How Not To Make The Forex Trading Process Complicated

Hello and welcome to another edition of the bulls vs the bears. Today we are going to learn how to not to make the forex trading process complicated. In in other words we are going to try to keep the trading process simple.

Let me tell you one simple but brutal truth about the forex trade. Naked(Please get your mind out of the gutter) price action data is the way to go go not a fancy programmed indicator.  I’m sure some of you are like”You’ve said this so many times. Don’t you get tired?” But it’s the cold reality. The forex ,market is not some static behemoth.  It is a very dynamic platform that can change at the speed of light- well, sometimes. Unlike the indicator it is driven by human beings with blood and emotions flowing through their veins. These   are characteristics the indicator doesn’t have. It is emotionless and stoic and it  cant react to the sudden U-turn of a volatile forex market.

Basically if you want to prosper as a forex trader, just focus on the candlestick patterns on your screen.  The market is way too unpredictable to be turned over by a piece of code. It’s like Floyd Mayweather going up against Mike Tyson.

I guess the question  is will be:

How Do I Keep It Simple?

Well, the answer is very simple. Look at the price action on your price charts. All the information you need to make your trading decisions is right in front of you. Not only is price action trading an art , it’s also a skill as well. Once you figure this out you will be miles ahead of those struggling traders looking  for the hottest gizmo out there. Even worse, they will be hemorrhaging  money through these toys while you are ringing the cash register through your profits on the price charts.

Learning how to recognize price patterns on the price charts also helps you makes sense  of the  forex market. For starters you are able to make sense of the daily movements of the market, be it trending or consolidation. With that in mind you can then create a set of rules  devoid of emotion to help you make the right trading decisions.

Let’s take a look at a clean chart and a messy chart –  starting with the clean chart

See how clean- cut the data looks? You have both downtrend and uptrend nicely defined. You have the resistance and support   spelt out correctly. Even more important you don’t have those fancy indicators crowding out the space on the screen as  we are going to find out in the messy chart,

Speaking of which, here comes the messy indicator

Now who wants to deal with this mess. You have all manner of indicators  crashing the chart here.  It looks like half chart half Atlantic Ocean out here. You can’ tell which is which. Now if I have to deal with this mess on the four hour time frame I’d  get a massive headache,

The moral of this story? Just keep it simple.

For more information on how to trade free of indicators look out How To Trade Price Action Free of Indicators Parts I and II

That’s a wrap for “How Not To Make The Forex Trading Process Complicated.”  Hope you now understand that you  need to keeps simple when trading  on the forex market. and that is relying solely on the price chart patterns on the screen and not some fancy indicator.

If you want to be profitable just stick to  Keep It Simple and you will never go wrong. The last thing you want to do is to pull your hair out over indicators that will simply bring you grief. All the information is right in front of you. What else do you need?

Til next time take care.

Open Live  Forex Trading Account 

If you’re looking to open a live trading account Sign Up With EasyMarkets

How To Profit From Trading Breakouts Step By Step

Hello and welcome to another edition of the bulls vs the bears. Today we are going to learn how to profit from trading breakouts step by step. First I am going to let you in on a little secret. If you want to prosper as a forex trader, you need to stack in the odds in your favor. This is because you are not always to be 100% spot on with your trades However, with a solid to risk to reward ratio, you can still make healthy profits.

Sure, some of you are saying to yourself “You are not making any sense.” But you have to know how to spot a great trading opportunity. And when you do you take advantage of the opportunity through your trading plan. You did put together your trading plan. Did you? Anyways you can spot some of these great trading opportunities when trading breakouts. In today’s lesson we are going to look at some of the benefits of trading  breakouts. I guess a burning question some of you are asking is:

What Are Forex Breakouts?

Well forex breakouts are situations which occur when price break outs of a key level, courtesy of either the bulls or the bears.  A very close look at price behavior on the charts suggests that price tends to stick to specific levels. When price hits a key level only to do a 360, this illustrates the strength and resilience of that key level. Keep a close eye on when price returns to touch the key level again. It could spark a breakout or a major rejection.

There are times when price may hit the same level with gleeful regularity. When that happens you may find yourself saying”This level is as tough as a pit bull.” But price eventually wins over that key level once that key level caves in. That’s when the breakout commences. I can hear another person with another question asking:

Why Should We Trade Forex Breakouts?

Well  forex breakouts present amazing trading opportunities.When breakouts occur they spark new price moves and trends.  And when you spot a breakout, you’d do well to get in on the action to take advantage of a juicy trend. This is because a lot of these breakouts are sparked by momentum and so you’d do well to maximize these opportunities when they show up on the charts. And for this reason breakout trading is very popular among forex traders.

Another burning question I hear someone asking  is:

At Which Key Levels Do Breakouts Occur?

Well breakouts are known to occur in the following:

• Support Or Resistance
• Time highs or lows
• Trend Lines
• Price Channels
• Moving Averages
• Chart Patterns
• Fibonacci Levels
• Pivot Points

Breakouts move prices so quickly because major players are watching these key levels like hawks. So when one side breaks through the losing side has to save face by covering their losing positions. It is this act of desperation that triggers the sharp price movements.

Now it is your job as traders to spot these  high probability breakout opportunities.Unfortunately these breakout opportunities  can be a bit vague sometimes.  For instance support resistance lines drawn at potential breakout points should be considered event areas rather than fixed lines.

When trading a breakout, you’d do well to exercise great discretion to minimize false signals and fakeouts.  However, DO NOT connect the bottom ends of the price action with a straight line. I’m not saying the trend doesn’t exit. It’s just that the trend should not be considered as being contained by a single thin line.

Instead the trend should be viewed as a zone. If price does cut through the upward trend line it doesn’t mean the trend has run out of gas. Sure we have to be mindful of a potential trend reversal. But remember that price does cut through a trend line sometimes without price suffering a reversal.  Price suffers dynamic fluctuations, causing minimal breaches through the key levels. This rule is not exclusive to trend lines only. In fact it applies to all levels. Just make sure to identify the real breakouts and filter the fakeouts as much as possible.

Another burning question is:

How Do We Identify The Psychological Levels?

When you see price conforming to the same area repeatedly It can only mean one thing. That a psychological area is in existence . Take the lowest and highest level of price around that level and label the distance between the two lines as a support/resistance area. If you see one the wick of  one candlestick go beyond the key level, it’s not part of the psychological area. Let’s look at an illustration of a breakout through a support area using the GBPUSD pair.

Here is a 4 hr chart for the GBPUSD pair. Notice how the bears head down the slope after the bulls run out of steam in the uptrend. Once price reaches a particular level price starts to move sideways, creating a consolidation. This is where both  the bears and the bulls are taking a breather to figure out their next move.

Notice the few bottoms that have been created. The blue rectangle represents the area around the lower wicks of  the candles which make up the support area. If you really want cash in on breakouts it’s best to lie low like a hunter while a candle close beyond the support/resistance area confirms the breakout.    this scenario is nicely illustrated in the bearish breakout as  a candle close confirms the breakout. Once confirmation takes place, the bears kick off  their downward slope. Let’s take a look at another example

Here is the daily chart for the USD/JPY pair.  See how price has formed a descending triangle. Now descending triangles that show price contraction which, you guessed it, leads to a major breakout, reuslting in a new price movement. This means that price could go in either direction as a result of the breakout.

In light od this situation watch like a hawk for  possible clues in both support and resistance levels. See how triangles have been framed in the iupper and lower levels of this triangle. This tirangles have been drawn to ascertain the exact areas the support and resistance levels are likely to cover.  A look at the lower side of the triangle suggests that there is a candlestick going deep into the support area. If there was just a single line indicating support, the wick might have set a trap thinking there was a bearish breakout.   Let’s take a look at another example.

Here is the chart for the USD/JPY pair. See how price has formed a descending triangle. Just so you know, a descending triangle shows price consolidation, which leads to an eventual break out, and then creates a new price direction. The strange thing about this pattern is that it’s hard to tell where the direction is headed. This means the breakout could send price in any direction

In light of this situation, watch both support and resistance levels like a hawk for potential price signals.  Any time you sniff a potential breakout, you jump in like a lion chasing his prey.  You see how triangles  have been created in the upper and lower triangles? This way we know which part of the triangles the support and resistance levels are likely to touch.

Take a close look  lower side of the triangle and check the candlestick going deep into the support area. Had there been just a single line symbolizing  support, the wick would set a nice trap  for you and made you believe a breakout by the bears was imminent.

I

Notice in the red circle the location if the breakout to the upside. Aslo see the strong momentum on the breakout as illustrated by the green marabazu candles.  Once the bulls break through the upper level of the triangle it retraces back to test an already battered resistance area which has now converted into a support level.  This scenario is another important confirmation signal which you need to take note of.

One question that must be burning reader minds might be:

How Can I Tell A Real Break Out From A Fake Breakout?

Well a real breakout only occurs when a pair closes a candle beyond a particular level. This way you get a more reliable breakout signal which you can use to make your entry. Let’s look at an illustration using the USD/JPY pair

Here we have a descending triangle with upper resistance and support areas. See how the rectangles resist the bottoms of the price. The lower rectangle’s location is based on the first and second bottom of the triangle. The triangle contains the upper parts  of the price. The only exception is the pin bar rejection candle which is illustrated by its long tail. That’s what you call a fake breakout. However, the candle fails to close with its full body above the resistance area.And when this happens it is classified as a false breakout.

A second false breakout takes place immediately after the first one. The last bottom of the pric goes below the support area with its candle wick. Now when you see such a formation nobody has to tell you that’s a pin bar formation. It is also known as a  hammer pattern which then ricochets off the support level. Just like the first scenario  we ll disregard this signal since the candle failed to close below the support area.

So the pin bar formation pushes the bulls further up the hill, Next thing we know,  a candle in the form of a Marabazou  closes above the resistance level. Now that’s what you call a valid breakout signal. This should earn you at least 300 pips.

Look up How To Profit From Trading False Breakouts and Fakeouts

Now that we can tell a real breakout from a fake breakout  The most appropriate question should be:

How  Do I Confirm Breakouts?

There are fours ways of confirming breakouts. Let’s look at each method one by one

Breakout in Progress

You see how price breaks through the resistance area? When  a candles closes above the resistance area, consider that a breakout.

 

Here we see the bulls continuing with their surge only to run  out of steam and let the bears take over. This scenario creates  the top.  What you should look for is what is called a fractal formation.  In this formation  you have a higher high(HH) with two bars to the left of the formation and lower highs(LH) with two bars to the right of the formation with lower highs(LH).  The reverse applies to a bottom.

Price Retrace To Broken Resistance Area

 

Here we see price retracing to an already breached support level with the intention of retesting the level again. Price succeeds in breaching the support area, causing an upward ricochet. When this happens, it suggests a strong support level.

Top Breaks

Here we get strong confirmation of the bulls continuing their surge towards the hills. This is a perfect time to put in your entry.

You can also apply this confirmation while trading range consolidations. You have a breakout in a chart pattern and expect  the size of price movement to be equal to the size of the chart formation.

And finally the coup de grace

How Do I Take Profit When Trading Breakouts

You can start with swing low and high analysis or candlestick pattern analysis. However one popular technique making the forex rounds these days is  Moving Averages. One nice advantage of using moving averages is that you can hold on to your trading position until a candle closes beyond the moving average.

Let’s look at an example using the AUD/USD pair

The pink line represents a 34 day Simple Moving Average(SMA for short).  It’s perfect for trading during trending conditions.

You see the blue  triangle to our left? It represents  a support  area that has been struck three times by price.  The red circle shows the candle breaking through and closing beyond the support area. How about we use this breakout signal to go short(sell)? The bears start hurtling down right afterwards. You see the numerous times prices attempts to crash through the 34 DAY SMA? Somehow price manages to hold off price effortlessly keeping the trade alive for a very long time.

Price eventually closes a candle above the 34 day SMA. This is your queue to take your profits and run for dear life. You could make a cool 300 pips using this entry and exit strategy.

For More information on Moving Averages look up We are Moving Averages Part I and II

That’s  a wrap for How To Profit From Trading Breakouts Step By Step.” With solid price action analysis you should have no problem profiting from trading breakouts. You can also use chart pattern analysis and moving averages to take your profits and head for the exit. You can never go wrong with these two two techniques

Til next time take care.

Open Live  Forex Trading Account 

If you’re looking to open a live trading account Sign Up With EasyMarkets

Six Retracement Entry Types You Must Know For Your Own Good

Hello and welcome to another edition of the bulls vs the bears. Last time we looked at five support and resistance types you absolutely must know Today we are going  take a look at six retracement entry types  you have to know for your own good. It’s absolutely important that you know these powerful patterns. Why? Because they are like shooting stars. IF you miss them, you may never see them again.

If you truly are a forex trader you should have come across the term retracement entry, Retracement entries are absolutely so important it will be in your best interests to take advantage of these powerful chart patterns. But if you haven’t come across retracement  patterns don’t worry. By  the end of this post your understanding of these patterns would have been so illuminating that there is no way you are going to pass up on profiting from these entries. I guess the question most of you are dying to ask is:

What is a Retracement Pattern?

Well  a retracement pattern is   when price pulls back on a recent move, be it up or down. Ever found  your in a situation where you’ve lost keys and had to retrace your steps to establish where you last saw them? It’s the ame concept here in that the retracement entry is the reversal of a recent price move.

 Why are Retracements Important?

Well they represent the greatest opportunity ever to enter the market at a decent price. Even more importand retracement entries make room for the all important stop loss, better risk reward and much more. A retrace entry is more conservatiove compared to your typical market entry and is a much safer bet.

So your objective as a forex trader is get the best entry price and manage your risk as best as you can. At the same time time you must also aim towards humongous returns. The retracement entry will most certainly help you accomplish these tree objective. However, let me sound a note of caution. There are pros and cont so tusing these retracement entries. So we’ll look at both sides starting with the

Pros of Retracement Trading

High Probability Trades

One exciting benefit of trading retracements is the possibility of catching high probability signals. These high probability signals  occurr right after the end of  theretracement entries. You absolutely have to take advantage of these high probability signals because they can go for weeks sometimes months if you get the direction right.

Markets usually  go back to the average price over and over again. This becomes much clearer after you have looked at the price charts for a few minutes. So when you see the retrace repeating itself over and over again,  your mind should tell you”This looks like a high probability signal. Get ready to make your entry.”

Flexible Stop Loss Placement

Retracement trades allows  for flexible stop loss placement.  Just make sure you place the stop loss as far away as possible from any where in the chart that is likely to suffer a humongous hit. If you want your piece of mind keep your stop loss away from areas such as key levels, moving averages, or  pin bar high or low. Keeping your stop placement further away from these even areas will give your trade a greater chance of sending profits in your direction.

Improved Risk Rewards

Probably the best part of retracement trading is that you  get improved risk rewards.  with risk rewards you can place a tighter stop loss as you get closer to a key level or a pin bar 50% level. If you place a 100 pip stop loss and a 200 pip profit target, you can turn it into a 50  pip stop and 250 pip profit. How about that?

However, if you are entertaining plans of increasing your risk reward. how about using a standard stop loss instead of a tighter stop loss. With a standard loss in this scenario, you give your trade more oxygyen to breath instead of  hanging a tight stop loss noose around your neck. In this case a 100 pip stop loss and a 200  pip  profit target  could translate into a 200 pip stop loss and a 250 pip profit target. I can hear somebody asking “How come? Well that’s because your standard stop loss  gives the retrace entry the oxygyen it needed to run in your direction due to the price pulling back  compared to you making your entry at a terrible price. Had you entered with a terrible price, you would have suffered a nuclear-sized loss.Re

Now  let’s get to the dreaded cons of Retraced Trading. Start with

Missing Out On Trades

One annoying fact about waiting for a retracement is that while you wait, a good trade getsaway. This can get on your last nerve, not to mention challenge your trading mindset. Then again missing out on juicy trades may not necessarily be a bad thing. At least it’s a whole lot better than over-trading. I can hear somebody with a thick frown on his face  asking”Are you crazy?”

Not only is retracement trading doubly frustrating , but it takes incredible focus to stalk sit and wait for that high probability signal to show up. However, if you master sitting and waiting long enough you will be well ahead of the losing pack. So regardless of  the entry method you are deploying, you must cultivate the discipline in order to prosper as a fore trader.

Placing A Stop Loss Wrongly Can Get You Knocked Out Of A Trade

The last thing you want to do is place your stop loss at the wrong place. Do that and you will  get knocked out Mike Tyson style out of a trade. What makes it so painful is that you are absolutely spot on about this trade. But because you decided to put a tight noose around your stop loss you got blown off the bridge.There is a solution to this problem. Just learn to wait for retracements or pull backs because not only will you find a high probability signal when you wait, but you can put your stop loss at a safer spot on the market.

I know I know. Getting your stop loss knocked out of a trade can downright sap your enthusiasm. Not only that but  the knockout can take you out of your trade before the trade even gets started. Fortunately the retracement trade shows you the way out by allowing you to put the stop loss at a safer if not wider spot and allows you to make some much needed cash in the process.

You need to understand that when a market retraces or pulls back, it’s basically telling you”Put your stop loss at a place where it’s less likely to suffer a cold blooded knockout.” Now most retracements occur at support and resistance levels. So you’d be better off placing your stop loss below that level to avoid the Mike Tyson left hook knock out I mentioned earlier.

Less Trades In Occurrence

Wanna know why  you don’t see more of market retracements on the charts? That’s because the  forex market  does not  retrace that much. Normally when a retracement occurs, a pullback follows suit. Unfortunately that is not always the case. Consequently  the number of trades drop considerably. So what  you get is the market creating minimal retracements. This suggests that opportunities to trade in this scenario are very slim.

Of course this will make any trader pull his hair out. But you must keep your discipline or else you end up in the losing pack of naive traders. If you are able to maintain your composure you will be laughing all the way to the bank. Please note that just because there are a few disadvantages to trading retracements does not mean you shouldn’t do retracement trading. The pros definitely outweigh the cons. So  knock yourself out with the  retracements.

Okay enough of the depressing cons!Let’s get down to more exciting stuff such as:

Examples of Different  Types of Retracements

Let’s take a lake a look at some examples of retracement types so we get a clear idea of what they look like when we come face to face with them on the charts.

Starting with:

Retrace Entry Without Price Action Signal

On the left side of the pic are retracements without a price action signal in an uptrend. The sky blue shaded areas represent the retracements. In each of these shaded areas you have price retracing or pulling back to the key levles as shown in the chart. We dont see any obvious price signals, But we can see that price  barely pushing aove these levels.

If you are smart you on a tie sensing  humongous risk reward opportunities. That’s assuming you get in on a tight stop loss

Retrace to Key Level With Price Action Confluence

Herr you have considerable action happening along all the key levels.   You also have three price action signals forming along these levels.  Now these signals came about as a result of price retracing up or down to key levels on the chart(labelled thick green).

How do we anticipate these signals? Just wait for price to pull back and then watch the price signals take shape along the key levels. This is probably the highest probability trade out there. Looked up Something Called Price Confluence.  It will most certainly add to your understanding of this tutorial.

Next up is

50% Area Retracements

Now the 50% retracement is a very popular occurence on forex charts. Here we have price retracing 50% of it advancement, as indicated by the 50% zone. Watch out for these pull backs to these 50% areas as they he perfect platform for price to break through

Consequently price moves back in the direction of the initial move. Like I said earlier, 50% doesnt happen often. But they are a very useful to have in your trading tool box.

Next up is

Retrace of Signal Bar or Signal Area

Here we’ll be looking for a 50% pin bar retrace. This is slightly different from what we covered in the last section. In this scenario, this often occurs along long-tailed pin bars where price retraces halfway towards its march form high to low of the signal bar. This gives you the opportunity to enter at a stronger price, equipped with a standard or tighter stop loss.

We’ll look at two examples of this scenario

Here  we see the various risk reward levels. Notice how each risk reward level is attained by waiting for the retrace and entering at the pin bar’s 50% level(or half the size of the pin bar). This should be your approach with this type of retracement.

Let’s take a look at example 2

Here you attain the 2r profit margin by waiting for the retrace and entering at the fakey pattern’s 50% area as indicated by the red arrow.

For more information on risk rewards, look up The Phenomenon of Risk Rewards in Forex Trading

And Finally

Retracement Back To Price Event Area Or Prior Price Signal

Now this is a high probability area to look for trades- the type of trades that run for weeks.  As you can see price retraces back to an existing area where a bullish pin bar forms. It then forms a bearish pin bar before the bears start a major sell-off breaking through the resistance level.

For more information price event areas, look up Price Event Zones and Support and Resistance Levels

That’s  a wrap for ”Six Retracement Entry Types You Must Know For Your Own Good .” I hope you have a solid grasp of what retracement trading is all about. This post should give you a solid foundation and provide you extra tools to with which to work with in your trading routine week in week out.

Til next time take care

Open Live  Forex Trading Account 

If you’re looking to open a live trading account  Sign Up With EasyMarkets

How To Master The Metatrader Platform Placing Different Types of Trades

Hello and welcome to another edition of the bulls vs the bears.  A while back we did a two part series on Metarader 4 – Part I andPart II. This time we are going to dig into how to really master the master the metatrader platform. In case some of you don’t know, Metatrader is the one and only platform for forex traders. Not only that metatrader is the  most popular trading platform in the industry.

If you are a rookie trader it will be in your best interests to read this post. However, if you are an experienced trader it wont hurt to refresh your memory by reading this post also. So basically we are going to learn how to use different trade entry order types  and how to  set up the perfect trade.

First off:

Market Execution and Pending Orders

There are two categories of order types in the forex trading business. They are market execution and pending orders. Let me break these two categories down gently starting with:

Market Execution

Market execution is an order which is executed at the  next available market price. So the moment you place your order, your order is filled at whatever price is available at the time you place your order.

Pending Order

A pending order is where you place an order that will be filled at a later time after price moves up or down to the price level where you’ve set the order at. Pending orders include limit orders and stop orders.  Let me break these two terms down so you understand.

Limit orders  are placed to buy below the market price or sell above the market price. Let’s say the EURUSD pair is trading at 1.3200 and you want to sell it if it reaches 1.3250. You can fill a request for a sell limit order if prices touches 1.3250 it registers as a sell or ‘short. So the limit sell  order is placed above the current price.

However, if you want to buy the EURUSD pair at 1.3050 and the market is trading at 1.3100, you places your limit buy order at 1.3050. If the price hits that level, your order will be registered as long. In other words, your market order is placed BELOW market price.

and finally:

Stop Entry Order

A stop entry order is placed above or below the current price. For example if you want to go(or trade) long , but you want to make your entry on a breakout of a resistance area, you place your buy stop just above the resistance area. And if price touches your buy stop order, your buy stop is activated.

However, it’s the complete opposite when placing a sell stop order. You place you sell stop just below the resistance area. When price touches your sell stop order, your order gets activated.

Stop Loss Order

A stop loss order is paced for the purposes of preventing further losses when price moves beyond your specified price level. I can hear somebody asking”Why a stop loss order?” Well the stop loss allows you to control your risk and limit losses.  This order stays activated until you decided to tweak or cancel your stop loss order.

Now that we are done with the market orders, let touch on

Long vs Short

When you say you are going long, it basically means you want to buy the market. You want the market price to rise so that you sell back your trading position at a higher price.  I can hear somebody asking”Well, what does this mean?” Basically you will be buying the first currency and then selling the second. so if you buy the EURUSD pair and the euro gains strength relative to the dollar, you got yourself a profitable trade.

The scenario is slightly different when going short.  When you go short you want to sell you want the market to dip so you can buy back your trading position at a lower price than you traded it for. So you will buy the first currency in the pair and sell the second. If you sell the GBPUSD pair and the British pound is weak relative to the dollar, you stand to make a healthy profit.

Now that we’ve gotten the explanations out of the way, I guess the question on everybody’s mind is:

How Do I Place market order in Metatrader?

Let’s say we want to place a trade for the AUDUSD pair. We are looking to  buy at the most current price because we believe price is going high.

To execute the market order, first click  on the ‘New Order’ button. You should see it in the top going left. When you click it produces the pop up right in front of you.  Once the pop uup, pops on your screen you then select  ‘Market Execution’ under ‘Type.’  After selecting ‘market execution, you then select  ‘Buy by Market'(labelled in pink’ since you want to buy. If you  want to sell, you select ‘Sell by Market.'(labelled in sky blue)

I need to sound off a few warnings though. First off, select the Volume of trade before selecting market execution. By that I mean the number of lots you are trading. Failure to do that and your request will be rejected outright.

Second, market orders are risky and dangerous than most orders. I can hear somebody”But you just asked us to select”Market Execution.” Sure I did. However, The price you selected for your market order may not necessarily be the price prevailing on the market.

Next up is:

How do I place A Stop Order?

Basically you want to enter the market as  price moves up or down into your preferred price. If you enter price on a buy stop entry order you anticipate price to move higher. In that case you place your  buy stop above current price. If price move in your direction, it will fill your buy stop order.

Also make sure your stop order is bigger than the current spread your are trading. It cannot be within the spread. Let’s say the price of EUR/USD  is 1,1240/22, it should be  outside of the current price spread. Most MT4 platforms have a distance of 20 pips. And if the market is closed, forget it. You can’t place your order after office hours.

Let’s take a look at an illustration of how a stop order is done

First you select  ‘New Order in order in order to execute the  stop order. Immediately the popup window for your entry  shows up on  your screen. Let’s take a look at this popup screen in our next graphic

This is what the popup window looks like when you hit the ‘New Order’ button.  Make sure you set your order to ‘Pending Order’. You then select ‘Buy Stop’ and then set the price for the trade you want to enter in. Just make sure its above the current price and outside the spread.

But what if you want to sell? Just select ‘Sell Stop’ and  place your order below the current market price and outside the spread.

Next up is:

How Do I Place A Limit Order?

Well you use  a limit order when you you plan on making a retracement entry into the market. Say you want to sell at resistance because of a strong downtrend, and you want to join that trend on   temporary strength(or pullback). You can then choose to place a limit order at resistance, so long as price is below that level. If price rotates to that level, your limit order gets filled.

Let’s first take a look at sell limit order in action using the EURJPY pair

Here we place a sell limit order along the level of resistance.  Now why are we doing this? We are doing this because we anticipate a lower move if price got back up to the key level at the 130.152 level. If price moved up to that level, then your sell limit order will be filled, and you can take the profit without hassle.

Now let’s see how to fill sell limit  order on MT4

Just like any other order you click ‘New Order.”

Right after you you click ‘New Order, this pop up window shows up on  your screen. First you set the order ‘Type to “Pending Order.” Next you select ‘Sell Limit’ and then set our entry price. Just make sure the entry price is above the current price.

But what if you want to do a buy limit? You select ‘Buy Limit’, which is the next order after ;Sell Limit’ on the menu. Just make sure the  price for the buy limit order is below the current price, in anticipation that the price will pull back to it hit your order, and climb  even higher up the charts.

And Finally:

How Do I Place Stop Losses and Profit Targets on MetaTrader 4?

Some of you may not like doing this but you really need to set stop losses. Failure to do that and you will end up creating a nuclear-sized crater in your trading account. In the same vein you al wan to set a take profit because the last thing you want is the market  U-turning on your trading position and you losing  all your hard-earned profits. So how do this?

First off:

Select ‘ New Order’

And then you fill in your stop loss and take profit orders. If you are selling, you click ‘Sell’. And if you are buying you click ‘Buy. So whenever you want to place a trade, Don’t forget to fill your stop loss and take profit. Failure to do that and you will be digging your own grave.

Before you enter your trade, do me a favor. Make sure you have selected your currency and your trading volume before hitting the sell or buy buttons. We don’t  want to be laughing at the wrong ends of our mouth do we?

That’s a wrap for “How To Master The Metatrader Platform Placing Different Types of Trades.”  I hope you’ve learnt that there are so many different trades you can place on metatrader 4. If you want to know how to set up Metatrader4, look up Metatrader4 Part I – How to Download Metatrader 4 and Set It Up For Price Action Trading

Til next time take care.

Open Live  Forex Trading Account 

If you’re looking to open a live trading account  Sign Up With EasyMarkets

How to Manage Your Forex Money Like A Pro

Hello and welcome to another edition of the bulls vs the bears. Last time we touched on How To Manage Trades The Right Way.  Today  we are going to touch on how to  manage your forex money like a pro using risk reward and position sizing. The one thing you do not want to do as a trader is get so hooked on a trade that you don’t think it can fail. Then you end up leveraging so huge on a trade, which sets your trading account for a nuclear-sized blow up.

All it takes is one such tsunami to cause a huge crater in your trading account.  And when that happens you  resort to emotional trading instead of logical trading. Rather than relying on your trading plan, you fall back on your emotions by jumping back into the market in a desperate attempt to make up for your losses.  That’s suicide if you ask me. You need to have a clear understanding of risk reward and position sizing. Since I’m a pretty nice guy I’m going to show you a few tips on how to perfect these two scenarios:

First off:

Think in Probabilities

Risk Reward and Position Sizing is all about probabilities. It’s a complete waste of time searching for a silver bullet trading system that will take you the Promised Land of prosperity. Look, if you want to prosper as a forex trader, you need to understand how risk reward and position sizing works. You need to perceive each trade as a probability. That it has a reasonable chance of making you a profit. When you see forex trades this way, prosperity will find you very quickly and easily. In so doing, you will see the market  more objectively instead of developing the mindset of a Las Vegas gambler.

Let me let you in on a little secret. Successful forex traders view  the forex market as the implementation of their trading edge. By trading edge I’m referring to the prevailing conditions for their trades to help them make a profit. With that in mind, you then decide on how you are going to minimize the risk on the trade while at the same time, same time maximizing your reward(in this case profits). With the power of risk reward and position at your disposal, you are able to manage your risk on each trade.

Even more importantly, you  ditch your gambler’s hat and wear the cap of a logical and disciplined trader. When you view the market this way, you will be better equipped to put a cap  on your emotions because you know the possible risk and reward scenario before you enter the trade. With this information at your disposable, you don’t need to stare at your screen all day waiting for your profit to materialize. Instead  you utilize  the set and forget strategy. I can hear somebody asking”What the heck is that”? Well you set your take profit and stop loss and leave the market to work for you.

Just leave the house and chill for a bit so that by the time you get back  home, your profit is already in your trading account. Even more important you are able to keep your emotions and sanity  in check.

Now that we’ve got the bones out of the way, let’s get to the meat of the issue- Starting with:

Risk To Reward

It’s no secret that anytime you contemplate entering a trade, think about the risk to reward ratio. Let’s say you find a good trade setup, you first decide how much risk you will put on the trade. In other words, decide how much you can afford to part with. Risk management should be top of your priority risk. You should think risk management first, reward(profits) later. Not only are you a professional forex trader, you are also a risk manager. You need to treat forex trading as a business. Once you  realize the importance of risk management you can then concentrate on being the best forex trader that you want to be. The rewards will take care of themselves.

Now let’s take a look at risk to reward in action using a pin bar setup below

Ladies and gentlemen, here is the pin bar setup. we s As some of you probably know the pin bar setup is one candlestick representing a sharp reversal or a strong price reversal It’s attributes are: along tail(popularly known as shadow or wick. And the area between the open and close of the candle is known as the full body.

Here we a bullish uptrend forming at the far left corner. I’m sure some of you who are familiar with the pin bar setup are saying to yourselves” Hmmmm…..this sure looks like a profitable setup.” However, think risk management first, rewards later. You first find the safest place to place your stop loss so you minimize the possibility of taking a nuclear-sized hit. Even more importantly, you want to give your trade more room to breath while you maximize your risk to ratio rewards.

In that case you place your stop loss just below the long tail of the pin bar. You only do this at the end of the downtrend. Anything beyond that and your trade is toast. The whole idea is to leave enough room beyond the long tail to avoid getting caught in the stop run. Now I can hear someone asking” Enough of the risk. How do I figure out my reward?”

Well it depends on the mood the market is in. As you can see, the market started on the uptrend. If you play your cards right, you could  twice or even triple the risk. The bench mark ratio that most traders use is 1:2. In some cases most traders go as high as 1:3.

So basically this is an example of the  risk reward setups that occur on the market regularly. Like I mentioned earleir,  take care of your risk management and the rewards will take care of themselves.

If you want to know more about trading the pin bar look up How To Prosper From Trading The Pin Bar

Last but not least is:

Position Sizing

Somebody once said that position sizing is the glue that hold risk reward scenarios together. You know what,  he is absolutely right. The whole premise of position sizing is to fit your position size to to fit your stop loss. Let’s say you risk $100 after after spotting a delicious trade setup.  Except that the most  logical spot to place your stop loss is 200 pips away. In that case you reduce your position size to  accommodate your stop loss, So if you are trading a $1 a pip you will slash it to  .50 cents a pip. So your calculation would be .50 x 200=100.

Let’s take a look at an illustration using the AUDUSD pair.

Here you risk $100 but the sto loss is 109 pips further up because the safest spot for the stop loss is just below the pin bar. So you divide the risk amount by the stop  loss(100/109), which gives .917.

That’s how position sizing is done. All you are doing is adjusting your lot size to accommodate the stop loss distance that gives you the best chance of making a decent profit. Anything opposite this formula is nothing but GREED. In this case greed will end up killing you. I dare add that position sizing combined with risk reward scenarios gives us the  set and forget strategy I mentioned earlier. It sets your mind at ease and makes you objective and logical. Each trade you enter in is simply an execution of your trading edge. So there is no need for you to risk more than you should. And  you can use this same trading edge on as may trades as possible. You don’t need to be hung up on one trade. That’s suicidal.

If you  need help calculating your position size, consider using a  position size calculator. It will help speed up things for you.

If you want to know more about  position sizing look up Risk Management and Position Sizing- The Most Important Lesson in Money Management You Will Ever Learn

That’s a wrap for “How to Manage Your Forex Money Like A Pro.” If you want to prosper as a forex trader, then you better manage your trading cash properly. Forex trading is a business. And just like any other business, you need to look after your cash properly.  You don’t leverage all your money on one trade and risk blowing your trading account. Just apply the right position size and risk to reward ratio and you will be laughing all the way to the bank.

Til next time take care.

Open Live  Forex Trading Account 

If you’re looking to open a live trading account  Sign Up With EasyMarkets

A Few Stop Loss and Take Profit Strategies You Can Take To The Bank

Hello and welcometo another edition of the bulls vs the bears. Last time we tried to Get The Hang of Using Sop Loss and Take Profit in Forex Trading. Today we are going to jazz things up a little. We are going to learn a few stop loss and take profit strategies that you can take to the bank.

We are going to learn about some popular price action strategies and where to place your stops in these trading strategies Like I alluded in our last lesson, your prosperity as a forex trader is dependent on whether you use a stop loss or take profit. Failure to do those, and your Forex trading account could take a nuclear hit, the size of the Grand Canyon. So we’ll get thing started with the stop loss strategies First off:

Pin Bar  Stop Loss and Take Profit Placement

The pin bar is a very popular trading strategy representing a strong rejection and reversal price. The attributes of the pin bar are as follows: a long upper or lower tail, wick, or shadow, and a smaller body or real body.

Now I can hear someone saying”Yeah Yeah! I know all all that? But where do I place my stop loss?” Well the logical place to place your stop loss above or below the longer candlewick of the pin bar. For the trade to be successful, you should leave some breathing room between the entry level and the end  long candlestick. If price goes beyond the longer candle, the trade becomes a bust.

For take profit you  you close the trade when the candlestick breaks the line of support.

Let’s look at an illustration of the pin bar stop placement and take profit placement.

Right  in front of us is the the stop loss and take profit in the pin bar set up.  On the bullish side  the stop loss is placed just below  the long tip of the pin bar. While the on the bearish side the pin bar is is placed at the tip as suggested by the red arrow. So if you see such set ups in the pin bar , you know what to do.

Wanna learn more about the pin bar? Look up How To Prosper from Trading the Pin Bar

Next up is:

Inside Bar Stop  and Take Profit Placement

If you know the inside bar as well as I do. you’d know that it’s a high probability strategy with huge rewards. Naturally as a high probability trade, you dont need that many stop losses. The inside bar setup is better traded in the daily frame and in strong trending markets-especially where the potential for strong breakouts exists;

Now the inside bar itself is tucked in front the preceding candle, popularly known as the mother bar. The inside bar typically has a higher low(HL) and lower high(LH). In smaller time frames it shapes like a triangle.

Now I can hear someone saying”Ok. We’ve heard all that. Now how about the stop loss and take profit  placement?” Well, rumour   has it that you place your stop loss just below  the mother or lower high(LH) depending on whether you are going long or short. As for the take profit, you buy when the  candles break the key areas,  be it line of support or line of resistance. Let’s look at an illustration of the inside bar strategy

Now here is a bullish layout of the inside bar pattern. As you can see the stop loss is placed at the bottom the inside bar as indicated by circle. If it were a bearish set up you’d have placed it at the top of the inside bar. With the take profit, the buy order is placed after it breaks the line support as indicated by the green arrow. So when you see this inside bar set up you know what to do.

Now let’s look at the bearish set up.

Ladies and gentlemen this is a bearish set up of the Inside Bar Pattern. As you can see the stop loss is placed on the high(top) of the mother bar. While the take profit is placed just as the bearish candle breaks the line of resistance.  So when you see this set up you know what to do.

Wanna know more about the Inside Bar pattern? Look up Trading The Inside Bar With Gusto

That’s a wrap for “A Few Stop Loss and Take Profit Strategies You Can Take To The Bank.” As I said in the last post, Every trade you enter has the potential of making you a profit or blowing your account into the ozone. With that in mind you need to weigh the risk of the trade as well as its potential reward. So if you want to be a profitable forex  trader, make use of your stop loss and take profit orders.

Til next time take care.

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If you’re looking to open a live trading account  Sign Up With EasyMarkets

How to Profit From Trading False Breakouts and Fakeouts

Hello and welcome to another edition of the bulls vs the bears. Today we are going to learn how to profit from trading false breakouts and fakeouts. You see trading breakouts is  a very profitable strategy. Only that sometimes breakouts do not quite materialize,a and instead do a nasty about turn on you, causing your trading position and your trading account to go out in smoke,

The good news is you can anticipate what’s happening and react like like a marksman to this type of situation. You can be profitable with false breakouts and fakeouts if you know what you are doing. So we’ll take a close look at what false breakouts and fakeouts really are and  how to trade them.

But before we go on I suggest you read up on How to Trade and Crush the False Break and How to Trade the Fakey Pattern . Failure to d that and you will be scratching your hair this entire lesson. First off:

What are  False Breakouts?

False breakouts are sightings where price breaks through a key level, and then suddenly does a sharp change in direction. What’s so crazy about this scenario is that traders, desperate to make a quick buck are sucked into the direction of the initial breakout. Then when price goes into sudden reverse, it triggers a series of stop orders by these gullible traders. Of course it completely turns their day upside down.

The entry of these gullible traders puts further pressure on price, It is this reaction that results into the false break.  Now let’s see an illustration of the false break and reversal in action.

Ladies and gentlemen, here is an illustration of a false break using via the GBP/USD pair. The pattern marked in blue is the inverted Head and Shoulders pattern. The neck line, marked in magenta is considered the signal line. Notice the upside breakout(marked in red) through the neckline. This breakout confirms the formation of the Inverted Head and Shoulders pattern and suggests the bulls are about to take off. Unfortunately price quickly repulses the bulls advance.

This causes price to sharply reverse and set the bears on a wild slalom the size of the Head and Shoulders pattern.

How Powerful is  the Fakeout Pattern?

Let me tell you that the fakeout pattern is vert powerful. When you have been faked out by a breakout, you will realize that the profit opportunities are substantial. All you need is the sharp eyes of a marksman for you to take advantage of the trading opportunities.

If you find a false break on the upside, just put in a sell order on the assumption that a pullback is about to happen. If a false break is on the downside, then expect the bulls to to do a pullback. Of course this creates a long trading opportunity. And you will be crazy if you don’t take advantage of this bullish opportunity.

Sounds simple right? However there is one exception. Like mentioned earlier, you must be able to tell the difference between a fakeout and a real breakout, Failure to do that and you will be gnashing your teeth and pulling your hair all day. The best way to do this by studying previous patterns on your charts. Once you muster this, it should be like riding a bike for you.

How Do I Identify False Breakout Patterns?

Now this is the deadliest aspect of trading breakouts. Failure to identify a false breakout properly and you will lose a lot of cash.  There may be times when you completely misread the price action for a false break and price returns to the initial  breakout point. Next thing you know  price confirms the initial breakout and follows the direction of the initial breakout. It’s happened to me quite a lot. I know what  I’m talking about.

First of, keep an eye on the volume of trading. Real breakouts are usually characterized by a strong trading volume in the direction of the breakout. IF there is no trading present during the breakout, don’t bother putting in an order. If you do, you will burn all your fingers.  Let’s look at an illustration using  the GBP/JPY pair

Here is an illustration of an actual breakout in its pomp.   The volume indicator at the bottom of the chart  shows high trading volumes(as indicated by the green arrow) at the time of the breakout. See how price follows the direction of the break after the breakout.  With such a high volume the opportunity to trade the trendline break to the downside is quite significant.

Now let’s look at an illustration of a fakeout pattern in action using the GBP/USD pair.

Ladies and gentlemen, here is an illustration of a fakeout pattern in action(As indicated by the red circle). It shows resistance at $14700. After numerous retests of that level, price eventually closes above the $1.4700. Nobody needs to tell you you need to put in a buy order here.

Unfortunately the Volume Indicator does not give us much to work with here. Sure we price do a sharp reversal. However that leads to a fakeout setup-something none of us want. When the Volume Indicator is not helping   just switch time frames  to see if there is any evidence of a breakout or fakeout. It’s very possible there is a pullback which is not evident on  the initial time frame.

When to Enter Fakeout Trades?

Timing is everything when entering fakeout trades. When you spot a low volume of trade , don’t enter until price returns to test the initial level. But if price returns with a higher momentum, then it’s like to be a false breakout.If the bulls break through on a low volume, put in a sell order on a bearish pullback.

The key level takes many forms. It could be a horizontal support or resistance level, a diagonal trend line, or a price channel, pivot point, chart pattern, candle pattern, e.t.c.

Placing Stop Loss on Breakouts

Like we said earlier, a real breakout pattern can easily pose as a fakeout pattern test a level, and follow in the direction of the breakout. In light of this, you’d do well to protect your trade with a stop loss

. I can hear someone asking”Where do I place the stop loss?” Well, you will want to place your stop loss on the opposite side of the breakout. Let’s take a look at the illustration using the same GBP/USD pai we used earlier.

As you can see the stop loss is placed nicely on the opposite side of the breakout. The price is likely to do a sharp reversal anyways,. So you might as well make the stop loss tight. Once price breaches the key level, it’s confirmation that the breakout is legitimate.

Entry Point When Trading Fakeouts

Timing is everything when trading fakeouts. It could be the difference between the difference between prosperity and poverty. You only enter the market when the trading volume leading to the  breakout   is very low and the price has returned to test the key level in question. But if price’s retest of the key level occurs with a high momentum, compared to the break, then it’s a fakeout.

If the bulls break the key level on a low volume of trading, you just pull in a sell order on a bearish pullback. The pull back could come in many variations; it could be a horizontal support/resistance level, a trend line, a price channel, a Fibonacci level,a pivot point, a chart pattern, a candle pattern, e.t.c.

How to Place a Stop Loss on Fake Breakouts

You need to get your risk management spot on when trading fakeouts. Why? Because prices tend to be very unpredictable in these area. Like I said a a break can pose as a fakeout, test the key level, and then follow the path of the original breakout. With that in mind, always your trading position with a stop loss. I can hear someone asking”Where do I place the stop loss?” The best spot to place the stop loss is on the opposite side of the initial breakout. Let’s take a look at this scenario using the GBP/USD pair. with the previous chart.

This is the same chart we used previously. Except that a nice spot has been prepared for the stop loss. Since the price is likely to do  a sharp 360 after the fakeout, make sure the stop loss is very tight so you avoid a major crash on your trading position. Because once price breaks this level, that will be confirmation that the breakout is valid.

That’s a wrap for  Some Costly mistakes You Should Avoid Like The Plague As A Forex Trader”.” Just make sure you you cut down to the barest minimum the above mistakes that you make. There is no such thing as a perfect trader. You are learning all the time. The trick is no to keep making trhe same mistakes over and over again. Even more important, you ate constantly learning as a forex trader. Just look for ways to be a efficient as a forex trader.

No Need For Targets in Fakeout Trading

You don’t need to set specific targets in fakeout trading. When you spot a fakeout you just measure the formation  size and apply it from the opposite side of the formation, starting from the extreme end. When the trading volume on the fakeout  drops, you should see the volume pickup during the pullback.

So long as the trading volume is high just hold your trade for as long as possible. The moment then volume drops just close your trade take your profits and head for the exit. Now let’s take a look at a few examples of what we’ve been talking about thus far.

Here we have the H1 chart of the GBP/USD pair.  Below the chart we have the Volume Indicator.  We have a bullish trade  posing as a false breakout and a reversal. Notice the strong support being whacked several times at 1,2790. Suddenly a bearish candle closes below the support level. When this happens you’re like “Hmmm I could put out a sell order here.”

Not so fast cowboy!Take a close look at the trading volume leading to the breakout. It does scream “FAKEOUT!”Why? because there is a steady drop in the trading volume. This makes the breakout suspect. And when you have a dubious breakout, you guessed it, you have a false breakout.

Now notice the huge rejection by the bulls in the engulfing pattern.  This is the perfect opportunity to put in a buy order. Just make sure the price increase is very sharp for you to make your entry. Of course you have to protect your trade with the stop loss we discussed earlier. Just place your stop loss in the engulfing pattern.

Luckily for us the price increase creates the pullback we’ve been anticipating all this while. See how the Volume Indicator is reading huge trading action? This suggests price is moving to the upside. Afterwards trading volume drops, resulting in price losing steam.  And when that happens, close the trade, take your profits and run like your life is at stake.

Now let’s take a look at another example.

We have the H1 charT of the USD/JPY PAIR. Only this time we are using the popular Rising Wedge pattern.(marked in pink.) Now the Rising Wedge is a result of a correction appearing while the bears were in charge.   As the  wedge takes  shape we see a drop in trading volume. This is because the Rising wdge is more consolidated. The players are taking a break to consider their next move.

However, we see price slicing the wedge through the upper level. Consider that as a possible false break. We also see an increase in trade volume  during the bulls break. Treat that with a grain of salt as this suggests a false breakout. Why? Because it has bearish potential written all over it. A  bearish doji shows up after the break. Of course a  doji has indecision or reversal written all over it,

With this information at your disposal, consider putting in an entry at the close of  the doji  candle. Put in your Stop Order above the High created by the potential false breakout, In  so doing you protect your trade in case the bulls take over.

See how price spikes sharply when  the bears take over after the pullback?  Also the Volume indicator records high trading traffic from the downside rest as the bears run out of gas.

After a long while, the trading volume begins to drop. That should tell you that price is running out of gas. Now will be a good time to take your profits and run(as indicated by the arrow).

That’s a wrap for “How to Profit From Trading False Breakouts and Fakeouts .” Yes it’s possible to profit from breakouts and breakouts. But  you need to anticipate these unfolding events well if you want to your cash register to ring. Sometimes what seems to be a breakout might turn out to be false, causing you to lie flat on your face.

Just don’t be in a hurry to jump into the market yet. Just wait for confirmation, with your volume indicator as your guide. If the trading volume leading to the breakout is high, jump in. If the volume is low, hold your horses.

Til next time take care.

Open Live  Forex Trading Account 

If you’re looking to open a live trading account sign up with EasyMarkets.

How To Laugh All The Way To The Bank Trading Bearish and Bullish Pennants

Hello and welcome to to another edition of the bulls vs the bears. Last time around we touched on How to Trade and Cash in on Wedge Chart Patterns. This week we are going to learn how to trade and laugh all the way to the bank Trading bearish and bullish pennants. Basically we are going to learn how to trade bearish and bullish pennants. Now pennants are cousins of rectangle chart patterns in that they are continuation chart patterns formed after humongous moves.

Whether the move is upward or downward, buyers pause to catch their breath after  a period of atritional warfare. During that period either side decides which direction to drive the currency pair  to next. Consequently price consolidates and forms this cute little triangle called a pennant. While price continues to consolidate, more buyers  or sellers to  jump on the bandwagon of the prevailing trend, forcing price to break out of the pennant formation.

Now let’s look at the first pennant, which is:

Bearish Pennant

a bearish pennant forms when the downtrend is steep and almost vertical. This suggests a sharp drop in price, and when that happens some sellers close their selling positions. While other sellers decide to jump on the pennant band wagon, causing price to consolidate. Let’s a look at an illustration of the price action  with the bears.

Here is the bearish pennant in its pump. See how price breaks below the bottom of the pennant.  Once enough sellers jump on the downtrend’s bandwagon, price breaks out of the bottom of the pennant like a runaway train. Unfortunately that causes price to consolidate briefly. Now let’s see what happens after the brief breather by the bears.

Once the bears finish breathing, they continue their downward journey by breaking through the bottom of the pennant.

Now I can hear someone asking this question”How do I trade this bearish pennant”? Well first put in a sell order at the bottom of the pennant and a stop loss above the pennant. In so doing, you head for the exits in case you get faked out by the. You use the height of the earlier move to estimate the size of the breakout move.

Last but not least is :

Bullish Pennant

Bullish pennants suggests the bulls are taking over the show. And just like its bearish brethren,  Price shoots up after a brief period of consolidation by the bulls. This after they decide to take a breather to decide their next choice of action.

Now let’s check the price action in the bullish pennant.

Here you see price,led by the bulls climbing sharply before taking a breather through consolidation. Now let’s see the bulls revving their engines for another surge.

Bingo! The bulls surge further up after the initial breakout. Now to cash in on this pennant, we place our buy order above the pennant and place our stop loss below the  pennant. Like I said, measure the size of the breakout by the height of the previous breakout. Pennants may be small, but they pack a huge breakout punch.

That’s a wrap for “How to Trade and Laugh All the Way to The Bank With Bearish and Bullish Pennants.”  Bearish and bullish pennants are similar to rectangle patterns in that  they are continuation patterns formed after humongous surges. The bearish pennant is formed after a steep downward drop.  This forces some sellers to sell their trading positions while other sellers jump on the bandwagon, forcing price to go into consolidation. During this period, sellers take a breather to decide which direction tom send price to.

The same situation takes place with the bullish pennant. The bullish pennant forms when a huge bullish surge occurs after a brief period of consolidation. By then the bulls would have decided where to drive price- which is obviously up.

This brings us to the end of our series on chart patterns. I hope you learnt a few things these past few weeks. Hopefully you can implement them when you trade.

Til next time take care

Open Live  Forex Trading Account 

If you’re looking to open a live trading account sign up with EasyMarkets.

How To Profit From Position Trading In The Long Term

Hello and welcome to another edition of the bulls vs the bears. How would you like to take 1 or 2 trades and rack up profits ranging from a week to several months. This is where position trading comes in. We are going to learn how to profit from position trading in the long term.

Unlike day trading position trading takes a long term view. See, with position trading, you can hold your  trading positions anywhere from a few weeks to a year. You don’t need to stare at your PC screen all day. you enter your trade, and  take a chill pill as your trading position racks up the profits. What we’re going to do is define what position trading is  and  we’ll look at tools you could use to help you profit as a position trader.

First off:

What is Position Trading?

Position trading is an investment method where a forex trader prime focus is on long term price movement. You don’t need to to take a truckload of trades in this scenario. You only take a handful of trades within the calendar year, but you have the option of tweaking them every now and then depending on what mood the market is in.

Now since you are in these trades for the long haul, you need to have a deep knowledge of fundamental factors that can influence price movements over the long term. By fundamental factors I am referring to social political and economic forces that may affect the supply and demand of a currency. Not only that, but your knowledge of technical analysis should be such that you should be able enter and exit trading positions at the right moments during the long haul.

In short, you need to know macro-economic data like the back of your hand. And your trade entries should be premised on sound fundamental analysis  backed by sound technical analysis to time your trades to perfection.

What  Are The Best Technical Tools For Forex Trade Positioning?

First:

Trend Lines

In case you don’t know already, trend lines are very effective tools that can help a forex trader identify trading opportunities on the charts. Price action and trends  make a lot more sense on longer time frame charts such as the daily and the weekly charts. With that in mind, you could use trend line analysis to gain valuable insight into the forex market and ascertain where the trend is heading based on prevailing price action.

Next up is:

Support and Resistance

Support and Resistance Levels also play a pivotal role in  position trading. When price action breaches a major support or resistance level, the next logical step, it just surges  higher towards the next available resistance level.  This surge takes place in case there is an upside break or price drops to the next lower support level in case of a downside break.

Next up is:

Moving Averages

Moving averages  are also valuable in identifying long term trades. They measure the average price over a specified number of time periods. The weighted volume and exponential increase mean very little. Your focus is the number of periods of the long term moving average.

Long term price action is more comfortable with the 50 and 200  period moving averages. However, keep an eye on the 100 and 500 moving average periods for possible  clues. Let’s take a look at the price action in a position trading setup

Ladies and gentlemen, there lies a position trade on the weekly USD/JPY chart. As you can see a Double Bottom chart pattern pops up as a result of a breach of a huge bearish trend by the USD/JPY pair.So for the next 5 months the currency pair enjoy some dominance, chalking 20% gains in the process.

Now 20% in the scheme of things is quite huge. Why? Because this move came on the back of an unleveraged position. Even  two thirds of such a move adds up to 70% on a 5 :1 risk/ratio. Even more you’d incur less transactional costs in the form of broker spreads and commissions- unlike day traders, who give away chunks of their profits to transactional costs.

For more information look up We Are Moving Averages I and II

Now let’s look at  the Macroeconomic  factors that I touched on earlier

First:

Inflation Rates

Inflation sure influences a country’s  currency. High inflation results in the increase in the price of goods and services. Consequently, people’s appetite for goods and services takes a dip, resulting in the economy catching a cold. Even worse, the country’s currency drops in value compared to other stable economies.

Low inflation is good news for a country’s currency. When this happens demands for goods and services surges up, and the currency also increases in value compared to other stable currencies. Not to mention the fact that demand for the currency also increases.

Next is:

Interest Rates

Central banks are an interesting bunch. Their job  is to tweak interest rates to keep the engine of their domestic economies running, which, in turn encourages competition.  As we all know, there is a correlation between interest rates, inflation and currency rates. As such, policy makers have the thankless task of keeping all three elements at peace with each other. This balancing act can be trick sometimes.

Someone is probably asking”How so?” Well, for instance, high interest rates can trigger huge interest inn foreign investments. Under normal circumstances this should cause a shot in the arm of a country’s economy. Even better, investors feel encouraged to pour their money into a country’s economy courtesy of the favorable interest rates of that country.

However, high interest raters can also trigger inflation; This can cause a country’s economy to overheat.. To make matters worse it makes goods and services more expensive. And when goods and services are expensive, it blunts your competitive edge.

Trade Balance of Payments

If you don’t know trade balance of payments let me tell you right now. Trade balance of payments simply  means the difference between gross imports and gross exports. IF a country exhibits a negative balance, its imports more than it exports. This of course creates a huge deficit which sends the country scampering to look for cash to pay her lenders. The country’s currency suffers in the process as it value takes a tumble.

On the flip side, if a country’s balance of payments is positive, its exports are more than it imports. The country’s economy  passes with a clean bill of health and all concerned can breath a huge sigh of relief.

Even more important is:

Economic and Political Stability

Investors take the economic performance of a country into serious consideration when deciding to invest in a country’s currency. IF a country’s economy is unstable it may cause political instability. They see such a country as an unattractive place to invest

However, if a country’s economy performs better,  investors are more inclined to  put their money where their mouth is. This then triggers a demand for that country’s currency, which of course results in a appreciation in value.

A classic example is the UK voting to stay out of Europe. It’s Brexit referendum split the country right down the middle. Consequently the pound crashed to a 32 year low against the Dollar. Let’s take a look at the price action that ensued as a result of this crash

Ladies and gentlemen, this is the GBP/USD chart after the BREXIT fiasco. Many investors abandoned the dollar  and looked fo other currencies and assets such as gold to invest their money in.

Fortunately the Pound rebounded slowly against the dollar to end strongly in 2017. The moral of the story here is that investors mood can change rapidly. And it’s the job of the position trader to  to capitalize on these mood swings when the opportunity presents themselves.

Now here a few position trading tips that will help you make informed decisions while you contemplate on your trades.

Study Economic Data Seriously

Your trading forecast should be founded on fundamental and macroeconomic data.  You then confirm your fundamental data with price action analysis. Don’t forget to keep an eye on events around the world and look weaknesses in these economies and pounce when the opportunities present themselves.

Use Daily and Weekly Charts Religiously

The Daily and weekly charts are perfect for position trading. The daily chart gives you a  few months to a year tom work with while the weekly chart gives you one to 5 years of price action.

Be sure to use the same roadmap when making your trade entries. You do not want to fall into the trap where you take a long term position based on a weekly setup, which only runs for a few months. But then you open a 240 minute chart only to discover an opposing price signal and run for the exit in a few days.

So basically you open with a position trading strategy only to fall into a swing trading trap. Avoid this mouse trap as much as possible if you don’t want to see your money go up in smoke.

Don’t Pull Your Hair Out Over Market Volatility

You don’t need to pull your hair out over market volatility. It’s the nature of the beast. IT’s natural that    market trends do not  always touch a trend line. As a matter of fact, you may get get faked out by false breaks sometimes. It happens. So get used to it.

How do you de-stress over this? Change your chart setting from a candle chart to  a line chart and plot a trend  line using the line chart.  I hear someone saying”Now Why will I want to do that?”Because  a line chart is founded on closing prices so all the price increases and loud noise you see on the candlestick charts can be cut down to a minimum.

Keep Your Eye On Strong Breakout Confirmation

Please do not just jump straight into a trade. Wait for price confirmation of a breakout about to happen-who cares where it’s happening on a  trendline key support, e.t.c? When price eventually breaks a key level on a chart, just hold your horses and let the price buildup plays itself out.

The most likely thing to happen is  price doing a U-turn and re-breaching  the initial level. If price manages to breach the initial level the n you will have reason to enter your trade with a favorable risk to ratio situation.

Make Very Good Use Of Moving Averages

You can’t do without those moving averages. They are absolutely indispensable. Keep your eye on moving averages of the 50, 100,  and 200 variety. Some even suggest the 500 moving average.

Why these averages?They are the most popular and psychologically influential among the big financial institutions. Although there are multiple variations of these moving averages, I suggest you stick with the Simple Moving Average(SMA). It’s straightforward and less stressful.

An Illustration Of Forex Trading Position Trading Strategy

Let’s take a look at another illustration of position trading in its full pump using  the Russian annexation of the Crimea

Now in case you some of you have forgotten Russia illegally captured the Crimean peninsula from Ukraine. This caused the European Union to hit Russia with hefty sanctions in 2014, the likes of which it had never experienced. Or course the Russian ruble went into a tailspin as a result  of those sanctions.

Let’s see how these sanctions affected the price action.

Ladies and gentlemen, here is how the sanctions affected  the Ruble. The Ruble takes a huge 50% plunge against the ruble.

If you are a trader you will be salivating at such a long term opportunity. How will you have taken advantage of such a sumptuous opportunity? Let’s take a look at the price action in the next chart

As a consequence of the EU sanctions on Russia the EUR/RUBLE pair break through the 51.00 resistance level. This heralds the last big surge from mid MArch 2014 when the Russians charged into the Crimean Peninsula. And it happens right after the price action has soared above the the 100, 200, and 500 Simple Moving Averages.

After the 51.00 breakout event, forges a top at the 55.0 area(as indicated by the blue horizontal line). See how price does a U-Turn to touch the previously broken 51.00 area to re-test its resolve. A huge  ricochet takes place causing a breach of the blue horizontal line.

Now if you are long term trader you will be besides yourself with excitement. You should be saying “Hmmm….This definitely a bullish trade that I can make a truckload of cash from. The price confirmation signal  for this trade is too loud to ignore.”

So, what do you do? You  buy the EUR/RUBLE pair at 56.00 Rubles to the dollar, assuming the ruble tumbles further. You then place your stop order on the swing bottom indicated on the chart

Now notice how the price action touches the ruble touches the area at 97.00 rubles. This by the qway is 40 rubles more than your entry price. The candle in this area represents a price bubble triggered by   high price volatility. This candle closes at a low, creating a huge upper candlewick. And if you don’t know by now the bulls dominance is coming to an end.

In view of this high turbulence you may want to exit with part of your profits. You ‘re probably thinking” Wait a minute! The Russian economic and political problems don’t show any sign of ending anytime soon.”

In that case wait for a complete breakout  through the orange bullish trend. As you can see the bears have  take over, creating a bottom at the 71.00 level. In that case exit your trade once price breaks at that level.

Lastly see how price breaks at the 100 SMA period. You could have closed your trade prior to this event. It’s alright. You can still close out the remainder of your  remaining trading positions. This is very exciting stuff. Isn’t it?

That’s a wrap for “ How To Profit From Position Trading In The Long Term”  Like I said you don’t need to stay at your screen all day scouring for trades. Just pick 1 or two trades and watch them play them selves out any where fro two weeks to a year – depending on the time chart that you choose. Of course you will have to do consider fundamental factors backed by price action analysis while you work out your strategy.

Till next time take care.

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I Have Scaled In My Trading Position…..Now How Do I Scale Out?

Hello and welcome to another edition of the bulls vs the bears. Last week we  started our scaling series by learning how to scale  in on a forex trade. Now I get the feeling the question on somebody’s mind is…”I Have Scaled In My Trading Position…..Now How Do I Scale Out?” Well not to worry! We are going to learn how to scale out of trading positions. Since we’ve scaled in on our trades, it’s only sensible that we scale out. right?

Scaling out helps reduce your risk and protects you from being obliterated by the  market-regardless of whether you are in a winning or losing trade. When you are scaling out, back it up with trailing stops. With this added security, you can lock ion your profits and make your trade risk-free. Now if you are a bit rusty on your trailing stops look up Forex Trading Basics – Top To Bottom Part II. You will learn about various market orders including the trailing stop. You may want to check out Part I while you’re at it.

Now let me explain what’s happening here. You have a $10000 trading account and you decide to trade the EUR/USD pair. You say to yourself “Let me sell 5000 units at 1.3000.” You place your trail stop at.1.3100 and your profit target 300 pips below your entry at 1.2700. For this trade you risk $100.

A few days later EUR?USD dips to 1.2900. And as  predicted, the trade moves 100 pips in your favor. Not to mention the fact that you make a nice $100 profit. Sounds great. Doesn’t it? Unfortunately  bad news starts filtering that the U.SD(U.S.Dollar)may take a dip in the future. You then say to yourself”Let me lock in my profits. Because I’m not sure I can the USD can slide any further.” So you decide to close half of your trading position  buying 6000 units at 1.2900. You then lock in $50 in profits at the exchange rate of 1.2900.(100 pips*0.50=$50).

So you now have an open position of 5000 units selling at 1.3000. Meaning you can now adjust your trailing stop to breakeven(1.3000) to make your trade risk-free. If the EUR/USD pair climb back up to hit your adjusted trailing stop 1.3000, just close your trading position  without incurring a loss. But if the pair dips any lower, just rack up all the profits til your heart’s content.

Now supposing you still had 10000 units and EUR/USD  dips to 1.2700, and you caught 300 pips in the process. Then  your profits will be a cool $300. But since you closed half of that position you will only get $150. Add $150 to the previous $50 and you have a neat total of $200.

What you need to understand is that it’s entirely up to you if you want to  leave some profits on the table. You just need to weigh the pros and cons of your strategy

Now  Let’s me show you a little visual  illustration of  this scaling out  example

Now here is the graph showing you the various times that you have to scale out. The question you need to ask yourself is”Do I push for more profits and risk huge losses? or Do I want to sleep better at night knowing that I have locked in at least half of these profits?” It’s a tough question, but one that needs to be answered for your own sanity. Also there is always that possibility that the market could surge beyond your profit target and add more cash to your trading account.

There is so much to think about when  tweaking your trading positions. But with more practice you should be able to scale out your trading positions with flawless ease.

That’s a wrap for “I Have Scaled In My Trading Position…..Now How Do I Scale Out? ”  Next week we’ll continue our scaling series by touching on how to expand your winning position.

Til next time take care.

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