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.

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.

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 .

To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . 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?

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.  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.

 

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.

Looking to open a forex trading account?

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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 shoudn’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.

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 .

To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . 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?

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.  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.

 

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.

Looking to open a forex trading account?

Sign up with EasyMarkets and Get a Free eBook- The Beginners Guide to Forex Trading

 

 

 

 

 

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.

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 .

To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . 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?

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.  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.

 

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. Till next time take care.

Looking to open a forex trading account?

Sign up with EasyMarkets and Get a Free eBook – The Beginners Guide to Forex Trading

 

 

 

 

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 are chart patterns 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 cano r else…….Kum ba yah.

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 .

To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . 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?

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.  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.

That’s wrap for “Let’s Trade Flags.”  I hope you make significant profits with this flag pattern, Till next time take care.

Looking to open a forex trading account?

Sign up with EasyMarkets and Get a FreeeBook- Beginners Guide to Forex Trading

 

 

 

 

 

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.

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 .

To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . 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?

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.  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.

 

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.Till next time, take care.

Looking to open a forex trading account?

Sign up with EasyMarkets and Get a Free eBook- Beginners Guide to Forex Trading

 

 

 

 

Find, Enter,Manage

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 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.

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 .

To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . 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?

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.  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.

 

That’s a wrap for “Find, Enter, Manage”.  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 Till next time take care.

Looking to open a forex trading account?

Sign up with EasyMarkets and Get a Free eBook- Beginners Guide to Forex Trading

 

 

 

 

 

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  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

 

If you’ve stumbled in here looking to join the forex trade bandwagon,  look up Why Forex Trade Is So popular.  Next,if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots,  get started with What is Price Action Trading?    And to be able to analyze/trade  with price action data, You Need To Know Ten of These Candlestick Patterns.  If you can’t interpret what your candlesticks are telling you, you cannot trade  with price action data.

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.

 

 

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. Till next time take care.

If you missed out on Part One, Here Is Forex Trading Basics – Top To Bottom Part I.

If you still think ‘re ready trade live, Sign Up With EasyMarkets and Get a Free eBook -The Beginners Guide to Forex Trading.