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.

 

 

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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.

 

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 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

 

 

 

 

 

 

 

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.

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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