. Makes sense doesn’t it? By the way the 50% trade retracement strategy is one of the most powerful trading strategies you’ll ever trade with. You most certainly need to learn this pattern like the back of your hand if you want to rake in the moolah.

So we are going to three things: As usual,we are going to define what the 50% retracement strategy is.  Next , we’ll learn how to find the 50% retracement strategy

But first things first: and finally, how to trade the 50% retracement strategy.

What on Earth is a Retracement?

Well a retracement is a temporary reversal in the prevailing trend. It could be a pull back in an uptrend or a strong rally in a downtrend. As I’m sure you’re all aware by now, the market rarely moves higher or lower in a straight line. Look up any price action chart,and the evidence is abundantly clear. So once the market triggers the initial surge, a reversal  takes places. By the way, a retracement is a regular event on the forex market.And this regular occurrence gives you free passage into the market and partake in the huge surge.

To help you understand how  a retracement works, let me paint this nice picture. A group of investors  have this gnawing feeling in your gut that the bulls are heading for the mountains. So they put in a bid to buy higher. Of course, the investors’  decision to buy higher causes the market to  push higher also. Traders also  notice this spike  and are  like”Heck,we’re going to jump on this gravy train also.”Why? Because they figure they will miss out big time,if they don’t get in on the act immediately.

These investors then close out their positions  thinking “We’ve made enough money.Let’s getout while the iron is still hot.” So what  do they do?  They decide to sell to the very investors who jumped on their gravy train. It’s at this juncture that the market starts pulling back. Once the market pulls back about halfway, these investors then huddle up and as themselves”How about we cash in again since the other traders are exiting like flies because their stop orders have taken massive hits?” Once these investors have made up their minds, to cash in some more, they start adding to their already bulging  profits. Their already bulging prosperity sends the market surging one last time,  causing the process to restart.That’s how the retracement pattern works.

I guess the next  question we need to ask ourselves is

How Do We Find  50% Retracement Level?

First identify whether the move starts with a high or a low. Now once you have identified the Genesis of the price move, we then apply a very popular tool  called the Fibonacci tool to click and drag the other end of the Fibonacci tool to the end of the price move, where the price move terminated. You should find “100.0” in the top right hand of the Fibonacci tool  and “0.0” at the bottom of the tool.” Some of you are probably going “This confusing. Why is 100.00 starting at the beginning of a price move?” Well retracement basically means pullback.  Meaning, that by the time the market goes into reversal mode, it goes back to where it started from. And if it retraces back up or down on the same move, it would have retraced to 100% . Let’s take a look at a 50% retrace in action on the EUR -USD pair

Image result for Forex - How to use Fibonacci tool to find 50% retrace in eur/usd pair

This, ladies, and gentlemen is an illustration of how to find the 50% retracement level  of the EUR/USD pair in a downtrend. Now as you can see,  the line is dragged with the assistance of the Fibonacci tool from the 100% level(as indicated by the orange line) all the way to the end of the price move. Now notice the price signal forming at the 50% retrace level.  This signal takes place after the temporary reversal when price hits 1.4023.

Now let’s look at the drawing of the 50% retracement level on the uptrend using  the USD/JPY pair.Image result for Forex - Drawing 50% retrace with fibonacci tool

Here is another illustration of finding the 50% retrace  pattern, this time,on the uptrend. The Fibonacci tool draws the line from 100.0 all the way up to 0.0 where the trend ends. Notice the temporary  reversal  at the 50% retracement level where price finds support.

Now that we’ve identified how to find the 50% retrace, I guess the logical question will be:

How Do We trade price action signals from 50% Retracement Level?

Well, the moment your eyes tell you ” Hey  we see a price signal on the chart” just use the Fibonacci tool to connect the signal to the 50% retracement level. So long as both scenarios match, you  got yourself a trade. Now if you can also spot a key level of resistance also that should make you say “This is great confluence going on here.”After spotting the price signal, you have two options. You can can enter at market prices, or wait for a pullback to tighten up your stop loss and reduce general risk to your trading position. Let’s take a look at a USD/CHF graphic

 

Image result for how to trade price signal on 50 retracement

As you can see, price slides down to previous resistance level. See  coincidence of the previous resistance level with the 50%  Fibonacci level, which of course translates to confluence.

Now if you ‘ve forgotten what confluence is all about, check out my post  Something Called Confluence.

 

That’s  a wrap for ” Trade 50% Trade Retracement Strategy With Price Action Analysis”   I hope you now have a clear understanding on how to find and trade 50% retracement patterns Just remember that whenever you spot 50% retracement patterns in a prevailing trend, it makes sense to label them on your chart and then be on the look out for any juicy price signals.  You could make some huge moolah from these setups.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

If you want to know all there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(including the 50% Retracement Strategy),and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarketsand get a free forex trading ebook

 

Identifying Dynamic Support and Resistance Levels

 

This week we’re going to try identifying dynamic support and resistance levels. Remember when we tackled   Identify Support   and Resistance Levels Using Price Action Analysis?  Well, dynamic support and resistance levels are what I call the supersonic siblings of the static support and resistance levels that we covered earlier. They reflect the constant change seen on breakouts of support and resistance levels.

Although static models such as pivot lines, trend lines and channels are useful for price action analysis, they don’t adjust themselves based on the market action. Dynamic support and resistance levels reflect that evolutionary change. They are able to self-adjust as price action changes.

So we’ll look at a couple of tools that are popularly  used for dynamic support and resistance assistance.

The first tool is:

Moving Averages

As you are well aware, moving averages   calculate the average price of a currency pair over specific time frames. Ask most traders, and they’ll tell you that moving averages is their favorite indicator. Why? Because moving averages is a better reflector of the speed of light changes occurring on the market. With moving averages, you put in your  order when price dips and touches the moving average.

Now since we’ve already covered moving averages on this blog, we’re not going into much detail. So for the rest of you if you want to refresh your knowledge on moving averages, or you’ve stumbled in here wanting to know about moving averages, check  on  We’re Moving Averages Part I and  We Are Moving Averages Part II.

Let’s take a look at a 15 minute GBP/USD chart using the 50 EMA Moving averages can also act as dynamic support and resistance

Looks like the 50 EMA is holding its own fairly well. Whenever it took a hit from the pair, it resisted strongly, forcing price to bounce back like a ping ball. Keep in mind that there is no such thing as a perfect bounce. There are times when price will miss the barrier a little bit before heading back in the trend.

There are also times when price will say “The heck with this. Let me just blast through the line altogether.” What you could  do in this situation is that you set up two moving averages , and ONLY put in a buy order when price hits the middle of the space between the two moving averages.

Let’s take a look at the 15 minute GBP/USD chart, this time using the 10 and 20 EMA’s.Area between moving averages can be a zone of support or resistance

 

As you can see price climbs past the 10 EMA by a few pips. But then it proceeds to take a tumble afterwards. The whole idea is that moving averages should be treated as zones of interest just like the traditional support and resistance levels. Why? Because that’s where the price action is. Thus, the middle space between moving averages could   be considered a zone of support and resistance.

Which brings us to a burning question?

Can Moving Averages Be Penetrated?

Of Course Yes. Just like any other support and resistance level, moving averages can also break and fold. Let’s take another look  at the 50 EMA on the the 15 minute GBP/USD chart.

As you can see, the 50 EMA is holding firm as GBP/USD keeps ping ponging off the barrier. Unfortunately, repeated body punches sustained by the 50 EMA forces it to bend over, creating the escape the bulls need to head for the hills. Price, feeling so confident all of a sudden pulls back and decides to hit the 50 EMA some more at the support level. Unfortunately for the bears, they run into a bulwark of a 50 EMA at the support level.

Because of the dynamic persona of moving averages, you don’t need to stare at your PC all day. Why? Because it’s always changing. All you have to do  is something popularly termed “Set and Forget.: You set the moving averages on your screen and go grab a cold drink outside the house while the moving averages spot potential  resistance and support trading zones. In other words, GO AND SMELL THE ROSES.

The next tool is

Price Channel

The price channel is another useful tool as far as dynamic support and resistance levels go. The price channel is similar to the traditional trend line, except that it has another trend line running parallel to it. So within the layout of the price channel, you have well defined limits for tops and bottoms.

I guess the first question we need to ask is:

How Do We Trade The Price Channel?

We first start by drawing a line on the chart. To do that we start by identifying a price in the price action where the tops and bottoms are moving with similar gusto. If your eyes are glued on the uptrend, you can draw a line through the tops and bottom. Then draw another line parallel to the first line, which passes through the tops of the price action. If you are able to accomplish these two procedures, you have yourself a price channel.

Let’s take a look at how the price channel looks like on the USD/JPY chart

Channel-Trading-Indicator

 

Here is a typical trend line drawn on a bullish trend. This bullish characteristic is confirmed by the lower level of the channel passing through the bottoms of the price action. Notice the upper level is parallel to the lower trend line, connecting the diagonal boundary where the price action takes place.

Let break this down to the bearest minimum. The lower level is the support level, while the upper level acts as the resistance level. The black arrows indicate the support and resistance   actions on the price channel. See how price dips to the lower level  of the channel and launches off the barrier like a ping ball? Next the price tries to reach out and touch the upper level of the price channel and does its ping balling routine there also.

Entry and Exit Trading Points

As you can see, channels are very useful for marking entry and exit trading points. When the price channel starts acting bullish, you look to make your trade once the price ricochets off the lower level. Then hold your trade until the bulls reach out and touch the upper level of the channel. Once the price bounces off the upper level, you can choose trade the bearish move to the lower level. But I wouldn’t make that choice if I were you, since the price moves are relatively smaller than the general trend moves.

The Moment Price Breaks Out

At some point, the price channel ability to withstand the blows of the bulls is bound to give way. And when that happens, the price, aided by the bulls shoots for the mountains through the upper or lower level. It then ends its run with a strong closure at the lower level. Let’s see an illustration of the price channel breakout

 

Channel-Breakout

As you can see, price initially stays in its lane. But then it suddenly breaks through the lower level (as indicated by the red circle). And here, the bearish influence is everywhere, as evidenced by the strong presence of the bears. The bearish presence also accounts for the price’s dip in value. If you want to kno more about price channels, look up  We Are Going To Talk Channels.

Last but not least is:

Linear Regression Channel

. Now the linear regression channel is similar to the price channel except that it has a middle line which is a median price value. Now avoid unforeseen collisions, the upper and lower levels are clearly distanced from the median line. You can also use this line to facilitate trades going in the direction of the prevailing trend. Let’s look at a pic of the USD/CHF pair

Linear-Regression-Channel

This, ladies and gentlemen is the Linear Regression Channel. Nicely lined are the upper level, lower level, and the median line. The black arrows points to price massaging the median line at both support and resistance. But watch when price pierces the median level. It triggers a shift to the opposite channel line. The Linear Regression Channel is also useful for confirming trades, especially breakouts. Simultaneously, you can also use the median life to execute exits from trades.

If you want to know some more about trading the Linear Regression Channel  look up Trading Linear Regression Channel. And if you really want to understand dynamic support and resistance levels, I suggest you read up on their static sibling Identify Support and Resistance Levels with Price Action Analysis

That’s  a wrap for “Identifying Dynamic Support and Resistance Levels ”   As I said earlier, Dynamic and support resistance levels are a relection of the speed of light changes occurring on the forex market. Thanks to tools such as moving averages and price channels, you can better the capture the price changes,breakouts and other moves happening on the price chart.  Next time we’ll tackle another exciting topic on the forex trade.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(including dynamic support and resistance levels), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

Trading Linear Regression Channel

Hello, We’re gonna look at “Trading Linear  Regression Channel”.  Don’t panic! We’re not doing Michael Jackson’s moonwalk here. We’re going to look at an important trading tool called the regression channel. This tool is very popular among traders as far as price action analysis is concerned. Without wasting too much time,we’re gonna do the following: We’re going to look at what this regression channel is all about. Then we’ll transition into looking at the three lines that make up the regression channel,and finally we’ll end with how to trade the regression channel. But first,

What exactly is a Linear Regression Channel?

Well a linear regression channel is a technical indicator consisting of three lines. Well, that’s not all,if that’s what you’re thinking. The linear regression channel outlines the upper and lower limits of a live trend. It helps traders hunt for the best entry and exit points available  even if the price gives traders mixed signals. Which brings us to:

Structure of the Linear Regression  Channel

Now the linear regression channel is structured in three parts namely, the Upper linear regression line, the lower linear regression line, and median .  Now the upper linear regression line signifies the top of a live trend with the lower and middle line lines running  parallel with the linear regression line.

The lower linear regression line is pretty self-explanatory. The lower linear regression line marks the bottom of a trend.Now how does the lower linear regression line  come about? The lower linear line  comes about by cutting through the most obvious bottom trough of the trend. Of course the upper and middle lines trudge along as they run parallel with the lower linear regression line.

Last but not least, the median line is what we’d call the base of the linear regression channel.  It’s more like the conduit of the entire regression trading process in that it is draws the midpoint of a trend. So to avoid colliding head on with this trend the upper and lower lines are evenly distanced. They keep as far away from the midpoint as possible.  Let’s see the Linear Regression channel in action

linear-regression

There you have it. The linear regression channel indicator in all its splendor. You can see the upper line, lower line and median line, all nicely lined up. The black arrows point to the top and bottom projecting the most in the trend. While, of course, the three blue lines point nice to the upper lower and median lines.

Now there are two types of  regression channels- namely the bullish and the bearish regression channels. These two channels  have built their reputations based on the linear regression slope.  We’re going to take close look at both regression channels.

Starting with:

Bullish Regression Channel

The bullish regression channel makes itself known on bullish trends.  When you see the bullish regression channel setting up shop, that should tell you two things: price is increasing, and the slope is heading upwards. Let’s see the bullish regression channel in actionbullish-channel

Ladies and gentlemen, here is the is the bullish regression channel in the flesh. As you can see, the trend is bullish with the bulls in full flight with the regression channel in an upward slope.

Last but not least is:

Bearish Regression Channel

The bearish regression channel is the complete opposite of its sibling the bullish channel. Unlike the bullish channel, the bearish channel makes its home on  bearish trends.  In  this scenario,the bears drive down the price, causing the slope of the linear regression to  dive downwards. So basically everything is slaloming downwards in the bearish scenario. Let’s see the bearish regression channel in action.bearish-channel

This is none other than the bearish channel. As you can see the trend is bearish. And when you have a bearish situation,it can only mean one thing:the bears have come out to play. And when this happens, the  channel slopes downward as illustrated above.

I guess  the question burning on everybody’s mind is:

How Do We Draw The Linear Regression Channel?

There is not much to it.  Just draw the linear regression channel.Okay, on a  serious note, pick the starting point of a trend and strecth the regression indicator for all its worth until it reaches and touch another significant point of the trend. Meanwhile,the three lines will correct themselves according to the most obvious top and bottom of the trend.Let’s see the drawing of the regression channel in action.drawing-regressionchannel

Right in front of us is the live drawing of the regression channels in an uptrend.  And   as you can see, the regression channel(on the left) starts from the bottom of the uptrend and touches the engulfed candle at the top of the uptrend. A word of warning though. Dont ever force a regression channel to fit a trend. Do  so at your peril.

What to Look For in Regression Line Analysis

Now that we’ve drawn our three lines, it time to analyze these lines. The main feature you need to keep your eye out for when analyzing regression lines is price reaching out and touching these lines. Whenever price caresses the upper or lower line  a sea change occurs on the chart,  be it uptrend or downtrend. And like I said,the three lines tend to correct themselves depending on how prominent the tops and bottoms of the trend are. Let’s take a look at such an illustration in an uptrend

linearregression-analysis

We’re looking at price action in a bullish regression channel. The black arrows at the bottom of the channel indicates the price action being contained within the channel.

Now let’s take a closer look a the lower line of the regression channel  indicator. If you have the   vision of the hawk, you’d notice a trading opportunity through the freshly created   bottom on the lower line. And  guess what your trading position should be:GO LONG OF COURSE. This is a bullish trend,and naturally your trading inclination would be to go long. You should be able to ride the trend’s momentum until you reach the top of the trend where the other black arrow is situated.

Take a closer look at the lower line, and you see a major reversal taken place.  The bears have taken over the show after putting so much pressure on the bulls. They’re basically saying “Anybody for a slalom ride?” Also take a close look at the pin bar formation followed almost immediately by another bear breakout at the low regression line. And if you want to know more about the pin bar formation,check up on Pin Bar Strategy – How To Trade It.

I guess the question everybody is burning to know is:

How Do I Enter Linear Regression Trade?

Wellif you’re dealing with a bullish trend,  buy  the pair once the price ricochets (bounces)   a second time off the lower line of the regression indicator. The second bottom at the lower line should signify the uptrend and announce the bulls presence. Therefore make your trade at this time, while the bulls’surge is on.linearregression-analysis

See how  the second bottom forms at the lower line where the second black arrow is pointing. Make your trade once price bounces off that area.You would most certainly want to take advantage of this bullish surge while you can.

I guess the next appropriate question will be:

How Do I Enter Bearish Linear Regression Trade

Well entering a bearish linear regression trade works similarly to that of entering a bullish trade. The only difference being that the bearish regression trade works in reverse.By reverse,I mean  a reversal occurs with the bears dominating things Let’s take a look at the situation.Structure-of-the-Linear-Regression-Channel-IndicatoYou can enter your trade at the second  bounce going down instead of going up-.See how the second bottom forms at the lower line.Excep that it forms towards the end of the slope,instead of the beginning. And just like I said for the bullish trend, you absolutely want to take advantage of this bearish slalom while you can.

Worried about safeguarding your trading position? I guess your question will be:

Where Do I Place My Stop Loss?

Before I even get started,you’d be crazy not to place a stop loss when trading linear regression channels. Your trading account wont forgive you for such negligence. But anyways, back to the question: Well, if you are  trading a bullish linear regression setup  below the high created by the high bounce from the upper line of the regression indicator.

Going the opposite direction, if you are trading a bearish setup, place your stop loss above the high created by the high ricochet from that same upper line of the regression indicator. Let’s take a  look at a bullish linear regression channel illustration.

Linear-Regression-Trading-Strategy-1-

As you can see this is a bullish line regression channel.Take a close  at the two bottoms labelled  numbers 1 and 2. These two bullish candles create the regression channel indicator. Such that when price takes a high bounce for the second time,we connect the two bottoms, using the  regressive indicator and prepare to go long(buy). However, to protect your trade against an unexpected U-turn by the market, place a stop loss below the new low.

However, some serious action is taking place at the median line(middle line). The bulls surge through the medial line, creating a swing in the process. Then the price,with the help of the bulls expand to the upper and

Upper  level. And when that happens, listen to that little inner  voice when it says “Close Your Trade.”

Watch the second trade form when the bulls reach the lower backyard  of the regression channel. The bullish candle goes up a notch once after touching the lower line and bouncing off the lower line. Look to enter a trade and then place  your stop loss below the freshly created bottom.

Once the bulls bounce off the line ,see how  these  head for the hills and manage to reach the upper echelon of  the Linear Regression Indicator with rapid speed. Once the bulls reach the upper line,it’s time to close the trade.

However, much to our surprise the unexpected happens. The price makes a U-turn back to the lower line o the Linear Regression Indicator. Notice the price bounce off the lower line again. What does this mean?It means we’;ll have to go through the process all over again. We buy the currency pair and place  our precious stop loss below,you guessed it,  the freshly created bottom. Then we hold our horses until the bulls reach the upper echelon(level) of the linear regression indicator.

Take Profit Rules In Linear Regression Channel

The way I see it, you have two options as far as take profits trading the linear regression channel is concerned.  First,you can put your trade on hold until the price hits the opposite Linear Regression level, as discussed earlier.

The second option would be to hold your trading horse until the price action pierces the median(middle line) opposite the dominant trade. What does it mean? If you decide to go long, until the price breaks the median line and heads downwards. But if you decide to close the trade when price dips below the median line and heads for the hills.

Oh, and by the way! You’d be commiting suicide If your trades arestill openwhen the price break the channel in the opposite trend. If a breakout occurs, just close your trade and get ready for the countertrend.

Now let’s look at a an illustration of these take profit rules using a bearish linear  regression exampleLinear-Regression-Trading-Strategy-2

 

The two numbered points are the bases of the Linear Regression Channel. See how price bounces off the upper line for a secondtime. /In such  a scenario, look to go short. You then protect your trading position with a stop loss above the freshly created top, as inidicated by the red horizontal line.

Also ,see how price takes a dip and goes below the median line. Since you want to protect your trading position at all costs, you’d do well to close the trade once the bulls break the median line from below.

And , just like the bullish regression line example,earlier, price comes back to hit the upper echelon of the linear regression . This bearish bounce off the upper line suggests that you enter a short trade, and, you guessed it, placing a stop loss above the freshly created top.

Take a close look at price dipping below the median line and touching the lower level. If you’re tempted to jump into the fray,DON’T! Wait untiluntil price makes a switch above the median line and then close the trade.

Have you noticed how the bears came back to create another bounce by hitting the median line for the third time? Seems the bears enjoy this hit and run tactics. Don’t they? Unfortunately you’d have to sell the currency pair and place  a stop loss  as the image suggests.

If you want to know some more about trading channels look up We Are Going To Talk Channels.

 

That’s  a wrap for “Trading Linear Regression Channel. ”   As I said earlier, trading the the linear regression channel is very valuable to traders as a price action analysis too. You can  sure get some exciting trades using this tool even if the market tries to throw you off the tangent. Once you catch these opportunities on the regression channel, you are good to go.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

Next time we will look at Trading Dynamic Support and Resistance Levels, the sibling of the static  Support and Resistance Levels.You may want to look up Identify Support and Resistance Levels With Price Action

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies(Including Linear Regression) into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

 

 

 

 

Break Out Trading Breakouts

 

Today we’re going to break out trading breakouts. It’s my fancy way of saying we are going to learn how to trade breakouts.  No, we’re not talking about the major zit breakout you experienced when you were a teenager..  No this breakout happens around psychological levels such as support levels, pivot points, e.t.c.Breakouts are great opportunities  to make profits. They are a result of the bulls pushing the prices up and heading for  the hills. Breakouts are fun to trade because you get to pick up a ton of cash along the trail if you recognize the opportunities quickly enough.

So we are going to do what we always do. Find how breakouts occur, the types  of breakouts,  and how to trade them.

How Do Breakouts Occur?

Well,breakouts ‘break out’ (For want of a better word) of a consolidation or trading range. Once the heavy players have taken a breather , they continue with their journey. Breakouts also occur when a specific level  such as support and  resistance levels, pivot points,e.t.c.The main objective behind breakout  trades is to make your entry just when the price breaks out. You then enjoy the ride  until volatility  fades away.

Speaking of volatility

Think Volatility Not Volume

Why should you think volatility and not volume? Because it’s difficult having a graphic illustration of the volume of  trades. In view of  this deficiency, it becomes even  more important to rely on solid risk management  in order to take advantage of  a price breakout. If price movement increases within a short space of time, then volatility is considered on the high side. However, if   there is little price movement within that same short space of time then volatility is considered on the low side.

Sure, it’s tempting to move into the market when ti’s moving as fast as a speed train. However,you risk spiking your anxiety levels,resulting in poor decision making resulting in heavy losses from impulsive trading. In as much as high volatility attracts forex traders like a magnet, it is this same volatility that  kills of  al lot of forex traders of the forex market. So what’s the moral  of the lesson? Use volatility to your advantage.Instead of following the herd and lumping head on into the market, it makes perfect sense to scope for currency pairs with low volatility. This way you will be in a position to take advantage of breakouts and sky high volatility.

And while we’re still on the subject of Volatility

How Do We Measure Volatility?

You can use the following indicators to measure volatility. They come highly recommended . First:

Moving Averages

Moving averages are probably the most popular indicator used by forex traders. It may look simple, but  boy does it provide crucial data for as far as making trading decisions are concerned. In simple language, moving averages measure the average movement of the forex market over a period of time, wherever you want that time frame to be located.

Use moving averages to measure price volatility.

As you can see, the blue line represents the numerous averages set to measure specific periods over a period of time. If you want to refresh your knowledge of moving averages, read up on We Are Moving Averages Part One and  We Are Moving Averages Part Two  

Next up is

Average Truth Range

Don’t panic! The average truth range is not a lie detector machine. It merely averages the average trading range of the market  over  a period of time. You can choose whichever time frame that you want to analyze. Let’s say you set ATR  to 20 days on a daily chart . The ATR will show you the average trading range  for the past 20 days for the past  20 days. Let’s see how the ATR looks like.ATR

When ATR falls,it suggests volatility is dropping as suggested by the yellow shaded area But according to the coconut color, when ATR rises, it’s an  indication that ATR is on the rise.

Now onward to:

Types of Breakouts to Trade

There are two types of breakouts you need to keep in mind ifyou’re contemplating trading breakouts. Even more important,knowing  the type of  breakout staring you in the face will help you make sense of the happenings on the market. Even more important, the constant change in supply and demand of the currency pair that you’re trading in triggers huge moves resulting in huge opportunities to rack up some valuable pips.

Continuation Breakouts

Continuation breakouts are situations where major players break out of trading ranges after periods of  consolidation. Here traders take a breather after a long protracted battle trying to jockey for trading position. Once they’ve caught their breath, the traders break out of the range – be it uptrend. Let’s see what the consolidation looks like

continuation-consolidation

 

As you can see in this example, sellers have taken a breather after duking it out with the bulls. The tight range within the two channels reflect the period of consolidation. During this time,they’re figuring out what to do next. The next step most likely is the continuation breakout. Let’s see what this show looks like.continuation-breakout

 

As  you can see, the sellers have made up their minds to launch  one final push through the resistance barrier.They’ve agreed to sustain the original trend and that they believe  the sensible  thing to do would be to break the barrier down and head for the hills..

Reversal Breakouts

Just like their brethren in continuation breakouts players also  take a breather after locking horns with each other. However there is a difference. The difference  here is that the prevailing trend loses momentum after the players’ ability to sustain the trend begins to evaporate. consequently  price is pushed in the opposite direction,resulting in a reversal breakout.

And now to the most exciting  part:

How to Trade Breakouts

How do you trade breakouts? Well you can trade breakouts with three tools – trend lines, channels,and  triangles. You don’t need to look in the mirror for these boys.If you’re able to master recognizing breakouts,you should be able to recognize potential trades at the blink of an eye.First of:

Trend Lines

One way of spotting an imminent  breakout is  drawing trend lines. Now how do you draw a trend line? Just pull up a chart and draw a line that aligns with the current trend. When drawing the trend line make sure it connects at least two tops or bottoms – nothing more, nothing less. Even better, the more tops or bottoms you are able to connect, the stronger your trend line. I guess the more the merrier. Let’s see how the trend line looks like.

falling-trendline

The three yellow circles  indicate the tops and the bottoms on the downtrend. Since they satisfy the requirements for drawing a trend line, you just draw a trend line right through them. The one thing you do not want to do is force non-existent tops nor bottoms on a trend line. That will cost you a lot of money.

How Do we Trade?

When the price approaches the trend line, make sure two things happen:

  • Either the price richochets off the trend line and continues on its merry way.
  • Or the price rams through the trend line and forces a reversal.

If you don’t want to strain your eyes just  looking  at the price, you can always call on moving averages or the average trade range to sort things out for you.

Speaking of trading, we can look at it two ways, if the  bulls break upwards, it’s time to go long(buy.) But if the bears force a reversal and go on a slalom, it’s time to go short(sell). Let’s take a look at the bearish reversal

rising-trendline

As you can see, the yellow circle indicates the beginning of the bearish reversal at the resistance level. after the bullish fade away.  And when you have a bearish reversal, it’s time to go short. If you want to know more about trend lines read up on Drawing and Trading Trend Lines

Next up is

Channels

Channels are just another way of spotting breakout trading opportunities.  Trend channels are very similar to trend lines. Except that trend channels  have one extra trend line. This extra trend line helps spot extra trading opportunities, which should make life very rosy for a lot of traders out there. Even better, you can spot breakouts on either side of the trend. Let’s see what the channel scenario looks like.channel

This is what the rising channel.  You have a an extra trend line on the other side, which should create  a bonanza of breakout opportunities. The yellow circles symbolize those opportunities. You will have to be blind not to spot these opportunities.

How Do We Trade Channels?

Well, you use the same approach for the trend lines. Just wait for the  price to hit  one of the channels. Or you can employ the services any of the two indicators we mentioned earlier. And just like the trend lines, if the bulls break out first, go Long. But if the bears force a reversal and break out go short. Let’s take a look at a bearish situation.rising-channel-breakout

The bears have forced a reversal at the resistance level. This of course has triggered a bearish slalom down the slopes.  Such a scenario should signal to you saying “TIME TO GO SHORT!” If you want to add to your channel knowledge, call on We’re Going To Talk Channels

Now that we’re done with trend lines and channels, the next set of breakout patterns we’re going to look at are:

Triangles

Triangles are just as potent as far as spotting breakout opportunities are concerned. Triangles  take shape when price  starts off wobbly and consolidates into a tight range. And if you’ve seen the phrase”consolidates into a tight range” You’d know that the players are taking a breather to regroup. Your job as a trader is to stay on the alert like a greyhound for possible breakout opportunities, when the big players decide to resume their journey.

There are three triangles we’ll be looking at. The first set of triangles are:

Ascending Triangles

Now ascending triangles come about when  a support level spring up causing price to create lower highs. For the bears this is bad news as the bulls are slowly gaining upon them. Let’s see how this scenario plays out.

 

 

ascending-triangle

The resistance barrier forms nicely with the price creating higher lows. Notice how the higher lows channel intersects with the resistance barrier to form the ascending triangle. As you can see the bulls are gaining on the bulls in the manner in which they keep hammering on the resistance. It’s only a matter of time they break out and head for the hills.

Speaking of breakouts in,  here is how they pan out. Whenever price reaches the support level , the beas  these funny ideas about selling at that level. This of, course forces the price to drop. However, on the other side of the divide, you have these bulls who are like “Hold it, we ought to push the price higher.” So as the price drops,the bulls force the press higher  than the previous low. The ultimate result is an almighty tug of war between the bears and the bulls.

Which brings us to:

How Do We Trade The Ascending Triangle?

Since ascending triangles  are bullish signals, look out for a breakout upstairs. Once you see the resistance  level being breached,  that’s your queue to go long(or buy). Let’s take a look at how this setup pans out.ascending-breakout

The yellow circle indicates the bulls breaking through the resistance barrier. Once the bulls break through and head for the hills, it’s time to place your order to go long.

Next up is

Descending Triangles

Descending triangles are pretty much self explanatory. Arent they?. Unlike the ascending triangles which are dominated by the bulls, the bears run the show. Their attitude is”We’re going to set the price ourselves.” As a result, they steal the thunder from the bulls, which puts a lot of pressure on the bulls. Consequently,this creates  lower highs along the higher side of  the triange(or resistance level)which are met head on by a stiff support level. Let’s see how this scenario plays out.descending

Notice how the bears have created lower highs, triggered by the  pressure they put on the bulls. However, the bears are met by a strong support barrier.

How Do We Trade Descending Triangles?

Well we know descending triangles are bearish signals. Right? So should the bears break through the support level and go on their slalom run, that’s your queue to place your order to go short(buy.)  Here is how the trade plays outdescend-breakout

Symmetrical Triangle

The symmetrical triangle is an interesting beast. Why? Because there is not even a whiff of a support or resistance  level in this set up. However, both bears and bulls create highs and lows simultaneously, resulting in a weird-looking apex in the process. Let’s take a look at how the symmetrical triangle looks like.symmetrical-triangle

 

As you can see, the bulls and the bears are trying to outdo each other with higher lows and lower highs respectively. It’s almost as if they’ve been caught in a trap and are struggling to burst out of it.The question is  how do they break out of this  trap?

Which brings us to:

How Do We Trade Symmetrical Triangles?

As you’re well aware symmetrical triangles  are not equipped with support and resistance levels. So you have a simple option! Just get ready for a jail break on either side of the divide.  Let’s see how the jail break preparation looks likEsymmetrical-breakout

As illustrated clearly,the bulls and the bears  are getting ready to break out of their respective jail cells. The green represents bulls about to head for the hills, while the red arrow points to the bears about to do their regular slalom down the slopes. Whoever  breaks out first you have to capitalize on their trail.

Now let’s see where to place our entries when the bears and the bulls eventually break out of jailtriangle-entry

We see that bulls  are the first to break out of jail. So when the jail breakout starts you place your long entry just above the triangle To protect your position from a possible 360  U-turn by the market, gently place a short entry below the triangle. You can’t wrong with that.

Now let’s see where to place our orders in  the bearish slalom(downward breakout).triangle-bearishbreakout

As you can see the bears don’t want to be left out  of the fun either. They’ve also initiated their own jailbreak, as indicated by the green shade.So when the jail break is on, gently place your short(sell) order above the triangle. To protect your position,in case the market starts sneezing, place your  stop loss below the triangle.

If you want to know more about trading triangles and other chart patterns, read up on Trading Forex Chart Patterns Part I and Trading Forex Chart Patterns Part II .

 

That’s  a wrap for “Break Out Trading Breakouts. ”  Trading breakouts can be  tons of fun. You get to pick up lots of pips along the trail, if you can recognize the opportunities quickly enough.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

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Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Trading Breakouts), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and a get a free forex trading ebook

 

 

 

 

 

 

 

Playing With Pivots

This week we’re  playing with pivots. No, we’re  not talking fancy gadgets here.. We’re going to  learn how to make use of  technical indicators called  pivots when making our trades. Pivots  play a crucial role as far as identifying support and resistance levels on the charts. They’re more like robots with the mentality of sniffer dogs  as their job is to ascertain the overall trend direction of the market.

So we’re going to breakdown the pivots three way.We’ll explain what pivots are.Then we’ll learn how to caculate the pivots, and finally we’ll learn how to trade the pivots.

First off:

What really are Pivots?

Well,pivots are these indicators that help the trader determine the overall trend in a market over different time frames. The pivot points simply average the points from the previous trading day. These pivot points are absolutely immense.Why? because they’re the means by which forex traders support and resistance areas. In plain English,  the pivot points  and their surronding support/resistance levels are most likely to experience change in the direction of price movement.

This then begs the question.

Why are forex traders so crazy about pivots?

Well, it’s very simple. They tell things as they are on the charts.You don’t get any pussy footing or any discretionary moves from pivots.They just give it to you straight as far as the happenings on the charts are concerned. Because so many people have their eagle eyes set  on these support/resistance levels, these zones confirm the traders worst suspicions. However,  pivots  can be a bit subjective as far as spotting the highs and lows are concerned.

Pivot points are also valuable to short term traders.Why? Because they create opportunities to cash in on price movements. Also, forex traders have the luxury  of choosing to trade the bounce or break like  normal support and resistance levels. Those who trade range-bound markets use reversals.They see zones as great opportunities to place their orders. While breakout traders use pivot points to detect key levels that must be broken or penetrated.pivotex

This is a beautiful illustration of pivots at work. Notice how the support and resistance levels and pivot point are nicely labelled  on the chart. Doesnt  get any better than this. Now before I continue let me give you a run down on  the meaning  behind those acronyms on the charts. Not to worry!They’re not CB radio signals.

PP = Pivot Point

S = Support

R = Resistance.

Which brings us to:

How to Calculate Pivot Points

Boys and girls grab your calculators because we’re going to do a little Math. We ‘are going to learn how to calculate pivot points. But before I  get started, let me say this: If you have a phobia, about algebra,or you hate algebra with a passion, not to worry! In most cases, the software behind the charts does the calculations. You don’t need to crack your brains too much.  But for you Math nuts, let’s get cracking.

Basically, we are calculating the pivot point and the surrounding support and resistance levels. And do to accomplish this task, we make use of the previous trading session’s open, high, low and closing prices.

To calculate the pivot point the formula goes like this:

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

You then calculate the support and resistance levels off the pivot point in this direction:

First level support and resistance:

First Resistance (R1) = (2 x PP) – Low

First Support (S1) = (2 x PP) – High

Second level of support and resistance:

Second Resistance (R2) = PP + (High – Low)

Second Support (S2) = PP – (High – Low)

Third level of support and resistance:

Third Resistance (R3) = High + 2(PP – Low)

Third Support (S3) = Low – 2(High – PP)

Quick alert!Some price chart software plot intermediate levels, or what we call midpoint levels. Here is how they look like on the chartspivot-midpoint

As you can see all the levels are nicely labelled for you comfort, thanks to the backend workings of  the software. Most forex charts software  automatically calculate these points like clock work for you. The only thing you have to do is just configure your settings  for the software to deliver to you the closing time and price. See how stressless this is?

You may also want to arm yourself with pivot calculator . You will definitely need it especially when it comes to backtesting to check prices reaction to pivot points. You’ll be amazed at how honest the pivot points are. They just tell you exactly how the prices  react to their presence on the charts. Getting a pivot calculator is not that difficult. I believe most brokers provide you with one. Or if you prefer,you can download it online. Just  Google pivot calculator and Google’s search spiders will be only too glad to oblige.

Now that we’ve gotten the math out of the way, let’s get to the most exciting part – THE TRADING!

We’re  going to cover three parts . The first part is

How Do I  Use Pivots to Trade Ranges?

Well the easiest way to use pivots as part of your forex trades is to treat them like typical support and resistance levels.  And if you know prices as well as I do, when they see support and resistance levels, they hit them repeatedly in their attempt to break through and head for the hills. And if these levels are able to  withstand  a currency pair’s constant barrage,then it means these levels have a strong backbone. So applying the description of the support/resistance levels to the pivot point, your pivot level is able to withstand the currency pair’s onslaught this creates great opportunities for you. And these opportunities could come in the following waves:

  • If a price is closing in on the resistance level, sell the pair and put a stop loss just above the resistance
  • If you see the price inches ever closer to the  to the support level, buy the pair and put a stop just below the support level.

Nothing to it at all. Let’s  see the actual representation of this range tradepivotrange

As you may have noticed, price is testing the resolve of S1(Support Level 1). If you believe in your heart of hearts that S1 can repulse the price, put in your buy order just  above S1. Of course  you want to safeguard your trading position,  so you put in a stop loss past the next support level.

If you want to play it safe,  you can set a wide stop just below S2. However,if price  breaches the barriers of S2,the probability of i turning around and going uphill is unlikely as both SI and S2 would have converted from support to resistance levels. But if you want to be bold, and you are 100 percent certain  S1 will hold its ground, just place your wide stop loss just below S2.

Some of you are wondering”Where do we place our take profits?” Well, you could place your profit targets , you could aim at PP or R1. Then again these two levels could put up some resistance. So watch out for that. Anyways let’s see how the market looks when you place your buy order.PPR1

Voila! S1 survived the onslaught! And if your “Take Profit” is PP it means “Take the money to the bank” However, a  little news flash! It’s not always that straight forward. You shoudn’t always put all your pivot point eggs in one basket. Make sure  your pivot  point levels are parallel with the previous support and resistance levels. To  help you get confirmation of a trade, just fall back on your candlestick analysis. And if you’re not sure about your candlestick knowledge read up on You Need To Know Ten of These Candlestick Patterns.

Last but not least:

How Do I trade Breakout with Pivots?

First you need to support the support and resistance levels. As  I’m sure you know by now, support/resistance  levels can’t sustain a rearguard action forever. At some point, they’re bound to cave in. And when that happens, you get to work with your trades. As we found out earlier, you can trade it safe, or you can go aggressive. However,for those who like to play it play it safe,you ;d be better off taking advantage of the initial breakout.  Why? because if you’re waiting for a retest of the support/resistance barriers, you may end up missing out   on huge trading opportunities. Let’s see how pivots points scout potential trades in this graphicpivot-breakout

We see price surge above PP before cooling down at R1. Eventually the resistance barrier at R2 caveS  in, giving the bulls free passage to surge  by a further 50  pips. This shows the dividends of trading the aggressive way if your eyes are sharp enough to catch the initial price action. However, if you’re sitting there waiting for price to  take a second bite at the cherry(or retest), you’d be waiting in vain. As you can see,price chose not to come back. It continued on upwards.

See how the bulls try to attack the resistance barrier at R3.   You do not want to adopt the same aggressive posture here like you did at PP. Why?because this is false break territory. Failure to take heed could result in a huge loss for your trading position, not to mention,spike your blood pressure.   And if your stop loss is too close for comfort, you’d most certainly get swamped. So your best option would be to take the safe option.

If you want to learn how the false break strategy works read up on Trade The False Break

Notice how  the bulls break out after the initial resistance by the bears. Also pay attention to how  the bulls make a U-turn and break down past R3. You could go short(or put in a sell entry) at the retest of the broken line.

Last but not least:

Where Do I Place Stop Losses And Profit Targets In Breakouts

Hmmm……placing stop losses and profit targets in breakouts is not an exact science. Why?because unlike range trades where your focus is on breaks of support and resistance, you are looking  for strong fast Usain Bolt-like surges in the breakout. It’s like keeping up with the speed of light. If you choose to go long(buy) and price fizzles out at R1, you could place a stop below R1. Let’s take a look at the previous graph again.pivot-breakout

As you can see price slightly cooled at R1. In this scenario,you place your stop loss at R1.  Better safe than sorry if you ask me.

Speaking of setting targets, here is what you do. Aim for the next pivot point support or resistance level.By the way if you’re expecting price to break through at all levels, DREAM ON! The  only time  this miracle happens is when a major economic event or surprise news occurs. Whether this news is good news,your guess is as good as mine. Let’s take a look at the previous graphic and see where the stops are placed.pivot-stops

As you can see, the bulls break through at R1. In that case you place your stop just below R1 to protect your position from nasty unexpected U-turn. Keep vigil over your position and move your stop to see if the pattern continues.

That’s  a wrap for “Playing With Pivots ” Pivots can be fun to trade  trade with. They help catch  profitable trades that the naked eye misses.   If you place them properly on your chart, you could have yourself a major harvest.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Trading Pivots), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

Price Confirmation Signals: How To Weed the Chaff From The Good

signals-confluenceToday we’re going to look at confirmation signals and how to weed the chaff from the good using price action analysis. Confirmation signals are  the alerts of price action analysis. They gives you the thumbs up when your trading edge is present. You know, searching for confirmation signals can be an almighty struggle, especially when you’re trading for the first time. You’re so scared  of going for the bull’s eye because you’re not sure whether the signal is a good one or a bad one. Well,  newsflash!If you want to perfect the art of catching confirmation signals,  you need to be clear in your mind what you’re looking for and what the signals look like. If you can get these two figured out, it’s 80% of the job done.

So  here is what we’re going to do.We ‘re going to define what price confirmation signals and then decide how to filter them.

What are Price Confirmation Signals?

Well,like I said earlier, price confirmation signals reflect the  presence of a price action setup on the forex chart. They’re also known as  price action signals,  so when you hear of price confirmation signals, think of price action signals.  To put it mildly price confirmation signals are simply obvious price setups that form in the forex market.  You can find these signals along the level of support or resistance or in the trends. In other words, price confirmation signals can also be described as a perfect alignment of factors on the charts. In other words, there must be a confluence of  events on the charts for your trading edge,or strategy to unfold. If you want to understand the workings of confluence, Go to Something Called Confluence

Let’s get on thing perfectly clear here.  You are not going to get two trading situations looking the same on the market. Why is that so? Because each trade and each chart representation is different. They have their own weirdness points. So what you have to do is to approach your trades based on your own discretion and your perception of the chart. Just make sure your perception matches with the market’s perception or else your forex account will shedding a lot of tears.

Let’s take a look at some confirmation signals on an EUR/USD chart

confirmation - eurusd

 

See the first hammer confirmation at the  bottom of the uptrend. That’s a good sign. The bullish candlestick triggers the beginning of the u trend. Once you  get confirmation of a second bullish candle with a bigger and fuller body,then you make you trade. Don’t make the mistake of jumping in the moment you spot a bullish candlestick. Get confirmation from the candlestick with a bigger fuller body and then make your entry.  You use the same strategy when trading support/resistance.  Just hang on for the confirmation candle to announce itself  after the breakout and then make your entry.

 

Let’s take another look at confirmation signals at work  at support/resistance levels.confirmation-supportresistance

 

Right in front of us are confirmation signals along the lines of support and resistance. We two confirmation opportunities along the lines of support. Those are engulfed candles with the bearish candle eclipsing the bullish candles. The bigger bearish candles act as confirmation candles by way of their fuller bodies that I talked about earlier. Up top at the line of resistance is another engulfed  situation kicking of the bearish trend.That setup also signals the possibility of a decent trade.but  it took the appearance of a third candle that is bigger and fuller to confirm the existence of a trading opportunity.

So the moral of the story is this. Get confirmation from a second, and in some cases  third candle before you make trade entry. Jumping into the fray at the sight of just one candle may cause you a lot of grief later..

Now that we’ve gotten the  introduction out of the way the next question  we should be concerning ourselves with is:

How Do We Weed The Chaff From The Good?

Before we get started , I just want you to know that the tips I’m about to dish out can be utilized on any trade set up.  But for purposes  of illustration, we’re going to use the Inside Bar Pattern. So off we go.

Look For A Signal Whose Protruding Tail Creates A False Break.

Assuming you’re looking for an inside bar, make sure   the tail juts out from a key level in the market. And when we say key level,you should know that  we’re referring to support and resistance levels. When an Inside Bar puts on its protruding disposition it can only mean one thing –FALSE  BREAK.  A false break adds more credibility to a confirmation signal in that it illustrates the market’s inability to maintain its momentum.  consequentially the possibility of a sharp reversal becomes ever so real.

confirmation-falsebreak

Right in front of us is the inside bar false  breakout at the support level. Labelled in pink and turquoise  with the protruding tails are the small bullish and bearish inside bars.Their  little prank in misdirecting  anxious traders expecting a bearish trend seems to have worked. Now what we have here is a bearish dive for the hills.So in case you get the urge to get in on the prank,  make sure your inside bar’s tailis jutting out of the level of support

Now let’s take another look at another inside bar false break at the level of resistance.confirmation-falsebreak2

Up top is the inside bar false break. Just like the false break at the  Just like the false break at the support level,  anxious traders have been tricked into believing the uptrend was going to sustain itself only to be sucked into a sharp bearish inside bar false break. Notice the tail of the bullish and the bearish inside bars jut out. When you see this set up,it means the false break for the valley is on. If you don’t understand how the false break works, read up on Trade The False Break

Wait For Confirmation

Instead of hedging your bets on a breakout wait for confirmation instead. The last thing you want is to put all your eggs in a breakout basket only for the market to do a 360 U-Turn and go on the dreaded false break. Sure, it hard to tell a genuine breakout from a fakeout. However, you’ll be committing suicide if you trade straight into  a support  or resistance level. You risk losing a ton of money that way.  Imagine driving straight into a huge hurricane. That’s exactly how it will feel like when you trade into the path of a key level. So how do you avoid such a calamity? Wait for the  price to close above or below the key level(support or resistance). Then once the price breaks out of either of the key levels, you then make your trade entry. Let’s take a look at an illustration of this scenarioinsidebar-breakout

As you can see,the resistance line has been breached by the bulls, triggering a false break for the hills. Like I said,earlier, don’t trade on a whim before the breakout happens. Wait for the breakout to take shape. Just wait for the price to get close or above the key level before you make your move.

Look For Continuation Signals After Pull Backs

One effective filter you could use is to look forcontinuation signals after  pull backs in support or resistance levels in trending markets. There are times when the pull back is pretty small,but the trend is on the up with the inside bar in confluence with a key level  at the market. In the downtrend, the pull backs are more  elaborate with the key resistance facing strong opposition. This can also present great trading opportunities. Let’s take a look at both scenarios

 

Inside-Pullback

Here is the inside bar pull back at  the resistance level. Notice the slight pullback just before the resistance level.  And the inside bar signal along the resistance level  has buy written all over it.

Now let’s look at the downtrend continuation setup.

Insidebar-downtrend

 

As you can see up top, there are major pull backs around the line of resistance. Notice the huge rejections along the line of resistance just before the continuation. Of course, the major players are taking a breather through the period of consolidation before they continue with their journey.

Don’t Trade in Choppy Waters

Don’t ever trade in choppy waters or you’ll drown. Put it simply,you are not going to  find any  In case some of you have forgotten, choppy waters is my apt description of range-bound markets. Just because you see long periods of consolidation, then all of a sudden, you spot a trading signal in the midst of the confusion does not make  the signal valid. You need to have at least three confirmations in order to make the signal valid. Besides, confirmation signals rarely reveal themselves in choppy waters due to the heavy contraction in range bound markets.  Let’s see what range-bound markets look like

range

The choppy waters are within the two dark lines as labelled. As you can see there is so much confusion in these waters such that you’d  be crazy to risk your money in this situation. Wait for an upward trend to breakout of this confusion, and then you make your trade. If you want to understand the personality of choppy waters, check out Forex Market Goes Sideways.

 

Look For Signals with  Confluence  Levels

If you’re counting for areas with great trading possibilities ,look for signals with confluence levels. In case, some of you have forgotten, confluence levels are levels with supporting factors behind them. These factors could be a simple support or resistance level with a dynamic EMA level(Exponential Moving Average) or a 50% retrace(pull back).signals-confluence

This confluence in action along the support/resistance zone which is labelled green.. At the far left corner  the 200 EMA (Exponential Moving Strategy) manages to catch  bulls breaking through the resistance level. This,on my opinion, is a hot trading opportunity. And in case you’ve forgotten,  the EMA averages prices of the recent trading period. In fact  the EMA carries more weight since it measures the most  recent prices. If you’re not sure about your moving averages knowledge visit my posts, We’re Moving Averages Part I and We’re Moving Averages Part II. Even better, to understand how confluence works, read up on Something Called Confluence

 

That’s  a wrap for “Price Confirmation Signals: How To Weed the Chaff From The Good.”  Hopefully you would have deciphered how to tell a a great price confirmation signal from a lousy one. I know it can be scary sometimes trying to tell the difference.But once you get the hang of it, it’s a breeze.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Icluding Trading Confirmation Signals), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

Trading The Pull Back

Today we’re trading the full back. No, we’re not talking tug of war. We’re talking about a very popular trading strategy called the pull back. It is also known as the retracement strategy although both terms are used  interchangeably.   Trading the pull back is a very popular strategy among traders. They help keep  you from going gung-ho with your trades. And  if you’re the type who trades like a gambler you most certainly need to learn how to trade the pull back.

So  first things first: We’ll find what the pull back is really is. Of course we’ll looking into a few examples,and to put the icing on the cake we’ll find out how to trade the pull back.

So  first things first:

What is the Pull Back Trading Strategy?

Well the pull back strategy is a temporary turnaround or reversal of the prevailing trend-regardless of whether they’re heading for the hills(up) nosediving to the valley(going down).  when trading the uptrend watch the price  head on up at first. But later on it swings up and down, and then goes past its previous high.   The  same posture occurs in the downtrend, except the complete opposite happens.  Price first drops  bu then swings up and down and gets lower than its previous lower low

You’ll probably be wondering “Are we playing Jekyll and Hyde or what?” You need to understand that it will not be in your bestin to jump straight into the pond just like that,Why? because the market is like a wave.It’s still trying to find its level.So all you gotta do is watch while it finds its level. Let’s take a look at what a pull back pattern looks like, starting with the uptrend pullback

uptrend-pullback1.png

This is an example of an uptrend full back inaction. Notice the zig zig motion of the uptrend pattern.This represents the temporary retracement before getting back to its normal self.Like I said earlier,don’t jump in just yet as the market is trying to find its level.Once the uptrend gets its act together, now will be the perfect time to make your trade entry.

Next up is the pull back in the downtrend.

As you can seedowntrend-pullback

Just like the uptrend, the zig zag motion is in effect here. And just like I said in the uptrend, don’t  jump into the pond just yet.It’s still trying to find its level. So once the bears find their bearings, then you can put in your sell order(or go short as they say.

Now that we’ve gotten the explanations out of the way, let’s get find out how to trade the pull backs .The first thing you need to do is

Identify Trends Then Scan For Pull backs

First look for established trends and then look for pull backs within these trends. The whole idea behind this exercise is to identify the chart’s momentum. You want to know whether the chart is moving left or swerving right. Make that your path of least resistance – a path the market is most likely to tread for some time to come.

There is something to you need to keep in mind.  Markets do not stay permanent. Just because you see a very hot trend doesn’t mean it’s going to stay that way forever. To the average trader, who wants to make instant cash, a downward pull of a few days may seem very huge.But the savvy trader looking at the big picture doesn’t see it that way.  He sees those  few days as a little drop in the ocean that could cost him moolah(cash).So  you need to take this scenario into account when contemplating the direction of your trading strategy. Let’s take a look at an illustration of pull backs  in the uptrend.pullback- uptrend

This is  a classic example of a pull back trade at work here.  Notice the brief reversal at the line of support. When that happens , just put in your entry trade along  the line of resistance. To protect your trading position, place your stop loss just above the pull back.

Now let’s see the pull back in down trend  trade in action

pullback-downtrend

See the downtrend pull back setup in action. Even more important pay attention to the pull back a the line support at the line of support. Why? because you’ll place your entry order just below the line of support. And to protect your trading position against any unexpected surprises,place your stop loss just above the pull back.

 

Trade Pull Backs on Moving Averages

You can also hunt for pull backs on moving averages. However moving averages only if the trend is so obvious that you can’t miss it.Look out for smaller pull backs, especially  on exponential moving averages( ema for short).Once you’ve identified the pull backs, you can join the trend on a price action signal. But you may not need to that extent,so long as the trend strong and too obvious no to miss, Let’s take a look at a moving average setup

 

movingaverage-pullback

This definitely a classic moving average pullback setup in a downtrend. The trend is so obvious it’s ridiculous. I mean,it’s screaming ‘SELL’i n your face. You can’t miss it.

That’s  a wrap for “Trading The Pull Back”.  Trading the pull back can give you great dividends. Just stay patient and wait for the right opportunities and your forex account will be forever grateful to you.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Icluding Trading Confirmation Signals), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Trading The Pull Back) , and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

We’re Trading Pin Bar/Inside Bar Combination

Today we’re trading the pin bar/inside bar combination. No,  this is not a tutorial on preparing a subway sandwich. I’m talking about trading two popular trading setups, the pin bar and inside bar,all at the same time.  We’ve discussed these two patterns separately, so they shouldn’t sound like  gibrish to you at all.

The pin bar and inside bar combination patterns represent some of the most powerful price signals you can ever imagine. These two patterns can send you  to prosperity heaven, if you identify and trade them properly of course.There are two sets of combinations that we’ll be looking at – namely, the pin bar/inside bar combo and the inside bar/pin bar combo. We’ll then do what we’ve always done: We’ll define what these two combinations are, take a look at a few examples,and then figure out how to trade these two combination setups.

 

In case, some of you have forgotten what these two trade setups are about, let me give you a little reminder.  the pin bar is a price action strategy that exhibits rejection and lets everybody know that  a sharp U-Turn or reversal is around the corner.(If you want to know more about  Pin Bar Trading  Strategy, read up on my post, Pin Bar Strategy – How To Trade It ). The inside bar, on the other hand, shows consolidation. This lets everybody know that a breakout is on the horizon. And if you want to know more about the Inside Bar, take a look at my post, Trading The Inside Bar.

I guess the first thing on the list is:

What is the Pin Bar/Inside Bar Combination?

The pin bar/inside bar combination forms when the pin bar is immediately followed by  the insidebar.This phenomena occurs towards the nose of the pin, or the pin bar’s real body. At first glance, you’d think the pin bar is feasting on the inside bar in the manner it just towers over the inside bar. It’s not humongous big;  it’s just that the tail(or wick)makes it look that way. It’s almost as if it’s walking on stilts.

Now let’s find out

What The Inside Bar/Pin Bar Combination Is All About?

the inside bar/pin bar combination is just simply an inside bar followed by a pin bar. In this set up, the pin bar is within range of the of the outside bar affectionately known as the other bar..  The inside bar gets it motherly name from its fuller size compared to the smaller thinner pin bar. You could be forgiven for envisaging a mother hen looking after its newborn chick.

Let’s take a look at illustrations of  these two candlestick combinations

combopatterns

The first set up to the left is the pin bar/inside bar combination pattern. As you can see,the bearish pin bar towers over the bullish  inside bar – thanks to its long tail. We see the reverse in the inside bar/pin bar setup.  Here we have the pin bar inside an inside bar.  Plus this setup is forming in a bullish trend,and it can only mean one thing – GO LONG.

Now that we know what the formalities out of the way:

How Do We Trade Pin Bar/Inside Bar Combination?

First,look out for the pin bar. Your point of reference is a candle with a long skinny wick pointing  upwards. The pin bar must take shape near the nose of the inside bar. Once you identify the pin bar,  you then look out for a smallish  inside bar. If you’re able to identify these two candles, you’ve got yourself a pin bar/inside bar combination set up. And when this setup takes shape, it’s time to make your entry  trade. Just make sure you  make your entry trade along the support level. You then put your stop loss preferably below the pin bar.

Let’s look at a couple of examples starting with:

Pin Bar/Inside Bar At Support Levelpinbarinsidebarcombo1

The GBP/USD graphic shows in living color the formation of the pin bar/inside bar pattern at the line of support. Seethe way the market pulls back before the combination unfolds.  Also the multiple inside bars also signals the possibility of a decent profit. We can put in an entry trade below the pin bar and the stop loss along the line of support.

Last but not least is  Pin Bar/Inside Bar as Reversalpinbarinsidebar-resistance

This is the pinbar – inside bar combination in reversal mode at the line of resistance. The red box attests to that fact. It starts with a false break and then heads for the valley. (Oh boy!Those who jumped into the fray without thinking  fooling must be gnashing their teeth now). You can get a tight entry  once the inside bar retraces up the inside bar’s tail.  You can also protect you trading position by placing your stop loss just above the level or resistance or near the pin bar’s high. If you want freshen up on your false break knowledge, get in touch with my post, Trade The False Break

Last but not least:

How do we Trade The Inside Bar/Pin Bar Combination?

You’d be better off trading this combination during the daytime. If it’s an uptrend,  Wait for the bulls to break  through the level of support and then place your entry trade above the high of the inside bar, mother bar. If you’re trading in a bearish situation, just place your sell order once price breaks down just below inside-pin bar’s mother bar. Let’s look at a  few illustrations starting with:

Inside Bar/Pin  Bar at Uptrend

insidepinbar1

Here,in front of us is the breakout above the high of the mother bar. Price breaks out above the mother bar, creating the perfect opportunity to enter a trade. Just place your buy entry just above the mother bar. Then place your your stop loss at the point of consolidation – Just behind the price breakout.

Next up is

Inside Bar – Pin Bar at Down Trend

insidepinbar - downtrend

This is the inside bar/pin bar combination in bearish mode. The inside bar –  pin bar combo is nicely cased in the red box, triggering a huge bear continuation after a brief period of consolidation.  This will be the perfect time to place your entry just around the point of retrace. You’ll get a better risk:reward ratio entering  this way. Just to be on the safe side, you place your stop loss below the tail of the pin.

 

 

That’s  a wrap for “We’re Trading Pin Bar/Inside Bar Combination”.  This strategy can  make you some decent profits if you recognize the right combinations. For the pin bar/inside bar look out for a tall  pin bar eclipsing   a smaller inside bar. Conversely, for the inside bar/pin bar pattern look out for a pin bar within the range of a  bigger, protective mother bar. If you’re able to recognize these  characteristics, your trading account will be singing glee.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Icluding Trading Confirmation Signals), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Trading Pin Bar/Inside BarCombination) , and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

We’re Going to Engulf Some Candles….

Today, we’re going to engulf some candles.. No, we’re not talking about an all night candle vigil here.  We’re going to learn how to trade one of the most popular high probability trades , the Engulfing Candle Trading Strategy.  NowWhy is the engulfing candle trading strategy popular among traders?Because it’ so easy to spot the with naked eye. In fact, you’ll need your head examined if you  miss this one. Majority of traders prefer trading this strategy during daytime trading, although it can be applied in other trading time frames also.

So here is what we’re going to do. As always, we’ll define what the engulfing candle strategy is, and then show you  how to trade the engulfing candles.

First of:

What are Engulfing Candles?

Well,engulfing candles are candles engulf the previous  candle in the prevailing trend.  It basically overshadows the previous bar to signal the end  one trend and the beginning of the next one. What you need to understand is that the engulfing candle must have a higher high  than the previous candle and a higher low . In other words, the engulfing candle must be bigger and full than the previous  candle for it  to be considered an engulfing candle.Just think of a full glass of water when looking for an engulfing  candle.

Also, when looking for engulfing candles, make sure they satisfy two critical criteria: That they large and obvious, and they form at swing points. Now what do I mean by swing points?swing points are the highs and lows on the chart.(In fact you’ve just reminded me.We’ll touch on trading swing points next session.

Let’s look at two types of engulfing candles. First:

Bullish Engulfing Candle

As the name entails, the bullish engulfing candle  kickstarts the bullish trend. the bullish engulfing candle forms when the bigger part completely envelops the downtrend candle. This development signals the beginning of the uptrend or, surge for the hills,as I like to put it. The bigger part signifies the opening and closing prices of the bar, while the wicks (the two tails at the high and low ends of the bar)mark the high and low.

Next is:

Bearish Candle

The scenario  for the bearing engulfing candle is very similar tot the bullish engulfing pattern.  Again,as the name entails the bearish engulfing candle signifies the end of the uptrend and kickstarts the bearish trend or nosedive to the valley.. The bearish engulfing  candle forms when the bigger part eclipses the smaller  bullish candle.  And, just like the bullish engulfing candle.The difference here is that the bears close at a low.Let’s take a look at two graphical illustrations of both bullish and bearish engulfing

Let’s take a look at both bullish and bearish engulfing patterns.bullish -bearish-engulfing

 

 

Right in front of are illustrations of   the bullish and bearish candle engulfing patterns.   With the bullish pattern, you can see the white bullish engulfing candle eclipsing the small black bearish candle. This signifies the end of the downtrend and the bullish trend.  The full part indicates the opening and closing prices,  while the short wick(or thin upper tail) indicates the high peak.while  And when you see such a setup, don’t think twice about putting in a buy (or long) trade.

It’s the similar situation with the bearish engulfing candle pattern. Except that the bearish engulfing candle signifies the end of the uptrend and the beginning of the downtrend.  We have a  role reversal in that you now have the black bearish engulfing candle towering over the little white bullish candle.  The other difference is that you have two short tails indicating the high and low. When you see this set up, no one should tell you you  have to sell. I’ll show you later howt o place your trades using  both bullish and bearish patterns. So don’t panick.

Which finally brings us to:

How To Trade Engulfing Candle Strategy

Traditional trading wisdom suggests that you wait for the one engulfing candle to fill like like a glass of water before you make your entry trade. One an engulfing candle fills up completely, and the next engulfing candle resumes make your initial trade entry.

The most sensible way to make your entry is to place a pending long order a few pips above  the high of a bullish engulfing candle and a few pips below the low of a bearish engulfing candle.

If you want a safe spot to place your stop loss,do it on the opposite side of the engulfing bar. For a bullish engulfing bar you place  the stop loss a few pips below the low of the bar. While, for a bearish engulfing bar you , you place your stop loss a few pips above the high of the bar. The stop loss serves a very important purpose for two reasons. First,it gives your trade time to breathe in case the market does an unexpected 360 U-turn. It’s not uncommon for the market to  retrace back into the bar and resume on its journey without threatening to crush the entire bar by breaching it at the other end.

Secondly, the stop loss below the bullish engulfing bar serves as a buffer against a sharp U-turn by the market. This sharp U-turn swill definitely  spike your blood pressure a few notches, and we don’t want that. Do we? Let’s look at a few  illustrations of  entry and stop loss placement in both candle patterns – starting with the stop bullish engulfing pattern.

bull-entry.png

As you can see, the blue arrow indicates the  buy entry  a few pips above the high  of the bullish candle. The stop loss is nicely placed below the low of the bar at the support level.. This gives your trading position some leg room in the event of a market retrace.

Now let’s look at the entry and  stop loss situation on the bearish engulfing candlebearish-stop.png

As you can see,the initial entry is placed below the low  of the engulfing  bar.  The stop loss is  placed a few pips above the high of the bar.Also take a look at the way the bar following the bearish engulfing bar pulled back slightly. This is why it’s important to give your trade some leg room in case of any unexpected U-turn by the market.

 

That’s  a wrap for “We’re Going To Engulf Some Candles.”The Engulfing Candle Trading Strategy is highly profitable among forex traders. If you are able to recognize the big bars eclipsing the smaller bars at the end of the prevailing trends, you’re good to go. Next time we’ll touch on how to trade swing points.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Icluding Trading Confirmation Signals), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

I

 

Let’s Trade Flags

Today I say Let’s trade flags.  And  no, I’m not saying you should swap flags among your flags. The flags I’m referring to popular  chart patterns called flags used in price action analysis. Sure, they are less popular than triangles wedges, and other price action patterns. but they’re just as reliable as the other patterns. So we’re gong to do as we always do. We’ll find out what these flag patterns are and how to trade them. So of we go.

First up is:

What are Flags?

A flag is a continuation pattern where a strong primary trend is followed by a period of consolidation before it resumes in the direction of the dominant trend. Shaped like  a rectangle,the flag is formed by parallel lines that slope  against breakouts emanating from support or resistance levels. Once the flag takes shape,an upward or downward trend,courtesy of the bulls and the bears,respectively suggests that the previous trend is about to resume.

When it comes to identification, the flag can be very difficult to spot. flags can form whenever a currency pair’s price consolidates. However,the most important factor to watch out for is a strong breakout above or below support and resistance levels. They may not completely eliminate the possibility of a reversal,but they do lower the odds.

Let’s take a look at illustrations of bullish and bearish flags.

bullishflag-bearishflag

As you can see,both the bullish and bearish patterns exhibit continuation patterns at the resistance and support levels.  Notice the tall poles that form after breakouts  at both resistance/support levels of the uptrend and downtrend. They help lower the possibility of a reversal.

Next we’re going to look at three Components of a Flag Pattern

First:

Flag  Pole

The flag pole is the main facilitator as far as price action goes.  It is represented quite well by both the uptrend and downtrend. The question bugging most people is “How do you calculate the flag pole’s price move?” Well, calculate the previous swing high or low from the current swing high or low. Let’s  see an illustration below.

flag-pole

Keep watch over the  tall flag pole you see to your left in the bullish pattern. Like I said in my description, the flag pole is the main initiator in the price movement.  Wondering about measuring the price movement?Just calculate the last high/low to the current high/low.

Flag

At the risk of repeting myself, the flag is the real McCoy in this pattern. Like we said earlier, it starts with a strong trend  followed by a period of consolidation where the main players take a breather before resuming hostilities regardless of whether it’s an uptrend or downtrend. Just to refresh your memory,let’s take a look at another illustration of the flag in action.

flag2

 

This is a classic flag move. You have a classic bullish move followed by a period of consolidation, as indicated by the two trend lines. After taking a huge breather, the bulls resume their journey. It goes without saying that long breathers,or long periods of consolidation can lead to aggressive breakouts. It’s like the calm before the storm.

Last but not least:

The Continuation 

This is where the main actors have finished taking a breather and are resuming their journey. In other words, the market  has finished consolidating and the main players are continuing to follow the trend-  whether it’s an uptrend or downtrend.

continuation

This is what  a continuation looks like.  After a taking huge breather(my short for consolidation), the bulls march on upwards. The blue and red trend lines represent  the period of consolidation. Nice looking trend if you ask me.

Now to  the burning question of the day

How Do We Trade Flag Pattern?

Well,

Trading Signal

Just like any other trade,look for a trading   signal. You  can find this trading signal in the breakout. If you are trading the bullish flag, make sure you make your buy trade when the candle closes above the upper side. If  you are trading the bearish flag, place your sell entry on the lower side of the bearish flag pattern.

Stop Loss

Of course, after you make your entry you put in a stop loss. You’d be crazy not to do that. Wouldn’t you?Anyways,for the bullish flag,place the stop loss below the lowest bottom in the flag. Conversely, for the bearish,flag,place your stop loss at the  highest top.

Take Profits

Close out 1/3of your position size and take the profits. This to protect your trade against  any unexpected U-turn by the market.. Also to protect your position, raise your stop loss target just above the initial  profit target. So that if the price reaches your second profit target, you will close another 1/3 of your trading position and lock in with further profits. No what do we do with the remaining trade? You readjust your stop loss just below the second profit target. If the price continues to soar, keep watch over the price action and hold the last 1/3 of your trading position for as long as you see fir.

Let’s take a look at the GBP/USD chart.

Technical-Analysis-Using-Flag-Patterns

As you can see the green circle represents th moment the price broke through the upper  part of the flag. BINGO! That will be the perfect time to make your entry trade. Once you execute the trade you put in your stop loss as shown in S/L1.  Then with each target, you move the stop loss upwards, locking in profits,as price surges on. The magenta nd purple arrows  show the size of the flag and size of the pole. And as each target is hit, the stop loss is adjusted to protect the trading position.

The end comes when the price breaks the third stop order(S/L3).  As I’m sure you’ve noticed,the price reverses, creating unpleasant consequences for the long trade. Now I hope you’re sensible enough by then to get out while you can or else…….Kum ba yah.

.

That’s a  wrap for “Let’s Trade Flags.”  I hope you make significant profits with these flag patterns.  Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Icluding Trading Confirmation Signals), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Trading Flags), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

We’re Going To Talk Channels

Today we’re going to talk channels. No, I’m not talking ESPN, the Shopping Channel,nor the Cartoon network for that matter.If that’s what you thought I had in mind,sorry, you’re at the wrong cable company. The channels that I’m  referring to are just another price action tool forex traders use to identify areas on the forex chart to buy or sell. And  just like the  aforementioned channels, they’re fun to watch-That is if you get your trading decisions right.

So what’re we going to do?As usual, we’ll start with a definition, then we look at three types of channels, and finally, VOILA, How to trade these channels.

First and foremost:

What Are Channels?

Well, channels are areas between two parallel trend lines  recognized as defined trading zones that traders can buy or sell.  Assuming you lay out the channels properly, you should see higher highs and higher highs or lower lows forming.  And just so you know,channels are very popular price action tools with forex traders?Why?Because they’re easily recognizable with the naked eye on the forex chart, if you know what you’re looking for.

Now there are three types of forex channels we are going to be looking at. they are ascending channel, descending channel and horizontal channel. I have this gnawing feeling that some of you have already put two and two together concerning these three channels. If that’s true,then you guys are much smarter than I thought.

Anyways,first things first.

What’s an Ascending Channel?

Well the ascending channel is a bullish pattern where the price action is restricted within two parallel ascending trend lines with the price surging upward while richocheting off higher high and high low price peaks You have an extra trend line running parallel to the right hand side of the main trend line mapping the uptrend line.

Ascending channels come highly recommend because of their spot on prediction of general changes in the uptrend.  So long as prices stay within the price channel, the upward trend, led by the bulls continues. However, when prices go beyond the channel,  expect to see a strong buy or sell signal. Let’s take a look at what an ascending channel looks like.

 

Ascending-channel

As you  can see the ascending channel is equipped with trend lines.You have the main trend line with the parallel line keeping company. The higher highs and higher lows represent the bullish trend. Add support and resistance strategies,and you have a great opportunity to enter a trade.

How Do I Draw An Ascending Channel?

First, draw the trend line. Don’t forget that to draw  a trend line by connecting two lows. Once you take care of the trend line, draw another trend line,parallel to the first trend line. And make sure it touches the highs created by the price increase. If you’re worried about being Einstein precise when drawing the second trend line?No need.The price will penetrate it regardless of your level of precision.

When drawing the channel at the beginning of the uptrend, look out for two higher lows and one higher high. Connect the two lows with a line  and  then draw the second parallel line through the higher high. Let’s see  an illustration of the drawing.

ascending_channel

Notice the two lower lows at the lower end of the right parallel line.  Also look out for the higher high along the left parallel line. So long as you’ve got these two scenarios,you have an ascending channel.

How Do I Trade The Ascending Channel?

Put in your trade entry when price touches the lower line(or support level).  However,to put in your sell entry,make sure the price touches the upper trend line(or resistance level.  Next, llace your stop loss on just outside the channel or just above the high of the candlestick (for a sell order) or just below the low of the candlestick (for a buy order)

Let’s see how it looks like.

up-trade

As you can see, sell is indicated on the end of  upper trend line, and buy at the end of the lower trend line. You’ll be well advised to make sure both buy and sell entries are placed at the exact positions.Anything less,and guess what?Kum ba yah.

Next up is:

What’s a Descending Channel

You don’t need much rocket science to deduce that a descending channel is the complete opposite of an ascending channel. Unlike the ascending channel, the descending line’s price action si contained between two slopping(or downward)parallel lines. And just like ascending channel,  descending channels are very useful in establishing whether the short term trend in price will continue. The trend continues only if the price remains within the region defined by the channel.

However, when the price breaks out of the channel, things get real interesting. If price surges upward out of the channel, a signal to buy flashes. When prices heads for the valley outside of the channel,  you see a signal to buy. To make a long story short, if the price break out upward out of the channel, the trend is bullish.If price breaks out downwards, it’s a bearish trend. Let’s see what a descending channel looks like

descending-price-channel

As you can see,   the descending channel  is made of the two slopping parallel lines and the ensuing price action in between. The price action is considered a channel because the price is trending downwards.

I guess the question burning your minds is:

How do I Draw The Descending Channel?

Make sure you draw the channel parallel to the trend line. Of course you have to establish the downtrend first before laying out the channel. Once you’ve established the downtrend, you draw a parallel line at the same angle as the trend line.  You then move the parallel line to touch the most recent low. Please make sure you do this at the same time you draw the parallel line or your account could really suffer. I know, I know, it’s hard doing two things at the same time. But you will be the better for it. this time. Trust me. Let’s look at an illustrationdescending_channel

As you can see, the parallel line lie is drawn at the same angle at the trend line. Notice how the parallel line   touches the most recent lower  low.If you’re into trading ranges, this’ll be the perfect time to go short and put in a sell entry. Just put in your entry at the low peak.

 

How do I Trade The Descending Line?

It’s no different from the ascending channel. If you want to make a buy or sell entry, you make sure the price touches both trend lines. And just like the ascending channel,  you place your stop loss on just outside the channel or just above the high of the candlestick (for a sell order) or just below the low of the candlestick (for a buy order)  if it shows signs of rejection.

And last but not least:

What’s a Horizontal Channel

Just like ascending and descending channels, horizontal channels take shape through trend lines that are drawn for both high and low prices on the forex chart.  The only difference being that it is flat. The horizontal channel comes about when prices remain the same,or constant over a period of time. And when that happens, the slope of both trendlines takes on a horizontal appearance. Inevitably a horizontal channel is born.

Oh, and lest I forget. The horizontal channel trend lines represent both the support and resistance levels. If prices break out of  the resistance  level, a buy alert is generated. While a sell signal is generated when prices break out of the support level. However, a horizontal channel is not considered a trend in forex trading circles. Why? because the main players are in consolidation. They’re just taking a breather before resuming hostilities. And  the market is moving sideways.  Let’s ta look at what a horizontal channel looks like.

horizontal-channel

As you can see , the horizontal trend lines represents both the resistance and support levels. The three points along the resistance level are labels for the newly formed highs.  What you have here is major congestion going on,in that no clear trend has been established. Instead,the major players are taken a breather before  resuming their journey. I’d strongly suggest you not trade until a clear trade has been established.  Failure to  heed this warning could cause you to say” Kum ba yah anybody?”

 

How Do I Trade Horizontal Channel

To Sell

  • Wait until the resistance level is established at top3.
  • Once the resistance level is established at top3, you enter with a sell stop . Make sure you enter your trade on confirmation with a bearish reversal. The candlestick must close before you enter or else?guess what? Kum ba yah.
  • Place your stop loss 5-10 pips outside of resistance level. Or place your stop loss 3-5 pips outside the bearish reversal pattern.
  • Place your take profit target exactly on the support level.

If  You Want To Buy

  • Once top3 forms and price moves down to bottom3 at support level, wait for bullish reversal candlestick pattern. Then place your buy order 3-5 pips above high peak.
  • Next place your stop loss 5-10 pips outside of support level. Or you can place stop loss 3-5 pips below the low of the bullish reversal pattern.
  • Place your profit target a the price level around the support level.

 

That’s a wrap for “We’re Going to Talk  Channels”. Hopefully you’ve gained a painless understanding on how to trade channels. I hope you all have fun with  trading channels  whether demo or live.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Icluding Trading Confirmation Signals), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Trading Channels), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

Find, Enter, and Manage Forex Trades

Don’t let the title scare you.This is not a shrink session. We’re just going to take a walk on how to find,enter,and manage our forex trades. We’re going to hold each other’s hand and try to find a trade signal, set the profit margin, et the stop lossand   Hopefully, by the time this session is over, there will be no clouds left as to how to trade price action setups on the charts.

First up:

How Do I Find A Trade Signal?

Where else would you find a trade signal? On the price charts of course.  You need to and scan through your price charts to look for possible trade signals. While you look for your signals, you should have at the back of your mind which currency pairs you’re comfortable trading with. Make sure to do this everyday at the same time. I suggest you do your analysis between the time that the New York session goes to sleep and the European session wakes up. Why this time window? because this is when market activity from the previous day tapers off, and Asian traders take over. By the way, Asian market session is not as feverish at the New York or Europe.The more reason why you stick with the former.

Now where are the best areas to look for trade signals? Conventional trading  wisdom has it that you point your focus at the following places:trends,levels, and good old price action. These three areas is where the action is. The trend lookout can be tricky,but to make life less  complicated for yourself, just look for higher highs/higher lows and lower lows. I hope you remember these two. If not, quickly refer to Trade Trends With Price Action Analysis. You can also apply moving averages by looking out specifically for the 8 and 21 EMA’S(Short for Exponential Moving Averages).If you’re not sure about your moving averages, get with We’re Moving Averages Part I and We’re Moving Averages Part II.  Let’s take a look at illustrations of the above:

Starting with Finding An entry signal on a Trending Market

Long_short

As you can see there are entry signals for long position on the uptrend and short position to sell on the downtrend. So long as you’re clear in your mind of a  trend developing,you can jump in with your entries.

Next is:

Support/Resistance

support.resistance

 

As you can see,the bull and the bears are bouncing and breaking out all over the place .  Keep your focus on the breakouts at the support and resistance  levels. Because that’s where you’ll make you trade entries.

Next up is:

How  do I Place A Stop Loss?

Again,as conventional trading wisdom would have it, place your stop loss at the most logical level.  Some you’re probably murmuring among yourselves”What does he mean by ‘Place Your Stop Loss At The Most Logical Level’?” Well, basically you want the market to tell you tha your trading position is in danger of taking a hit.You can do this through a strategy known as ‘Set and Forget.” You just set your stop loss and go enjoy life while the market does the dirty work.

Now why in the world would I want to trigger a stop loss against my trading position? Because you want to protect your trading position from sustaining a massive hit in case the direction of the prevailing market trend does a 360 on you. I mean look at it this way: You want to give your trade enough room to breathe.In so doing , you put your stop loss at a level that is not too close,and not too far from your trading position  – talk about walking a fine line.

And you definitely do not want to commit trading suicide by placing your stop loss to close to your trading position in a desperate attempt to make a humongous profit. That’s not a trading mentality, that’s a gambler’s mentality. You’re building a business, and so must be disciplined and patient in your trading decisions. You place your stop loss based on the trading signal and prevailing market conditions. You can’t let greed override your sense of logic.

Now that we’ve let of some steam, let’s take a look at a few illustrations of placing stop losses.We’re going to use a few of the most popular trading strategies out there.

Starting with:

Pin Bar Stop Placement

 

pinbar_setups

Notice the little black arrow pointed at the pinbar in the bullish trend. You place your stop loss below the pinbar’s long stick-or higher low. See the same black arrow pointing at the pin bar in the bearish trend. The difference here is that the pin bar in this instance is standing on its head with the long thick stick pointing upwards.To protect your short position, just above the high of the pin bar’s tail.

Next up is:

Inside Bar  Stop Loss At Bullish Trend

bullish-insidebar

Notice the inside bar at the beginning the bullish trend. The inside bar is characterized by a higher low(The long tail) and a lower(high) the small tail. The stop loss is always inserted at the lower high end of the inside bar.  Insert the stop loss anywhere else, and you risk singing kum ba yah for a very long time.

Now let’s move on to:

Placing Stop Loss on Inside Bar on Bearish Trend

bearish- insidebar

As I’m sure,you geniuses have deduced by now, the inside  bar can also be spotted at the bearish trend, except that they look different.  Unlike the uptrend,where it looks thin and skinny,this inside bar here,is bigger and full with smaller wicks at the high and low ends. If you don’t want to be singing kum ba yah over your trading account, I’d strongly suggest that you place your stop loss just above the upper wick. This way you save your  selling position from  sustaining a major hit.

How Do I Place My Profit Target?

When placing your profit target,  aim for a risk ratio of 1:2. Let  say your initial risk is 100 pips. You then look place a reward distance of say 200 pips. Let’s get one thin straight. You should think  measurement not risk.You’re spreading the pips around to offset any major losses.

Then check to make sure they’re no support or resistance levels in the way of  your  profit target. The last thing you want is to  get caught up in any bull/bear conflict. You want to make sure the coast clear for you to make your profits without any hustles. In any case, even if there is the whiff of a bull/bear tussle,just use your discretion as to whether you want to take the trade or not. Left to me alone I’ll let it go.

Let’s take a look at how placing a profit target is done

profit-target

As you can see,  the profit target is as far away  from bull/bear conflict as possible.  It’s in a very good place,minding its own business. The last thing you want is dodge bullets from bull/bear consolidation at the support/resistance levels. You’d be better off erring on the side of safety here.

 

A word of warning though: Don’t get greedy here: Take more than your 1:2 profit ratio ONLY if it exists on the chart. If  you start imagining things, kum ba yah will be weighing on your conscience again.. If you’ve inserted a trail stop in the hopes of racking a huge profit based on what is really showing on the market. Just don’t get the urge of setting a new profit target once price closes in on it, or even worse,you develop this delusion that the market will always have our back forever. The forex  market has no friends,and it’s not a Santa Claus either. So you need to get your signals ,stops, and profit targets straight before making your entry.

 

That’s a wrap for “Find, Enter, and  Manage Forex Trades”.  Hopefully, you’ve learnt that you don’t just jump into the market. You need to identify certain conditions before you trade-depending on your trading strategy of course.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice,(Including Managing Your Trades) and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarketsand get a free forex trading ebook

 

I

 

 

You Need To Sharpen Your Trading Edge

If you want  to rake  in the cash as a forex trader, you need to sharpen your trading edge. And no, I’m not saying  act like you’re the hottest thing since Muhammed Ali.  Having a trade edge requires you to identify conditions in the forex market that enhances the probability of you making a winning  trade. And please,forget about using indicators,or any kind of weird gizmo to develop your trading edge – They are  not going to help you. You need a deadly combination of knowledge of the market and plain old instincts to develop your trading edge.

We’ll  look at what a trading edge really is and then learn how to sharpen our trading edge.

I guess the first question we need to ask is:

What is A Trading Edge?

Well, a trading edge is basically a set of conditions  in the forex market that increases the probability of you chalking  a winning trade.  These conditions must be present in the market in order for your entry trade to be a winnable one. if  you are able to recognize these conditions, you have the edge over everybody else especially those  traders who have the gamblers mentality rather than the  traders mindset. If the conditions aren’t present, DO NOT BOTHER ENTERING A TRADE. Failure to listen to that still small voice could be fatal for your  trading account.

Can You Give Us Examples Of A Trading Edge Please?

Sure. For instance could base your trading edge on identifying the when the market is trending. You want to look to look out for the bulls heading for Mount Everest or the Bears heading for the Grand Canyon. For those of you wondering”What is he talking about?” The bulls represent the bullish  trend initiating a strong upward surge  when price goes up.While the bears represent the  bearish trend heading downwards after the price takes a tumble. Just in case some of you have completely forgotten what trending markets look like?Let’s take a look at a graph of the aforementioned.

bullishbearish-trend

These,ladies and gentlemen  are two illustrations of  bullish and bearish trends   In the bullish chart, the blue candlesticks surging upward represent the bullish trend.  Whenever you get a bullish candlestick engulfing a bearish candlestick(black..But could be any other color depending on platfom).( That’s means a bullish trend is developing or the bulls are heading for the hills.  Please make sure you get at least two more bullish candlestick confirmations before you enter your trade. If you jump in straight away, you risk losing some much needed cash

In the bearish chart pattern,the black  candlesticks heading downwards  represent a bearish trend. This is where the bears take over and force the price to take a tumble. And, the bearish trend kicks off a bearish candlestick engulfs a bullish candlestick. Make sure you get at least 2-3 bearish candlestick confirmations to establish a bearish trend. And please, look to sell on a bearish trend NOT BUY.(You only buy on a bullish trend). You make the mistake of making entering to buy,that will be your own massive headache.

So if your trading edge is bullish and bearish trends,this is what you need to identify when looking for trades.

Another example of a trading edge is support and resistance levels. If you’re the type who gets a huge thrill from trading support and resistance levels, this is for you. .  Again,in case some of you have forgotten, the support level  catches price as it falls. Meaning that it bounces of this level  rather than break through it .  So basically it acts as a trampoline of sorts. But in case price breaks through this support level, it continues dropping until it bounces off another support level.

The resistance level is the complete opposite.It rather acts as a barrier against price as it rises.But once price breaches this level, it heads for the hills until it runs into another resistance level. Now let’s take a look at illustrations of both levels

support_resistance

 

Ladies and gentlemen,this is an illustration of support and resistance levels in action in the USD/JPY session.  At the resistance level,the bears are playing trampoline as they try to break through the support level. However, when the bears do break through, don’t forget put in a trade.Will you? But , at the resistance level, the bulls basically tell  the bears”Get out of our way” as they breach the resistance barrier and head for the hills.

So  if you   prefer trading as support and resistance level as your trading edge, these are the conditions that must be present on the market for you to trade these levels. If anybody is seeking information on trading support and resistance levels, get in touch with my Identify Support and Resistance Levels With Price Action Analysis post.

Let’s get one thing straight. The above strategies are just two examples  that you could use as your trading edge. You could use any of  the other trading strategies that we’ve discussed on this blog as your trading edge.Just make sure the conditions for these strategies are present in the market for you to trade them That is assuming you really care about not blowing trading account to smithereens.

Now that we’ve identified what a trading edge, how do we sharpen our trading edge?

Well, there are a few ways  of getting your trading edge sharpened like a knife. Starting With:

Pay Attention To The Price Action

As a price action trader, naturally you need to pay attention to the price action – no ifs,no buts. You  need to watch what’s happening on your price action chart like a hawk.  Be on the look out for trading opportunities in conditions such as support and resistance levels, trends, and general trade behavior. Let’s take a look at the graphic below.

price_action

This is an illustration of what you will be staring at. As you can see, there are so many trading opportunities along the support level that you can take advantage of. You just need to keep your eyes wide open.

Some of you may be wondering “I thought pattern trading was also part of price action trading.?” Sure it is.But you’re only looking at  the last two candlestick entries as signals. Besides,these candlesticks are  a few of several candlesticks on the charts. Now I’m not saying ditch pattern trading altogether -absolutely not! I’m just saying you need to be more holistic in your analysis.

Learn One Price Action Setup At A Time

If  you want to maintain your sanity as a price action trader, learn one price action setup at a time. If you think cramming all the price action setups  all at once, you’ll suffer mental meltdown. You see the way a nuclear reactor melts down after overheating. That’s exactly how your brain will react when you try to force it to cram  every price action setup. Just allow your brain to digest one price action setup at a time,and you’ll eventually ease into the flow of the forex trading process

Once you’ve perfected  your chosen setup,you can then  look to make your entry. Like I said earlier, As I said earlier look at strong trends,whether price is rejecting support or resistance, and   whether there is leg room for price to maneuver,et,c.

Not sure of which price action setup to work with?Let me give you  two setups you can work with. We’ve dealt with these setups already on this blog in the not too distant pat.,but this is to refresh your memory.

First:

Pin Bar Reversal

pinbar_setups

As you already know, the pin bar is characterized by a long stick, popularly known as a wick. Anytime you see this candlestick, think sharp reversal or rejection of price. The bullish trend suggests a  continuation after the bulls take a breather from butting heads with the bears.

The same scenario  pertains in the bearish trend. and   The pin bar in this scenario also   represents a sharp reversal or rejection of price by the bears. The same continuation pattern also exists in the bearish pattern with the bears heading down south after taking a breather from butting heads with the bulls.

So if  you want to make the pin bar reversal your trading cup of tea,these are the conditions to look out for. For more information on the pin bar, look up Pin Bar Strategy – How To Trade It

Next is:

Inside Bar

insidebar_setup.jpg

As you can see the inside bar is a two bar situation where the smaller bar(inside bar) is within the higher to lower range of the previous bar. The candlesticks  encased in the squares in both the bearish and the bullish trends represent the inside bar  setup. The bigger candlestick is affectionately called the mother bar.(Almost like mother hen).  Whenever you see such a setup,- whether bullish or bearish,it’s time to enter a trade.

If you want to know more about Inside Bar strategy, look up Trading The Inside Bar.

Less Is More

There is a painful reality you need to accept in forex trading. It is basically this:LESS IS MORE. The notion that trading more  makes your forex account looks good completely baseless.. If anything, it puts your account in harm’s way especially when you make losing trades. Picture this scenario: You enter an average  trade without thinking it through.  You then recognize a juicy trade,and you say to yourself”..Hmmmm time to make up for a lost trade.” Luckily for you, you make a decent profit,which excites you to no end.

I have a huge problem with this trading mentality. Why? Because you lost an average trade, you’re then forced to jump back into the market  just to break even. I have traded like that in the past. And believe me,it;s not fun at all. You’re stressed out, struggling to look out for what you believe to be the best trade out there to make up  for lost money. Not only are you putting your blood pressure in harm’s way trading this way, but you’re also puting your trading account under pressure . Imagine if your forex account could talk. It’ll probably be screaming in your face saying”YOU DONT KNOW WHAT YOU’RE DOING.” Now that will be very humiliating. Wouldn’t it?

The morale of the story is just concentrate on one trade that will bring you maximum profits. All you have to do is develop the sniper mentality where you lie in wait for the best trade to come along. Once the trade shows up on your charts, you pounce like a lion,make your trade and earn some  nice profits. Just make sure the trade has a high probability of sucess. If you want to know how to identify high probability trades, refer to  How To Spot High Probability Trades.

 

That’s a wrap for “You Need To Sharpen Your Trading Edge.”.  Hopefully, you’ve learnt that you don’tjust jump into the market. You need to identify certain conditions before you trade-depending on your trading strategy of course.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Sharpening Your Trading Edge), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forex Trading Basics – Top to Bottom Part II


Hello

Last time we started part I of a two part series on Forex Trading Basics. –Top To Bottom Part I. I decided to do this for you out there who are itching to jump into the trade but don’t have enough ammunition to do so. Today is the second and final part, Forex Trading Basics – Top To Bottom Part II. Yeah, I know wish this series could go on and on. But all good things must come to an end. But does doesn’t mean your interest in the forex trade comes to an end. You can apply what you learn here in your price action analysis/trading. So onward:

 

First meal on the menu today is:

Types of Forex Orders

What do we mean by “Order” in the forex trade? Well, order merely refers to how you enter or exit a trade.Except that we’ll be looking the different types of forex orders that are placed  in the forex market. Some of you’re probably wondering  ”When are you going to show us how to place these orders?” Well, easy easy.  I’ll show you how to place each order-After I’ve explained what each one of them is about of course.

First in line.:

Market Order

A market order is just simply  simply to buy or sell at the best available price. Let’s say bid price for EUR/USD is currently at 1.2140 and the ask price is at 1.2142. If you want to buy EUR/USD then it will be sold to you at the ask price of  1.2142. Your trading platform will then execute your order at the sound of you clicking to place your order. Let me show you a pic of this scenario:

market-order

Here is an example of a market entry exit and exit with EUR/JPY currency pair. Here,we have a pin bar set up in motion. The order to sell is executed because the bulls are losing momentum.The stop loss is executed when the market does a reversal.

 

Next comes:

Limit Entry Order

A limit entry order s a bit more conservative than the full market order.Here,you place your order below the market price or sell above the market at a specific price. Let say EUR/USD is sold to 1.2050. You opt to go short(sell) if the price hits 1.2070. The way I see it, you have two choices: You either sit in front of your PC and wait for it to 1.2070(In this case you click a sell market order).Or you set a limit entry order at 1.2070 and go for your morning jog. Once the price hits 1.2070,your trading platform will execute  a sell order at the best available price. However,you only choose this option if you believe in your heart of hearts that the market will do a 360 on the price you chose. Let seen an illustration of the limit order.

limit -order

 

 

Ladies and gentlemen,This is the limit order in action.As you can see, buy limit order is set below market price while the sell limit order is set above market price. You can either wait for priceto hit the intended target, or go  out for a bit while your platform executes the order after the intended target is reached.

 

By the way.I’ll  take up the second option if I were you.You;d be better off smelling the fresh air than sitting in front of your PC all day.

 

Stop Order

A stop order is the complete opposite of the limit order.Here you want to buy above the market or sell below the market at a specific price. Say, GBP/USD is going for 1.5050 and is heading for the hills. You’re betting your last dollar that the price will keep marching outwards if it hits 1.5060. I n that case,and as in most cases in life,you have two options: you sit in front of your  PC(That PC again) and watch the price hit 1.5060, or set a stop-entry order at 15060 and go out and smell the roses. Let’s see the stop-entry order in action.

stop-loss

This is the classic example of the stop entry order being activated once the asking(buy) price hits entry price. Same stop order is also activated when the bid(sell) price also hits his target. Just make sure you’re nowhere near the PC when the price hits. There is so much fresh air out there. Feel it blowing through your nostrils.

 

Okay who is next in line?

Stop Loss Order

A stop loss order is like an insurance policy against your trading position. You place a stop loss order for the purposes of preventing additional losses if the market does a 360 on you.  Keep this order in mind because you’ll definitely need it when the market starts sneezing. Let’s say you go long(buy) EUR/USD at 1.2230. To avoid sustaining a massive hit set your stop loss order at 1.2200.  So that in case, against your better instincts, EUR/USD drops to 1.2200, your trading platform will automatically trigger a stop loss at a 30 pip loss(Ouch! I feel the pain). And if you don’t want to pull your hair out worrying whether you’ll blow all your money, well  I’ve got a simple solution for you. LEAVE YOUR PC ALONE! Just set a stop loss against all your positions and go to the gym.Your  trading platform will cover for you while you’re gone.  Let’s see how a stop loss works using GBP/USD.

stop_loss

As you can see, the stop loss has been set at the resistance level. Like I said earlier, you will definitely need the stop loss when the market goes into reversal mode, Failure to trigger the stop loss could be deadly for your cash register.

 

Finally,

Trailing Stop

The trailing stop is a stop loss order with a difference. This is only attached to a trade when price fluctuates. Let’s say you decide to sell USD/JPY at 90.80 with a trailing stop of 20 pips.  This sets your stop loss at 91.00.So that if the price drops and hits 90.60, your trailing stop will move back to 90.80(or breakeven). By the same token, if USD/JPY hits at 90.40, your trail stop moves to 90.60-giving you a 20 pip profit. Let’s  see a trailing stop in action with EUR/USD

stop-loss

 

As you can see,the trail stop  has been set at the resistance level during the downtrend – which is bears territory. As  I said earlier, as price fluctuates,trail stop widens – creating profit opportunities  for you. However, I have to warn you;if the market turns against you,your trail stop remains the same. This of course,will hurt  your cash register(Your forex account). So keep that in mind.

 

Now that we’ve gotten the entry orders out of the way,

Should You Start With A Demo or Live Account?

Conventional wisdom dictates that you’d be better off getting started with a demo account. Now before you accuse me of denying you the opportunity to feel real cash in your hands, hear me out. First off, a demo account is absolutely free.Sure,the cash on demo account is virtual, and not real.But it does have the functionality of a   live account where you get to practice your trading skills without any stress. In fact,you can afford to lose a few thousand dollars and learn  from your mistakes. Even more important, you get to learn the ins and out of your broker’s trading platform without much risk before deciding to take the plunge into the lion’s den with real cash.

And while you’re practicing, do me a huge favour. Stick to one currency pair. You don’t want to give yourself too much work to do trading several currency pairs at once when you start demo trading.Sticj with one of the major currencies(like GBP/USD) since they are more liquid,and you’ll get tighter spreads and more constituency. Plus, by starting with one currency,you’ll develop better trading habits and creating a solid trading system. These should stand you in good stead when you decide to go live into the lion’s den. It’s possible to be a successful trader, but just like any other endeavor you have to start from somewhere. And you need to be focused,patient, and develop sound judgement.

Now there is one hard truth you need to learn about forex trading. And that is:

Forex Trading Is Not A Get-Rich –Quick- Scheme!

Yes, you heard it from me! Forex Trading is not a get-rich-quick scheme. When I started trading, I thought, “hmmmm….I could be hit the jackpot within days.” I found out the hard way within minutes of  entering my first trade.You see a lot of rookie  traders  trade the forex market as if they’re playing black jack. They think they can risk $10,000 and make 50 times what they invested. Well,I’ve got news for you black jack traders! You have to treat your forex account as a business.You are the CEO of your account and you must hold yourself accountable for every trading decision that you make. Even more important, you must develop a trading strategy and perfect it before you enter the lion’s den. Because if youdont, you will be eaten alive. This why you need to get started with a demo account so you can perfect your  trading strategy before going live into the lion’s den called the forex market.

Because of the forex market’s humongous size,it’s easily prone to speculation. And it’s this speculative that makes so called black jack traders that they can make an instant killing. WRONG! You can’t succeed with a short  term mentality  on the forex market. You need solid discipline, patience,and focus to make it in the lion’s den. You need to  develop a trading strategy devoid of inconsistencies and massive losses. If you can’t do this,then you’re nothing but a gambler.

Eager to get started on a demo account, sign up with EasyMarkets

If you’ve staggered on to this  post curious about the forex trade,  find out Why Forex Trade Is So Popular

That’s a wrap for Forex Trading Bascis – Top To Bottom Part II.  It’s also the end of our two part series on Forex Trading Basics-Top To Bottom.Hopefully all of you out there now have a solid foundation on how to get started as forex traders. Now that you’ve gotten the milk you can start chewing the bones. Once you’ve figured your way around you can then follow my price action posts where you can add more grease to your trading elbows.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(IncludingForex Trading Bascis – Top To Bottom Part II ) , and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forex Trading Basics – Top To Bottom Part I

Ever since I started this forex trading blog, I’ve gotten some amazing feedback from you readers. Infact, some of the  reviews of my  have been so tremendous I’ve felt my head expanding  as big as cyberspace itself. Now I don’t want to jump ahead of myself, but I’ve a feeling some of you would like to join the forex trade bandwagon. But you don’t know how. So,being the nice guy that I am,  going to do a two part series on Forex Trading Basics-Top To Bottom Part I. It’s my version of Forex Trading 101 where you’ll be fed the fundamentals of forex trading. I basically want to feed you the milk before you start chewing the bones of the forex trade.  You’d be   crazy to take  the plunge without the necessary tools right?

So let’s get started with:

Exchange One Currency For Another

The only motivation behind forex trading is to exchange one currency for another. That’s all!- Nothing sinister going on here. By exchanging one currency for another, you’re hoping that the price will change so tha the currency that you bought  initially will shoot up in value as against the currency that you sold.  Let’s take a look at the little graph below:

Trader’s Action EUR USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.1800 +10,000 -11,800*
Two weeks later, you exchange your 10,000 euros back into U.S. dollar at the exchange rate of 1.2500 -10,000 +12,500**
You earn a profit of $700 0 +700

** EUR 10,000 x 1.25 = US $12,500

 

What you see here is the exchange rate in action. The exchange rate is simply the ratio of one currency  valued against another currency. Per this definition, the USD/CHF shows how many U.S dollars need to buy one Swiss franc or how many Swiss Francs you need to buy one U.S dollar.

You Need To Know How To Read A Forex Quote

If you want to make it as a forex trader,you need to know how to read a forex quote.  There is no getting around this one. If you can’t do this,you’re in trouble. Seriously though, currencies have always been quoted in pairs since time memorial. I’m sure you’re aware of famous partners such as GBP/USD AND  USD/JPY . They’re perfect examples of a forex quote. Now why’re they quoted in pairs? Because in every forex transaction, you’re doing two things at the same time – buying one currency and selling the other. Let’s take a look at British Pound/U.S.Dollar

GBP-USD

 

The first currency listed to the left of the slash symbol is termed the base currency(In this case the British Pound). While the second currency on the right  is labelled the counter or quote currency(In this case U.S.dollar).

When you buy, the exchange rate lets you know how many units of the quote currency you need to pay to get one unit of the base currency. So going by the above example, you have to pay 1.51258 U.S. dollars to buy 1 British pound.

But it’s a little bit different when you sell.  Here, the exchange rate lets you know how many units of the quote currency you get for selling the base.  Again going by the GBP/USD pair, you will receive 1.51258 U.S. dollars when you sell 1 British pound.

And please get this once and for all. the base currency is the main catalyst for the buy or sell routine. For instance if you buy EUR/USD, you’re buying the base currency and selling the quote currency at the same time, In Tarzan talk, “Buy EUR, sell USD.”  You buy the pair if your trading instincts tell you that the base currency(EUR) will gain in value as against the quote currency (USD). You sell the pair when those same trading instincts scream in your head that the base currency will take a dip as against the quote currency.

 

Know How To Go Long/Short

You need to know how to go long or short. In other words, you must decide whether you want to buy or sell. If you want to buy(buy the base currency and sell the quote currency), let the base currency rise in value and then sell it back at a higher price. And if you want to sell(sell base currency/buy quote currency), the value of the base currency must drop  for you sell it back at a lower price. So  remember these two formulas: long=buy. short=sell . Let’s take a look at theAUD/JPY graphic below.

Long-short

This is a classic illustration of entering long/short using AUD/JPY in the 1hr time frame.  You go long when you spot engulfed candlesticks. By engulfed candlesticks,when a bull(strong candlestick) engulfs a bear(white candlestick. This suggests the value  has risen,and it’s time tobuy.This is exactly the case at the lines of support and resistance where the strong bull(white candlestick) engulfs  the bear(blue candlestick). The bulls are basically saying  the value of the currency has risen,and so they’re putting in a bid to buy. When you see something like this,why waste time?

As the short entries suggest,the value of the currency has dropped enough in value. So it’s time to sell. That’s according to the bears. Since they helped drive the price down,they’re now in the driver’s seat calling the shorts.

Know How To Ask/Bid

Not only should you know how to ask/bid as a trader,but you should know the difference between these two terms. For the record,all forex quotes are quoted with two prices –  The bid and the ask. Let’s see the graphic showing both terms.

bid-ask

This EUR/USD graphic illustrates the bid/ask scenario.. The bid is the price at which you’re willing to buy the base currency in exchange  for the quote currency. It is the best currency at which you(the trader) will to sell to the market.

Th ask is the price at which the broker is willing to sell the base currency in exchange for  the quote currency. It is the best currency at which you(the trader) will buy from the market. The ask is also known as the offer price. After all,if you want something you ask for it.Right? Also,let’s make one thing absolutely clear: The bid price  is  usually lower than the ask  price. Try do it the other way round, and you’re sure to get a massive rejection from your MT4 software.

Wanna know the difference between the bid and the ask price? It’s popularly known as the spread. On the EUR/USD quote above, the bid price is 1.34568 and the ask price is 1.34588 The ten pip difference is known as the spread, which we will be getting to next..

What Do We Mean by Pips In Forex Trade?

A pip is a popular acronym for price interest  point. Basically the pip measures the amount of change in the exchange rate for a currency pair.Most currency pairs are rounded up to four decimal places, so that one pip is 0.0001. The only exception is the yen,which is rounded up to two decimal places(0.01). So keep that in mind in case you decide to experiment.

However, forex  brokers are getting sexy these days.  They’re now offering fractional pips called pipettes to add extra precision when quoting  exchange rates for certain currency  pairs. Just so, you know a fractional pip is equivalent to 1/10 of a pip.So for instance, you can round  EUR/USD currency pair to five decimal places while the yen moves up a notch to three decimal places. Makes life more   for you  yen traders out  there . Doesn’t it?

Forex traders also use pips to make reference to gains and losses they’ve sustained in their trades. So when you hear a trader say “I made 40 pips in this trade,” he’s basically saying “ he profited by 40 pips.  However, the actual cash representation of these pips depends squarely on their value.

Speaking of which:

How Do I Determine Monetary Value Of Pip?

“How Do I Determine Monetary Value Of Pip” translates into “How Do I Calculate Profits.”Well, the monetary value of a pip is dependent on three crucial factors: the currency pair being  traded, the size of the trade, and the exchange rate. Let’s say a $300,000 trade between the USD/CAD pair closes at 1.0568. Here is how the profit is calculated.

  1. Determine the number of CAD each pip represents by multiplying the amount of the trade by 1 pip as follows:

300,000 x 0.0001 = 30 CAD per pip

 

  1. Divide the number of CAD per pip by the closing exchange rate to arrive at the number of USD per pip:

30 ÷ 1.0568 = 28.39 USD per pip

 

  1. Multiply the number of pips gained, by the value of each pip in USD to arrive at the total loss / profit for the trade:

20 x 28.39 = $567.80 USD profit

Seems fairly straight forward isn’t it?

Just to solidify your understanding of the calculation process, let me show you another example using the EUR/GBP pair and   using the same steps above.

Currency Pair Exchange Rate at Close Pip Change Trade Amount
EUR/GBP 0.8714 +29 350,000 EUR
  • Number of GBP per pip: 350,000 × 0.0001 = 35
  • Per Pip Value: 35 ÷ 0.8714 = 40.17 EUR per pip
  • Trade Profit / (Loss): 29 pips × 40.17 = 1, 164.93 Euros

Hopefully this example helped smooth things.

If you want to find why the forex trade is the biggest industry on the planet refer to Why Forex Trade Is So Popular?

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

That’s a wrap for “Forex Trading Basics From Top To Bottom Part I.” Hopefully you now have a feel for what you need to know to get started as a forex trader.. Next I’ll share with you more things you need to know  to make money as a forex trader in “Forex Trading Basics From Top To Bottom Part II.”

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice,(Including Forex Trading Basics Part I), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drawing and Trading Trend Lines

Hello People

This week, we’re going to tackle drawing and trading trend lines. Yes, I know a lot of you out there are literally geniuses at applying support and resistance lines. Left to you alone, you could make a fortune on just support and resistance lines. But mention drawing trend lines, and I’m sure I’ll get thick frowns from you guys that will make Godzilla look like a boy scout.

As a matter of fact, drawing trade lines is the most common and most popular among most forex traders.  Not only are you identifying the trend, you’re also determining the strength of the trend. You’re putting all the dots together as to  whether a setup can be traded or not.

So we’re going to do a few things. We’re going to define what trendlines are including looking at two types of trend lines. Next we’ll get to the most exciting part – How to draw trendlines, including ground rules on drawing trend lines. Finally we’ll touch on trading trend lines.

 

But first things first!

What Really Are Forex Trend Lines?

Well, forex trend lines are levels that help you identify and  detect the direction of market  trends. Imagine looking into the crystal ball and predicting what your future will be like. Well,that’s what  traders do with trend lines.  Some of you might be thinking  “yeah right” but trend lines do offer  value information as  far as potential trades go.  Not only do trend lines depict  the current direction of a price move, but they also help identify  support and resistance levels for the price. Trend lines also help you make up your mind on crucial factors such as entry and exit stops, profit taking and placing protective stops to avoid the harrowing possibility of your account going up in smoke.

 

How Do I Draw a Trendline?

Fairly straight forward. If you’re have a chart with an uptrend in front of you(i.e. the bulls charging upwards), start your trend line from the bottom of the line. Then draw the line a little further until it connects with two or three swing low/high points without interfering with other parts of the price action.

But it’s the complete opposite with the bears downtrend. You start the trendline at the highest possible price point(Imagine looking down from the summit of Mount Everest). Then continuing stretching the length of the trendline until  it touches two swing high/lows without interfering with the price action.

 

Now there are two types of trendlines you will be using when measuring trends. Most of you may have across these trends while reading my posts. But it doesnt hurt to refresh your memory.

First off:

Bullish Trendlines

As if it’s not obvious to you  now, bullish trendlines are utilized to measure bullish trends that are on the up and up. In case some have forgotten, bullish trends have the bulls running the show.In other words,the value of the currency pair is rising, with higher highs and higher lows being the end result.

Now Where Do I Place The Bullish Trendline?

Just place the bullish trend line below the price action. Next connect the higher lows of the trend line, creating a level of support for the bullish trending. Now let’s see what the bullish trendline looks like.

bullish-trendline

 

As you can see, the green line represents the bullish trendline. The two arrows point to  the higher lows or swing lows, as they’re popularly known. Just connect the two swing low points and you’ve got yourself a bullish trend line. The more lower lows contained in the trend line,the stronger the trend line.

Next up is:

Bearish Trendlines

You don’t need me to tell you that bearish trends are the complete opposite of their bullish brethren.  As the name suggests, the bearish trend suggests a drop in price with lower highs and lower lows being the end result of the bears downhill slalom. In this case, you use a bearish trendline to ascertain price action while the price took a nose dive.

Where Do I Place The Bearish Trendline?

Insert the bearish trendline at the highest point of price action(Imagine what it feels like looking down while standing on top of Mount Everest). And then connect the lower highs and lower lows.  Let’s see what the bearish trendline looks like.

bearish-trendline

The sloping red line is the bearish  trendline.  And the two candlesticks indicated by the red arrows represented the highest points on the price action. Just connect these two points and you have yourself a bearish trendline.

Now before we wrap up:

A  Few Things To Keep In Mind

  • To get a valid trend line, make sure you see at least two highs or lows. Just to confirm, you may need  at least three tops or bottoms.
  • Make sure your trend line is not to too steep. Or else you may end up with a distorted view of the price action-which of course could blow your profit prospects to smithereens.
  • Just like support and resistance levels,  trendlines also have a strong backbone. With every hit that they take, they become more stronger.

And lastly, PLEASE PLEASE And I repeat- PLEASE! PLEASE! Whatever you do, do not force your trendlines to fit the market. If your trendline does not reflect the prevailing price action, it’s not a valid one. Dont push and force anything that isn’t there, unless you don’t really care about the sanity of your forex account.

Here are some even more critical facts you need to keep in mind.

Think of The Trend As an Area Not a Line

When drawing a trendline, you need to think of the trend not as an isolated line but a whole area. Just because the price action breaks the trendline  doesn’t necessarily mean that the trend  has been broken.  Some of us have this weird impression that just  because the lower ends of the candlesticks strays off the trendline it means the trendline has broken. NEWSFLASH! ABSOLUTE NO! You need to keep in mind trendlines take a while to mature, and when they do mature, you’ll catch a lot of price reactions along the trendlines. And often time,these price reactions transform into the dreaded false breakout traps  that rookie traders always seem to fall into.

Let’s take a look at a trendline in action on the USD/CAD currency pair.

USDCAD-pairRight in front of us is long bearish trendline. courtesy of the bears. The third lower high(third arrow pointing at the full-bodied candlestick)  confirms the trend. Like I said I said earlier,you’ll need a third  top  to confirm the trend. Then notice the yellow circle encircle the lower low. That candlestick has gone off the trendline.Again, as I mentioned earlier, just because a candlestick’s wick strays off the trendline does mean the trendline has been broken. It’s all part of the trendline’ maturation process.

However, numerous candlesticks hovering around the area suggests a major rejection exercise being carried out against the price as it tries to break through the trendline. consequently, price drops before it finally breaks through the trendline at the final attempt.

And Finally:

Trading Trendlines

Now comes the fun part-trading trendlines.We’re going to look at three trading scenarios that  unfold along the trend line. The first one is:

Trading The Trending Move

First make sure you have your three confirmations. Once you get your third confirmation, you now have the green light to trade on that trendline. Let’s look at a”Trading the Trending Move”  illustration on the AUD/USD graph

Trending-Move

Here the blue trendline represents the bearish price drop(Or the bearish slalom as I like to call it.) The green arrow pointing at the full bearish candlestick represents the third  confirmation signal that we alluded to earlier. Once you get that confirmation, you can enter your sell trade(or go short as we also say).

Also notice that another lower low forms, causing another correction to the trend. This causes the price to take a further plunge, thus,creating another lower low.  Now take a very close look at the bullish candle circled in red at the end of the trendline. That’s a clear sign that the bears momentum is evaporating, and that it’s time close the trades. So when you see such a situation unfolding in future trades you know what to do.

Next up is:

Trading Trendline Breaks and Reversals

Now that we’ve gotten past  trading swings using trend and counter trends, let’s look at trading trendline breaks and reversals.  In as much as we love the bulls shooting for the hills,we also know that situation is not always permanent. That as some point, there is going to be a reversal, sometimes of astronomical proportions. And when that happens, the grizzly bears take over and push price downwards, forcing it to roll down the hill -sometimes at dizzying speeds.

In as much as we’d like trend reversal confirmations to be straightforward, it’s not always the case. The veterans of this sometimes crazy business will tell you that it’s not an exact science. It tallies with my assertion earlier that just because a candlestick accidentally strays off a trendline doesn’t mean the trendline has been broken. So to make life easier for you rookies out there I’m going to show you four scenarios you should recognize when using trendlines to confirm a trend. We’ll use the ever famous GBP/USD pair to illustrate.

GBPUSD-Trend-Reversal-1024x458.png

 

What you see above is the four scenarios which help confirm a trend  reversal. Now, since I’m a very nice guy, I’m going to break down and explain all four of the above scenarios to make life just that much easier for all of you.

We’ll  start with:

  1. Price Breaking Trendline

Phase one shows the price breaking the bullish trendline acting as a resistance level.. The strong red candlestick  in the red circle represents the actual breakout by the bears. It’s the beginning of their traditional slalom run.

2. Price Decrease Below Previous Bottom

The bears continue to hold sway as price continues to decrease further. The strong red candlestick  in the red circle is indicative of the bears pushing the price below the previous bottom and the  initial swing low that was created as a result of this price drop. The horizontal line  at the circled swing low serves as the alarm bell or triggern for the eventual trend reversal.

3.Broken Trendline Under Attack

The Bears are really milking their newfound momentum like nobody’s business. They re really attacking the trendline by constantly retesting the broken resistance trendline to try to put it out its misery  and roll downhill. You can place your trade entry after the close of the strong red candle. However,  there is one little secret about these trend reversals you need to know. The retest doesn’t have to touch the trendline.Why?because the trendline is considered an area, not a level. Even further, the price may do even do a 360 on you by shooting upwards beyond the decimated trendline.

 

4. Support Level Also Takes a Hit

So, not only does  the resistance level take a hit from the bears, but the support level suffers the same indignity from the bears also. The black line in this scenario happens to be the poor support absorbing all this punishment. But take a close look  at the strong candle stick closing strongly below the support line. This would be the perfect place to put in a  sell order(or go short as we say).

If you’re still pulling your hair over drawing and trading trendlines, I suggest you seek the advice of Identify Support and Resistance Levels With Price Action Analysis

 

 

Well, that’s a wrap for “Drawing and Trading Trend Lines.” As you can tell, trendlines are crucial too; for forex traders as far as predicting the future price action goes.Just make sure your trendline fits directly on the chart and you will reap the benefits nicely.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Drawing and Trading Trend Lines), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

 

 

 

 

 

 

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How To Ace Price Action Trading

One fine day while I was sifting through comments from readers in reaction to my various posts, one  caught my attention.  This comment came from a reader who simply called himself diet band wandwagon(same name as his youtube channel).  He loved my What is Price Action Trading?  post so much that he said,”Very energetic post. I liked it a lot. Will there be a part 2?”  I thought to myself, “Do I really need to do a part II to this post.

But then I thought “Yeah it makes sense to do a part II to the original post. After all, you do need to know how to perfect your craft as a price action trader right?And besides, most movies have sequels these days.So I have come  to the  conclusion that my original post deserves a sequel “How To Ace Price Action Trading”. I think it’s an appropriate name for a sequel because you need to really hone your skills as a price action trader if you want  to separate yourself from the chaff so to speak. So I’m going to share with you a few tips to help you be the perfect price action trader that you can be- or at least close to perfect. . So Mr diet bandwagon, this is for you.

Focus On The Hills and The Valleys

Focus on the  hills and the valleys is my streetwise way of saying focus on the highs and the lows. It’s not for nothing traders say the trend is your best friend. The hills and the valleys provide valuable information about trend strength   and market direction that you’d  be crazy to ignore. And they can even drop clues on the trends losing momentum and impending  trend reversals.

Here are a few things to consider when analyzing the hills and the valleys

  • Do the hills and the valleys establish a wavy pattern with small pull backs?By that I mean do the hills and valleys establish protracted trend patterns with small pullbacks?If that’s a case this has all the makings of a strong trend, not to mention a huge opportunity to cash in.
  • However, when price barely clears the scales making higher highs and higher lows, that should tell you that the bulls are losing momentum and that the bears have started bearing their teeth.
  • If you see pervasive volatility or longer candlestick wicks while price generates new highs and new lows, be very worried. This could be a slippery turning point where the trend loses momentum.
  • Another attention grabber you ought to pay attention to(for want of a better term) is where price fails to make a higher high on an uptrend. That should also tell you that the bulls are losing momentum. You can be sure the bears are salivating at this development.

Now let’s take a look at the EUR/USD.highhigh-highlow

The EUR/USD graphic is a classic illustration of the highs and lows that we’ve been discussing above. Higher highs and lows can be valuable when looking for signs of trend strength.If you’re not sure of your trend trading, refer to my Trade Trends With Price Action Analysis post.

Pick Trades That Have High Probability Of Success

You’d be better off to pick trades that have a high probability of success. Even if you spot the juiciest price signal you do your profit chances a world of good by only taking trades that have a significant probability of profitability. In other words, these trades should be located in zones considered important and meaningful. It does not make sense picking price signals,regardless of where they occur, and then wonder why they have such a low winning rate.

Some of you are probably  wondering “How Do I detect trades that have a higher probability of success?” Well,you can start by drawing support and resistance levels on the chart.Then wait for price to touch those levels;and only take a price when a price signal lights up at your pre-marked price areas. Not only does this spare you from pulling your hair out, but the quality of  your trading improves significantly. Let me show you an illustration of what I’m talking about.

forex-location

 

This is an example of a trade with meaning. You have resistance  levels that are well-defined. Once the price touches these levels, that should be your queue to enter your trade. If you want to know how to identify support and resistance levels, see my  Identify Support and Resistance Levels With Price Action Analysis  post.

Put Trades in Proper Context

If you want all your hair still in one piece, put your trades in their proper context.  It flies in the face of trading common sense if you go on some candlestick treasure hunt to fit some template you’ve designed or just satisfy some candlestick criteria you’ve created for yourself. One thing you must understand about price action trading, is that the price action you see on your screen is relative in relation to what happened previously. In other words, there is a link between past,present and future.

For instance you may run into a situation where  you find multiple pin bars. The first two pin bars may be tiny compared to the previous price action. Since these  pin bars don’t tell you much with regards to trading signals,they eventually fizzle out. Let’s take a look at the NZD/USD graphic.

 

NZD-USD.png

As you can see from the uptrend,there are multiple pin bars. But the first two are midget in size, and since their trading signals are mere whimpers,they just evaporate like meteorites. Notice how the pin bar at the very puts on a strong rejection and yet it was bigger than the previous candlesticks. Samesituation goes for the bears . They also have midget pin bars that don’t giveyou much to gon.Eventually,they also fizzle out. So if you see pin bars that look like they’re famished, FLEE!

If you want to know what price action trading is all about look up What is Price Action Trading Analysis?  And If you want to know how to trade pin bars. Visit Pin Bar Strategy – How To Trade It.

Four Clues of  Candlesticks and Price Action

There are four clues candlestticks you  have to instantly recognize when trading with price action. Remember when I said you need to act like a sniffer dog when trading? You need to put on that mentality in this situation.You have to put the pieces together to avoid blowing your account into smoke. Lookout the following hints to avoid making disastrous and dangerous  blunders.

Long Wicks

Long wicks spell danger and uncertainty.

This so happens especially when the market is congested.In other words when the market is going sideways.

forex-congest

The long wicks in this graphic illustrate the danger that I’m referring to. They’re the skinny ends of candlesticks. Even worse,is the congestion in the graphic. This happens when the market is going sideways or where there is lack of clarity in the market. Unless a break out happens, DON’T TRADE.

Bullish vs Bearish Wicks

Anytime the bears generate long hicks going downhill, it suggests  rejection and failed bearish attempts.failed-bearish

As you can see from the AUD/CAD graphic, there has been a major bear rejection resulting in a false break of some sort. You’d be wise not to fall for such a deception.

Position of Candlestick Body

You need to ask yourself whether the position of the candlestick body is closer to the top or bottom of the candlestick. Bodies that close near the top suggest strong bull activity-especiallyif the candlestick has a long wick.

candle-body

The blue candlestick illustrates what I’m talking about. If it closes at the top, it means the bulls are on top, If it closes at the bottom, the bears are in the neighborhood. If you want to know about candlestick action refer to You Need To Know Ten of These Candelstick Patterns.

Ratio Between Body and Wicks

The ratio between the candlestick body and the wicks speaks huge volumes about who is on top at the market. Candles with large bodies and tiny wicks suggest humongous strength. Whereas candlesticks with a small body and tiny large wicks spell indecision among the trading actors. Let’s take a look at this ratio.

 

 

candlestick -ratio

The black and white candlesticks(representing the bulls and the bears respectively) with long bodys and tiny wicks reflect the overwhelming strength of both the buyers and the sellers. notice the the two  black and white candlesticks to the left of their larger brethren. Their small bodies and longer wicks reflect significant indecision on the part of the bulls and the bears.They’re losing serious moment and are not sure whether to buy or sell. They both looked famished if you ask me.

Keep The Noise Out Of Your Market Selection

I f you want to keep your winning streak going as a price action trader,you have to keep the noise out of  your market selection at m You need to pick currency pairs that have the highest probability of making you a decent profit. This means cutting out  all that congestion, consolidations and narrow trade ranges which bring you nothing but misery. Just sit down and come up with about 6-8 currency pairs that can ring your cash register on a regular and consistent basis.

Not only is it important that you adopt effective market selection,but you also need to select markets that can give you clear cut price action You want to stay away from markets  that give you nothing but volatility and a nervous break down. You want straight out consistency and a healthy account. Also don’t get too stuck on specific pairs. I know we all have our favorites but please! Let’s have some variety here – rotate the selection and have some fun with your trades.

highprob-trade

This is a classic illustration of a price action set up.  You don’t see any congestion consolidation, or any other confusion. This is clear and unadulterated price action,and it is a high probability trade too. It’s a simple uptend with the bulls break through the resistance and heading for the hills as usual. You can’t miss on this setup!

If you want to learn how to spot trades  that are straight forward and less  noisy,don’t and make a lot of noise, refer to the following: Trading Chart Patterns Part I , Trading Chart Patterns Part II , and How To Spot High Probability Trades.

That’s a wrap on “How To Ace Price Action Trading.” Mr Diet Bandwagon, I hope this sequel was to your liking.On a serious note though, this post should arm you with enough ammunition to profit profusely from price action trading. With straight forward high probability price action setups, your forex account should put a permanent smile on your face. Just make sure you’re able to recognize these setups of course.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

Trading Forex Chart Patterns Part II

Hello people,

Last time we touched on the first of our two-part series on trading chart patterns –Trading Chart Patterns Part  I.  This week we cover the second and final part ,Trading Chart Patterns Part II. Like I said last time,you can make a killing trading these patterns. You just have to put on the mentality of a sniffer dog where you spot the explosions before they actually happen.

People,we have lots of exciting patterns to cover today.  We’ll  look at several profit-making patterns that  can ring your cash registers(forex accounts) several decibels over.Hopefully you’ll be so excited about these patterns that you can’t wait to trade them on the market.

First pattern is:

Double Top Pattern

A double top pattern is a reversal setup that comes about when there is an extended uptrend. This is where the bulls have the run of things up the hill. Peaks are formed when price hits a level that can be penetrated- thus the name “tops”. Once price hits this level, price ricochets ever so slightly,  and then returns to test the level again. It’s like a fighter jet dropping a bomb on a target, and then moments later it comes backs to drop another bomb on the same target again. If the price launches off that level again,you guessed it, a DOUBLE TOP is born!Let’s take a look at a double top in living color.

Double-Top-Forex-Chart-Pattern

Now as you can see from the chart,the two red bears encircled in red represent the double tops. Like intimated earlier,the two peaks came about after a strong surge up the hill(or uptrend).You see how the second top was not able to top the high of the second top?This is because a reversal is about to take place. The reversal is occurring because the bulls buying power is diminishing

So How Do We Trade The Double Top?

Place your entry order  below the neckline(or resistance level) in anticipation of the reversal of the bulls trip up the hill(or uptrend). Now let’s watch the price break through the neckline

doubletop-break

 

It’s a good thing we decided to place our entry level below the necklineWhy? Because as you can see,the bears’ reversal is in full swing with the bears breaking the neckline and ‘slaloming’ towards the bottom of the hill. Keep in mind that double tops form after the strong surge upwards loses momentum and reverses.So be on the look out for this development.

As you can also see, the height of the bear drop is equivalent to that of the double top pattern.You’d do well to keep a note of that in your mental registry as it will coming very handy when setting your profit targets.

Next in Line is:

Double Bottom Pattern

Just like the double top. the double bottom pattern  is also a trend reversal. Except unlike the double top,the double bottom is formed at the bottom of the hill.  The double bottom comes into being after  a long period of bear domination,(or extended downtrend). Two valleys or “bottoms” are then formed as a consequence of this long period of bear domination. Let’s take a look at a double bottom in action.

doublebottom

The EUR/AUD chart show two classic illustrations of double bottoms . The two sets of circles symbolize the double tops . Whenever you see two sets of engulfed candles at the bottom of a trend, remember DOUBLE TOPS. The two valleys that  you see on the chart came about because the bears had reached the end of their rope.They’d lost their momentum.

Wanna know why the first double bottoms couldn’t top the second double bottoms? This goes back to what I said in the previous paragraph about the bears losing momentum. Their selling capacity has pretty much fizzled out,which can only mean one thing -REVERSAL.

How Do We Trade The Double Bottom?

As the labelling  recommends,place your entry order a few pips above the neckline in anticipation of the reversal. Nothing more, nothing less. Now let’s take a look at the reversal.

doublebottom-breakout

You see why it’s important never to go  against your better judgement? As you can see, the bulls break through the neckline and head for Mount Everest. If we hadn’t put the entry order above the neckline, our account would most definitely have been barbecued. Also notice how the  bull surge is about the same height as that of the double top formation.

Just remember that double bottoms only take shape after a strong bear slalom(or downtrend). So be on the lookout for that while weighing your trade options.

Next in line is:

Head and Shoulders Pattern

the head and shoulders pattern is also a trend reversal just like the others. But this reversal is a weird one. It is formed by a series of peaks with a peak(shoulder) followed by a higher  peak and then a lower peak(shoulder).Yea I know some of you think you’re dealing with highs and lows of a typical trend.NEWS FLASH! It’s not! This is a different kind of animal. A neckline is then created by connecting the two troughs. The slope is usually either up and down(makes for a pretty wild ride.Doesn’t it?). However, if you’re looking for a reliable trade signal, choose the downward slope. Let’s take a look at head and shoulders

Head_Shoulders

This, my friends is the head and shoulders pattern. The left and right shoulders form the initial peaks, while the head is the highest point of the mountain(I mean pattern). Although the shoulders are peaks in their own right, they don’t shoot past the height of the head. It’s called the head for a reason.

How Do We Trade Head and Shoulders

Just place your entry just below the neckline in  case  you’re caught by surprise by an unwelcome reversal. If you have a juicy profit target you want to reach, just measure the high point of the head to the neckline. This distance measures how far the price can push  down  the hill  once it breaks through the neckline. Let’s see the price break through the neckline.

headshoulders-break

As you can see the price has broken through the neck line and is sliding  down the hill  with reckless abandon like someone going skiing forthe first time.. Notice the way the beas   have even surpassed the profit target. And like, like I mentioned earlier, the size of the breakout is similar to the size of the distance between the head and the neckline. Now some of you are probably thinking” More Pips In The Bank After The Target.”Well, do so at the risk of getting your account blown to smithereens.”

Next comes head and shoulders sibling:

Inverse Head and Shoulders Pattern

Like I mentioned earlier, the inverse head and shoulders is the direct sibling of the head and shoulders pattern. In fact,it is also a head and shoulders pattern, except that it’s upside down.Ouch! Talk about standing on your head all day. Anyways, the formation kicks off with a valley(shoulder) followed by a much lower valley(head),and finally another valley (shoulder). The inverse head and shoulders comes about after a long slalom down the slope. Let’s see the inverse head and shoulders in action.

inversehead-shoulders

This, ladies and gentlemen is the inverted head and shoulders pattern. This pattern comesinto being  after an extended downtrend As you can see, it’s doing a great head stand with the head and two shoulders forming two valleys. Price, represented by the bulls, pushes through the neckline past the profit target and heads for the mountains.

How Do we Trade Inverse Head and Shoulders?

Just place your long  entry order above the neckline. And just like the head and shoulders, you calculate your profit margin by measuring the distance between the head and the neck line- which is approximately the distance that the price will push up after it cuts through the neckline. Now let’s watch the price slice through the neckline

inverseshoulder-break

Just watch the bulls  bulldoze their way through the neckline as if it’s a rag doll. They look like they’re shooting past the profit target also. is(The profit targets are blue shaped looking like the letter’I’). a Speaking of which,if they happen to hit your profit target, more grease to your forex account.Just remember that you can exit with some of your profits and still keep your trading position open.I’ll show you how later.

Next up we’ll be looking at three triangle patterns-starting with:

Symmetrical Triangle Pattern

A symmetrical triangle pattern takes place when the slope of the price’s highs  and the slope of the price’ lows come together to form something resembling a triangle. Basically, this formation suggests that the market lower highs and lower lows.And it also reveals a war of attrition between the bulls(buyers) and the bears(sellers). They simply do not want to push the price high enough to establish a definitive trend. In boxing lingo, you’d call it a draw. And  just to remind, it can be considered a consolidation also, as they’re taking a breather to protect their stock.

Let’s take a look at the symmetrical triangle in action.

symmetrical-triangle

This, people, is a symmetrical triangle at work. The upward line(higher lows) and the sloping line of the lower highs converge to form something resembling a triangle. And,  as you can   see from this graphic, both the bulls and the bears don’t want to budge.And when that happens, you get higher highs and higher lows. And when the two slopes inch ever so closely together,it can only mean one thing – BREAKOUT! You’ll have to be Houdini to guess which direction the breakout is going to go.But we know one thing: Something has got to give. Both parties can’t continue hogging the lines forever.

I guess the next question is:

How Do We Trade Symmetrical Triangle?

Fairly straight forward. Place your buy order above the slope of the lower highs, and then place your sell order below the slope of the lower lows. So now that we know the bulls will break out and head for the hills, Just enjoy the ride on the carousel. Now let’s watch the bulls breakout of the gates.

symmtriangle-break

As you can see the bulls are shooting high up like cruise missiles. You can take advantage of their jail break by  placeing your order above the the slope of the lower highs,and you’ll be riding high all the way to profitability. You then place your sell  order on the slope of the higher lows,but  please cancel the order and head for the exit the moment your order takes a hit. You’d be doing your account a huge favor,if you take this advice.

Right after the symmetrical triangle is:

Ascending Triangle Pattern

The Ascending triangle  pattern takes shape when a resistance level and a slope of  higher lows come into view. What’s happening here is that the bulls initially are   face strong resistance from the bulls. But they gradually regain the initiative through the higher lows. Let’s see the ascending triangle in action.

Ascending-triangle

The red resistance line and the dark looking slope make up the ascending triangle. As you can see from the graphic, the bulls are starting push up the hill through their creation of higher lows. The growing pressure the bulls put on the resistance level creates the perfect conditions for them to break out of the resistance level.

The question now is “Which direction does the breakout go?”Well the history books suggest that the bulls always win the breakout battle nine times out of ten. but there are times when the bears develop an attitUde and say “NO WAY JOSE!”It is the their way of putting up a strong rearguard action at the resistance level. Also it may be that the bulls just do not have enough cash to make that final push.

The moral of the story is do not pull your hair out over which direction the price goes. But you must have your ears on the ground which ever direction the price goes.

I guess the question plaguing your minds is:

How Do We Trade The Ascending Triangle?

Set your buy order above the resistance triangle and your sell order below the slope of the higher lows. Now let’s look at an illustration of the scenario we just described and  the ascending triangle trade in action

ascendingtriangle-pricedrop

NEWS FLASH! The bulls lose out to the bears. Naturally, the price takes a massive nosedive,which is music to the bears ears. So you see why I said the bulls don’t always win in these breakout scenarios?Also notice that the price drop is the same height as the triangle formation. And if  you had placed the sell order below the bottom of the the slope like I asked, your forex account will have you to thank.

The opposite of an ascending triangle is:

Descending Triangle Pattern

The term descending triangle pretty much speaks for itself. Doesn’t it? With descending triangle patterns, you have a bunch of lower highs forming a high line, Then you have the support level serving as a lower line – a line that the price is doing everything in it power to penetrate,but without success. Now let’s take a look at the descending triangle in action.

descending-triangle

As you can see the bears(sellers) are making up lost ground against the bulls(buyers) through the lower highs.

Remember when I said in the ascending  triangle presentation that often times the bulls win the breakout tussles, but sometimes they don’t? The same situation applies to the bears in the descending triangle. History also favors price as far as penetrating the support line and heading for  the valley goes. But some times, the support line turns into a wall concrete,forcing the price to ricochet and head on up in the opposite direction.

Then again, who cares which direction the price goes?  At some point the price is bound to end up somewhere right? Your job is to be on the alert when the price decides to make its move.

In light of this revelation:

How Do We Trade The Descending Triangle

Just place your buy order above the lower highs, and your sell order below the support line.  Now let’s see the trade in action.descendingtriangle-trade

See how the bulls shoot up like cruise missiles, after breaking out of the top of the triangle? Not only that but they conspire to to climb even further by the same vertical distance as the triangle formation. With such a clear-cut uptrend, just place your buy order at the top of the triangle – shooting for the skies as high as the triangle formation. You can’t go wrong with such a setup.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

That’s a wrap for “Trading Chart Patterns Part II.”  It’s’ been fun sharing these exciting trading patterns with you all. Like I said,you can make a fortune trading these patterns. You just need to keep your eyes and your senses open for those exciting possibilities.

 

Before,I close,sorry for taking so long to post this second segment. I promise not to keep youin suspense like this again. Till next time take care.

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice,(Including Trading Chart Patterns Part II and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

 

 

Trading Forex Chart Patterns Part I

This week we’re starting a two part series on trading forex chart patterns.  Let me let you in on a secret. You’re going to have a lot of fun with  trading chart patterns.Why? because you will be able spot huge moves on the market before they happen and get that chi ching effect from your cash register.. Think of chart patterns as sniffer dog sniffing explosives.You will be able to spot the explosives before they explode.

So what we’re going to do? We are going to learn a bunch of chart formations and how to trade them. But before we get started, I have a little suggestion to make. If you’re here and you happen to stray in on this post with absolutely no idea what price action trading is all about, but would still like to learn, I humbly suggest you refer to the following posts:

These four  posts are what I call my Forex 101 session.  You need to read these four  posts in order to gain a foundational  understanding of price  action analysis. Your understanding of these posts are absolutely crucial in your grasping of my other posts, including this current series  on chart patterns.

Now on to our chart patterns. The first continuation chart is:

Falling Wedge

Now what really is the falling wedge? It sure isnt a cliff rock falling of a cliff;I can tell that. Actually  a falling edge acts as both a continuation single and a reversal signal. Now a continuation signal is an alert that a trend is about to resume.Basically traders take a break from jostling for position on the market.Once they’re done recharging their batteries, they resume the trend. Whereas reversal signals suggest that a current trend is about to do a 360. If a reversal forms during an ap uptrend, expect the price to head downwards. Conversely if a reversal forms during a downtrend,  the price heads up.

Before we continue with the falling wedge, let’s see examples of the continuation and vertical patterns-starting with the continuation pattern.

falling_wedge_reversal_strategy

This is a continuation chart pattern in a downtrend. The bears breaking through the support level  suggests a resumption of the downward trend.

Now let’s look at the reversal chart pattern

Reversal

This is an illustration of a reversal pattern.  Notice how the reversal starts right at the uptrend. The bulls dominated with the uptrend,but the price does a 360 after the bears refuse to buy at the price the bulls were offering them.This sets off a trend reversal with the bears heading for the valley.

Now back to our initial discussion on the falling wedge. Like I mentioned earlier, the falling wedge acts as both a continuation signal and a reversal signal. When it takes the form of a reversal signal it takes up residence at the bottom of the downtrend.. This suggests that an uptrend is about to start,with the bulls heading for the hills. However, when the falling wedge switches to a continuation signal, it forms during an uptrend, meaning that the upward price action will resume after the bulls take a breather from jostling with the bears.  The falling wedge is considered a bullish pattern because of its upward stance.

Let’s look at illustrations of of the falling wedge as a continuation signal and reversal signal  , starting  with the reversal signal.

fallingwedge-reversal

This is a falling wedge as a reversal signal in action. The reversal signal starts at the uptrend and is characterized by lower highs and lower lows. Notice the steepness of the lower highs compared to the lower lows.

Next we look at the breakout

grade7-falling-wedge-reversal-after2

Now this is where the reversal takes flight. Notice that it starts at the bottom of the downward trend with price making a strong surge upwards at a height equal to the wedge formation.

Next up is an illustration of falling wedge as a continuation signal

fallingwedge-consolidate

In this scenario, the price consolidates after a strong surge upwards. In this scenario,  the bulls are taken a breather and gearing for another surge upwards.

Now let’s look at the break out

grade7-falling-wedge-reversal-after2

After the bulls catch their breather,they resume their journey up up and away. See how they drive  the price to the top side and climbed even further.

How To Trade Fallen Wedge

Using the same graphic above, place your entry order above the red  falling trend line. Your profit target should be the height of the of the fallen wedge formation.

Next up is:

Rising Wedge

When I mention the rising wedge, I’m not talking about a plant shooting out of the ground. The rising wedge is the sibling of the falling wedge,but that’s where the resemblance ends. You see unlike the falling wedge, the rising wedge unfolds between upward support and resistance lines. In this scenario,the high lows form at the speed of light than the higher highs. When prices consolidate,word gets around that a major event is about to take place. Expect a breakout to happen either at the top or the bottom.

If  a rising trend forms after an uptrend,it’s highly likely a bearish reversal. And you what that means? The bears will drive the price down and head for the valley. But if this same rising wedge forms during a downtrend,it could signal a continuation of the reversal. Like I said,a continuation signal flashes after the main players take a breather to recharge. Either the way,the important thing to note is that when you see such a formation, get your entry orders ready. Let’s see a rising wedge in action.

rising-wedgebefore

The slope of the support line seems steeper than that of the resistance. The steepness of the slope is reflected by the speed with which the higher highs form compared to the higher lows. And  the formation of these highs and lows give  risetothis wedge-like formation.

Now let’s take a look at the breakout

risingwedge-breakout

See the price break through the resistance line and head downwards. It suggests a desperation by bears to go short(sell) than go long(buy). They’re basically dragging the price down to trigger a downtrend And just like the falling wedge, the price movement is equal in height with the rising wedge.

 

Now let’s look at the rising wedge as a bearish signal

risingwedge-continuationsign

As you will have noticed by now,the price starts of on a downtrend,and then consolidates as traders decide to catch some air. Then the bulls seize the momentum as they map out higher highs and lows. This is the bearish continuation signal for you.

Next in line is:

Rectangle Chart Pattern

Now a rectangle chart pattern takes shape when the price is caught between support and resistance levels. And as usual, a period of consolidation ensues with both bears and bulls caught in a war of attrition. Then the price drives at the support and resistance levels kamikazi  style before eventually breaking out for freedom in the trend’s direction of the break out, be it an uptrend or downtrend.

rectangle-example

It is pretty obvious from the above graphic that the price is swinging between both support and resistance levels. It’s only a matter of time before one of these dams breaks l and heads for the hills or valley,depending on the strength of the trend.

Now that we’ve gotten the introduction out of the way,we’re going to look at two types of rectangle chart patterns. The first rectangle pattern is

Bearish Rectangle

Whenever I see the word bearish, the first word that pops in my head is consolidation. Because that is exactly what happens with the bearish triangle. The bearish triangle takes shape at the downtrend  where price consolidates for a while. here the bears take a breather from jostling with the sellers, and once they done recharging their batteries, they resume to drive the price down further.

Let’s take a look at an illustration of the rectangle chart pattern.

rec-chattern

See the way the red bears break the bottom of rectangle chart and continue on their downward slalom. If you’re thinking of making  a nice profit just place a nice order to go short(sell) just below the support level and you’ll be laughing all the way to the bank.

Now let’s watch a scenario where the bears drive the price down about the same height as the rectangle formation

price-height

Here the bears drive the currency pair beyond the level of support.  And, as you can see the price dip is about the same height as the bearish triangle. Also notice the way the bears have driven the price beyond the target(labelled in blue). tThe possibility of racking up huge pips and converting theminto profits  are massive.

Bullish Rectangle

Just like its bearish counterpart, the bullish rectangle experiences consolidation. Except that this takes place on the uptrend at the level of consolidation. And just like the bears, the bulls also take a breather from jostling with the bears(The bears can’t have all the fun)before resuming their upward climb.

bullish-rec

As I mentioned earlier,the bulls are taken a break  after jostling all day with the bears. Once they catch their breath they then continue with their upward climb. Now let’s see what happens with the bullish breakout

bullish-breakout

The bulls are really going for it. Aren’t they? They’ve really broken above the rectangle pattern(labelled red)and are heading for the mountains.

With such a well-defined uptrend, just put in a long order(buy) above the resistance level  and you should laugh all the way to the cash register. And just like its bearish pattern brethren, The bullish breakout is the height and size as the bullish rectangle formation.

And finally the last two chat patterns are,you guessed it,bullish and bearish pennants. But please, if  you’ve strayed in here dreaming of World Baseball Series pennants, you’re on the wrong blog. We’re  talking forex pennants here. But first:

What’s a Pennant?

Well, just just like rectangle chart patterns, pennants are birthed after significant movement on the forex market. the bulls(green)and the bears(red) take a timeout  after jockeying position while the currency pair moves upward or downward.Once they’re down with the timeout,they resume to work the currency pair along the same directional path. This constant pushing of the currency pair by both parties causes the price to consolidate( a situation where the bears and the bulls are locked in a standoff) and  results in the pennant’s triangular formation.

While both sides are still undecided, newly recruited bulls and bears take advantage of the standoff by riding on the coattails of the trend of the day. This sudden burst of excitement by these new recruits forces the price to bust out of the pennant formation and head for freedom.

Now we’re going to look at two types of pennants – bearish pennant and bullish pennant.But first:

Bearish Pennant

The bearish pennant takes shape after a very steep downtrend precipitated  by a huge drop in price.This causes serious division in the bear camp with some bears opting to close their trading positions to save whatever profits they have left. While the other bears decide to hold still on the trend. This war  attrition,of course causes the price to consolidate. In othewords, both sets of bears are at loggerheads.

Let’s take a look at an illustration of a bearish pennant’s break and consolidation

pennant-break

This steep vertical downtrend reflects a sharp drop in price. Immediately a herd of bears decide to jump on the trend’s band wagon and send the price on a wild slalom below the bottom of the pennant. The red triangle represents the price’s brief consolidation. This is a result of the bears taking a breather to resume their slalom. This consolidation is what creates this triangular contraption called the pennant.

Now let’s take a look at the downtrend’s resumption after the breakoutbearishpennant-resume

Once the bears are done with their breather, they resume their downward slalom This causes the price breakout to the bottom. If you’re having any fantasies of making serious mullah from this pattern, just go short(sell) at the bottom of the pennant. However to avert the possibility of the market  faking you out just slowly put a stop loss above the pennant.

And finally our last chart pattern for today is:

Bullish Pennant

When you see the word bullish,it can only mean one thing  – The bulls are about to head for the hills again.  The bullish pennant is formed as  a result of them making a sharp vertical climb. After a period of respite(consolidation), they resume their rock climb to drive the price higher which they  eventually succeed in accomplishing.

Let’s look at an illustration of the formation of the bullish pennant

bullish-uptrend

The bulls head for the hills, courtesy of the uptrend..They then take a breather inside the triangle to recharge to continue the upward climb.The triangle of course reflects t  Now let’s look at the bull’s breakout and  eventual continuation.

bullishpennant-continuation

As expected, the bulls break out of the triangle and head for Mount Everest . And just so you know, the size of most breakouts in pennant formations around the height of the previous moves, or the same size of the previous moves. Pennants may be small, but make no mistake: they can make you tons  of money.

How To Trade Bullish Pennant

Go long above the pennant and place stop order at the bottom of the pennant to protect yourself from hugely embarrassing  fakeouts by the market.

 

That’s a wrap for “Trading Patterns Part I.”  As I’m sure you’ve gathered by now, you can make a giant killing trading chart patterns if you keep your eyes wide open to the trading opportunities these chart patterns present. Next time we’ll look at more profit trading patterns.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice, and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

Let’s Trade the Bear Trap

Last time we learnt about Trading The Bull Trap. Today, let’s  trade the bear trap. And no,we’re not talking about a bear trap for eight hundred pound grizzlies.  We’re talking about a different kind of bear -The naive selling bear. Basically, the principle behind the bear trap  is still the same as the bull trap  – Setting us naive bear traders for a major crash. Except that this time it’s naive sellers taking the bait. So we’re going to find out what a bear trap really is, the characteristics of a bear trap to look out for,  how to avoid the bear trap, and how to trade the bear trap.

I guess the obvious question is:

What is a Bear Trap?

A bear trap is basically a contraption set up in the bullish trend for naive sellers.Just like their  brethren, caught in the bull trap, they fall for the possibility of making a huge profit. except this time, they get baited into believing tha And just like their naive bulls brethren,they’re left holding the bag. To make matters, they’re in a lot of pain. Why? Because all their initial profits are about to go out in smoke and their precious stop loss is about to take a massive hit. Basically these naive bears are about to incur a huge loss. They basically started counting your eggs before they were hatched.

Let’s see a classic example of a bear trap

bear-trap-in-forex-trading.png

This is a bear trap in action. The red bears  downward slide create the impression of an imminet sale only for the green bulls  to set a bear trap, at the support, level jack up the price and head for the hills. Unfortunately the naive bears they face the double-edged sword losing a lot of money and their stop loss order taking a massive hit.

Twos Features To Look Out For  In A Bear Trap

There are two features  you absolutely need to look out for in a bear trap. The first candlestick must be absolutely bearish. It must be seen to be breaking through the support level and closing after the support level . Even more important,  the next two bears in between the bear trap must be seen to be losing steam. When this takes place,  shorter candlestick body lengths take place. This represents the formation of a bullish reversal.

The second  feature to look out for is the bear trap breaking through the support level. The bear trap breaks the support level and  the bulls head for the hills, leaving the naive bears holding the bag. When this scenario unfolds,you have yourself a bear trap.

Let’s see an illustration of this scenario using the first graphic we looked at earlierbear-trap-in-forex-trading

Take a close look a the long red candlestick breaking through the  support level and closing after the support level. That’s the first feature of the bull trap. However, take a  closer look at the  red candlesticks in between the bullish at the base of the support level. They’ve started losing steam and the bullish trend represents the bear trap breaking through the support level. The naive bears are going to be hurting a lot.

If you are still not sure about support/resistance levls please hurry to my Identify Support and Resistance Levels With Price Action Analysis  post.

 

Where Do Bear Traps Occur?

As the purple line suggests, bear traps occur at support levels. Anytime you see candlesticks  nosediving towards the support level, start screaming BEAR TRAP! Don’t be a victim.

Now that we know about the monster called the bear trap,What are we going to do about it? Hear are a few tips on how to dodge the bear trap

Place A Large Stop Loss

Just like the bull trap, place a large enough stop loss to get you out of trouble when the bear trap rears its ugly head.  . You can place the stop loss at least 2 pips below the low of the bullish candlestick or two pips below the low of the bearish candlestick. Let’s take a look at the following graphic.                                                                                                                                             Bear-Trap-Chart-Forex-Trading-Strategy

The first stop loss is placed right underneath the low of the bullish candlestick(or the short end of the candlestick), as indicated by the number one label. The second stop loss is placed at the long end , or low  of the red bearish candlestick as indicated by the number 2 label. As I said earlier, placing a stop loss at either the bearish end or bullish end will save you from incurring huge losses.

If you’re a bit dodgy  on your candlestick patterns,  go to my post on You Need To Know Ten Of These Candlestick Patterns

Follow The Dominant Trend

If you want to beat the bear trap,follow the dominant trend-in this case the downtrend. If the breakout at the support level is not in the direction of the downtrend,it can only mean one thing -BEAR TRAP! And you know very well that the smart bulls will be only too glad to push the price up and head for the hills, and leave the naive bears licking their wounds. In case you’ve forgotten what a downtrend looks like,take a look

How-To-Trade-Support-Level-Breakouts-1.png

 

As you can see the breakout is in the direction of the downtrend.It has not taken any detours as you saw with the bear trap. If this scenario doesnt unfold on your screen, don’t bother entering a trade. If you do,you’d live to regret it.

If you’re still not sure of your trend trading, refer to my Trade Trends With Price Action  Analysis Post

Trade Retracement Instead of Breakout

Sometimes it makes sense to trade the retracement instead of the breakout at the support level. Some of you  are probably wondering “What is a retracement?”Well, a retracement is a temporary reversal of a currency pair against a dominant trend.  So instead of taking the risk of being bear trapped,  how about allowing the breakout to happen?And then once the price moves down,with downtrend still intact, wait for price to drop a bit and then you make your sale. Let’s see an example of retracement in action.

retracement

As you can see from the GBP/USD  graphic, the downtrend is heading towards the support level, which is indicated by the green line.  Don’t trade the initial breakout, but watch the price drop and then trade the retracement.

Keep Your Eyes Closely On Two Candlesticks After Breakout.

Keep your eyes closely on two particular candlesticks after  the initial downtrend break. Why?Because two things hit these two candlesticks -Loss of momentum and bullish reversal. If these two conditions exist, scream BEAR TRAP! You may also want to start heading for the hills with your profits or put  a stop loss to save potential blushes. Let’s take a look at the first graphic again.

  • bear-trap

As you can see from the graphic, the bear trap has triggered a major bullish reversal after the initial breakout.The naive bears were made to believe they were going to cash in massively, only for the smart bulls to drive the price up and head for the hills. These bears will be seriously hurting.

How To Trade Bear Trap

If you want to put your neck on the line to trade the dreaded bear trap, here are a few ground rules you need to keep in mind.

  • Wait for the bear chart pattern to form, and then wait for the bullish signal to form.
  • Buy a stop pending order at least two pips above the high of the bullish stick.
  • Place your stop loss at least 2 pips below the low of the bullish candlestick. Or  place it 2 pips below the low of the bear trap candlestick.
  • If you want to make a profit, aim for a risk:reward of 1:3 minimum . Or  use the previous swing trade high as your “take profit target”

Bear-Trap-Chart-Forex-Trading-Strategy

This EUR/JPY graphic illustrates  the bear trap  trade. Notice the stop loss  1  below the bullish and the stop loss numbered below the candlestick with the thin end.  Of course you see where to take your profit. Don’t get too greedy.

 

That’s as wrap for “Let’s Trade The Bear Trap.” Just like the bull trap, the bear trap creates the impression of a major trend only to create a huge reversal, leaving  naive bears holding the bag.  Hopefully none of you will suffer the same fate  when you come face with the bear trap this week.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

Wanna Subscribe To My Mailing List?

Do you want me to send you the latest posts to your email address inbox?Then  subscribe to my mailing list and I’ll send my blog posts direct to your inbox. It wont cost you a penny.

 

P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including the Bear Trap Strategy), and get a simulated feel of live forex trading conditions   before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook

 

 

 

Trading The Bull Trap

 

Today we start our three-part series on false break strategies by  saying “Trade The Bull Trap.” No,  the bull trap is not meant to trap live bulls. However, the bull trap is set up for a different kind of bull – the naive  buyer on the  forex market. Sometimes, buyers are easily sucked into an uptrend,thinking it’s safe to enter a trade. Then,much to their shock and horror, the bears springs  out of nowhere and drag the price down, leaving the bulls with the tails between their legs. That’s what the bull trap does to naïve bulls. It lulls them into a false sense of security, and then pulls their legs from underneath them.

So we’re going to do a few things today. We’re going to find out what a bull trap is all about. Then we’ll look at three bull trap patterns you need to know about. And finally, we’ll learn how to avoid the bull trap.

But first things first:

What Really is a Bull Trap?

Well, a bull trap is a contraption set up for naïve bulls in the uptrend. You see,the price surges through or breaks through the resistance barrier and heads for the hills so to speak. The sad part about this sordid mess is that naïve bulls, looking to make a quick buck fall for this sucker punch. They’re like “hmmmmm………The market looks very promising .How about  we cash in right now while the iron is hot?” Sounds like a good idea right? Well unfortunately for the naïve bulls, the uptrend like a Boeing 747 running out fuel across the Atlantic Ocean.

Then the unthinkable happens. The bears burst out of the  woodwork and drag the  price down. The price  drags down  leaving the bulls literally holding the bag.  Not to mention the fact that all their stop loss entries take a major  hit as a result of this huge reversal.

The question we should be asking ourselves is:

Who Is Behind This Carnage?

Well,it turns out that the main culprits are big time professional traders in a desperate search for cash to fund their huge trades. They basically say to themselves” How about setting up our rookie traders for a huge crash? We make them believe  an uptrend is about to start and then boom! We set the trap on them and then we cash in on the price drop. This may sound sadistic to some of you out there,but it seems perfectly legal. In fact, you can also cash in on the bull trap.You just need to keep your eyes wide open as  the bull trap unfolds. Let’s look at an illustration of the bull trap

bulltrap-example

This, my friends is a classic example of the bull trap in action. See how the price gives the impression of a strong uptrend,but  then the bears burst out of the woodwork and drag the price down, leaving the bulls in a huge fix. I guess the moral of the story is don’t count your chickens before they ‘re hatched.

Three Bull Trap Patterns You Need to Beware of

I assume you are all aware of the famous sign “Beware of the Dog”. Mentally you should also have the sign”Beware of the Bull Trap.”  As a matter of fact, I’m going to show three bull trap patterns you need to beware of  out there on the market.

Bull Trap#1- Candlestick Break and Close