Quiet Times for Reflection and Development

As we develop as traders there are often many things that we think of that we would like to find out more about or need to develop or test.  It is a good idea just to note those things down as they occur to you, then when there is a natural lull in the markets then this can be the ideal moment to look back at those notes and maybe get on with one or two of the things you would like to take further and develop or understand better.

Today is a classic day for that if you are based in the UK or outside the USA.  Being ‘President’s Day‘ in the US means that the markets are extremely quiet, so it is an ideal day to either take off or to get on with other things, even, dare I say it, to Back Test some of your chosen strategies!

These quiet times can also be a great time to reflect on what has occurred and how things are going in your trading and maybe to tighten up your trading plan and look back at your trading record and particularly your failed trades, as these are the ones we can learn most from.  To do that though, we must have kept a record of previous trades and their outcome. 

However, if you trade in MetaTrader 4 (MT4), then you can easily generate a report from you Trade History, just select the ‘Account History’ tab at the bottom of your screen when your Terminal is showing and then right click on the historic list of trades and then select ‘Save as Detailed Report’.  This will generate a full report over the chosen time period and if you scroll down to the bottom of the report you will see your Equity Curve and associated trading statistics or Stats as we call them.  The key stat to look at is your Profit Factor, this must be greater than 1 if you are going to be able to build your account equity balance and preferably better than 1.5 or even 2.

Top Trading Tip:  When you take a trade in MT4 then take a screenshot of your setup and save it for future reference or sharing at the time of the trade.  Just select 'File/Save As Picture/Active Chart (as is) and give it an easily understandable title such as 'GBPUSD 1hr Regular Bearish Divergence - 11 Jan 2011' and save it in a logical folder such as ‘Past Trades’.  You can then go back and refer to them and compare them to how things worked out and learn from your mistakes.  They are also a great way to get feedback from your peers or Trading Mentor allowing you to show when and why you took a certain trade.

The Answer Is In The Price Or What Is Price Action?

The other day in the Live Room a new student asked the question ‘What is Price Action?’

My answer was along the following lines:

To ascertain whether price is trending, reversing or moving sideways we need to look at current and previous price action on whichever is our chosen time frame.  We need to look at the fractal highs and fractal lows (i.e. the zig zags) taking place as the market moves in waves when moving up, down or sideways.

If price is making successive Higher Highs and Higher Lows then we can say that the market is trending up, similarly if we can see that there are Lower Highs and Lower Lows then the market is trending down and if they are of equal Highs and equal Lows, or thereabouts, then the market is probably consolidating and moving sideways.  If you are at a point where it is difficult to decide either way then the market may be at a turning point.  To make it clearer to you can draw a trend line joining the highs and another connecting the lows.  This also may show whether price is in a channel, an expanding (megaphone like) pattern or a reducing (wedge or triangle like) pattern.  More on patterns at a future date.

So when planning our trades and before pulling the trigger we need to be as sure as we can be of the likely market direction in our chosen time frame and by looking at what price is and has been doing is a useful method of deciding this.  Of course this doesn’t mean you shouldn’t look at time frames above and below your chosen one to ascertain the context of your planned trade, remember the Top Down/Bottom Up approach mentioned in my previous Blog entry.

Top Trading Tip: When planning your trades ask yourself ‘Where is price now, what is price really doing and do I want to get involved?’ and do the same on all time frames.

Happy and Safe trading

Copyright Forex-Crazy.com 2011.  All Rights Reserved.

Top Down & Bottom Up

Last week I went over the importance of Support & Resistance (Demand & Supply Order Flow).  This week I want to build on that and introduce Top Down / Bottom Up.

To become a proficient Forex Trader it is essential to be able to plan and takes trades within the context of higher time frames.  One of my biggest breakthroughs whilst learning how to trade Forex was undertaking regular and rigorous Top Down and Bottom Up analysis, so that I fully understood the context of the market I was about to trade in.

Once a week I will scan through each currency pair that I trade and look at the Monthly, Weekly and Daily charts and analyse and note what I see, particularly key Fib Levels/Trend Lines or Support & Resistance levels, then every day I will look at the Daily, 4hr, 1hr and 15 min when planning my trades and will also work from the smallest time frame upwards marking up what I can see.

This means I have a good feel for where a currency pair’s price might go to and where it could turn plus I will highlight any of the set ups that I trade.  It also means I have a feel for the trend on what ever time frame and where any counter trend moves might retrace to.

So I can then trade my chosen strategies on whatever time frame they occur, whether they are trend or counter trend trades, and manage them within the context of that and higher time frames.

Having planned my trade I will even quickly scan through at least the next higher time frame and the next lower time frame to my chosen trade time frame before pulling the trigger, to ensure I haven’t missed anything.

Top Tip:   Use Top Down / Bottom Up chart analysis and understand the context within which to plan your trades and also your expectations of likely price movement.  Before taking any trade look up at least one if not two time frames and down one.

Copyright Forex-Crazy.com 2011.  All Rights Reserved.

So What is Support and What is Resistance?

Horizontal Support & Resistance occur because of Order Flow.  People (and institutions on their or a company’s behalf) place orders into the market where they think price will turn or they want to take profits, get out of a losing trade or at a price where they wish to exchange one currency for another.

Horizontal Support occurs when there are more Buy orders than Sell orders so the Bulls win the day; horizontal Resistance occurs when there are more Sell orders than Buy orders and the Bears win the day.  Support and Resistance on a chart is nothing more than a visual representation in price and time of Buy (Demand) and Sell (Supply) Order Flow which is real people setting and executing Buy and Sell orders.  This creates horizontal Support and Resistance, nothing more and nothing less.

When price moves up and down in waves in the market the swing highs and swing lows create wicks on candles (fractals) where one can draw trend lines, be they Support trend lines or Resistance trend lines.  Trend lines should be drawn connecting these fractal wicks and should not cut through the body of a candle on a chart.  The next thing to understand is that order flow created the wicks on the candles, which created the fractals and thus diagonal trend lines if drawn correctly are also a representation of Supply and Demand Order flow and thus Support and Resistance.

Top Tip: When looking at your charts think about Supply and Demand and Order Flow and where orders are likely to be placed and consider the use of trend lines alongside horizontal Support & Resistance, it might help with your trade planning and when and when not to pull the trigger.

Copyright Forex-Crazy.com 2011.  All Rights Reserved.

Look Left & Stay Safe!

One of the most basic things a trader needs to learn inside out is how to determine and then use Support & Resistance to plan and execute their trades. 

When we want to cross a road safely we look to our left and right and the order we do that depends on what side of the road traffic drives on.  When trying to plan and execute trades we need to know where key levels of support and resistance are to make sure we don’t get run over by the market.  We are trading the Right Hand Edge of the charts and are not 100% sure what price will do next, so before we look right we must always:

LOOK LEFT

on our charts and identify past significant horizontal support and resistance and trend lines in the timeframes which could  impact upon our intended trade.  Once that is done and marked up on our charts then and only then should we look right, and have a more informed view of likely price action and hopefully stay safe when taking our intended trades.

Top Forex Trading Tip: Often past horizontal support and resistance will create small zones where price may react in the future, also where the bodies of candles actually close can be key levels.

Copyright Forex-Crazy.com 2011.  All Rights Reserved.

How to Make Your New Year’s Resolution a Reality!

So Christmas is over and the New Year has started and you’ve made your New Year’s Resolution:

‘I’m going to learn how to trade Forex!’

Then what?  If, like many others, you are psyched up and raring to go but don’t know where and how to make that resolution become a reality, then stick with me and read on:

Firstly you might want to tweak your resolution and add ‘and be consistently profitable’ on to the end of your New Year’s Resolution, because you no doubt are doing this to make money.

Around 95% of people fail in their attempt to become consistently profitable Forex traders for a myriad of reasons, please don’t let that be you.  Also, you will probably need to temper your expectations regarding time scales to achieve your goal as it may take anything from a year to as many as 3 years or so to really make the grade.  One way to fast track your progress is to get yourself a Forex mentor, someone who is a successful Forex trader and also an honest straight talking teacher and mentor, they do exist!  This will cost but it will be money well spent, plus you will get to see what they are trading too.

The key elements to learning how to become a consistently profitable Forex trader are:

• Open a Demo Account.
• Get some lessons, attend a workshop or seminar or enrol in an online course.
• Get a Forex Mentor/Tutor:
• Understand the Basics
• What moves the currency markets?
• Basic Fundamentals and news flow
• Support & Resistance
• Price Action
• Basic Technical Analysis
• Learn Top Down/Bottom Up
• Ask Why, What, When and How and Google everything.
• Prepare for your lessons and ask intelligent questions.
• Get some good Forex trading strategies.
• Practice, practice, practice and learn how to Back Test your Forex trading strategies.
• Learn to trade in the context of the differing timeframes.
• Decide what type of Forex Trader you want to be and what times of the day do you want to trade to suit your lifestyle.
• Learn about and implement the 3Ms (Money Management, Method and Mind).
• Learn about the 5 Ps (Prior Planning Prevents Poor Performance).
• Be Honest with yourself and be Accountable for your Forex trading actions to someone else – get an Accountability Partner.
• Keep a Trading Journal and note your trades and observations as you progress.
• Develop (the) Patience (of a Saint) to wait for your chosen strategies to setup and don’t force trades.
• Demonstrate (the) Discipline (of a Soldier) in executing your chosen strategies to the letter.
• Always, always use a STOP LOSS but you need to know where to place it.
• Learn to love your losses – every Forex trader has losing trades.
• Learn that No Trade is sometimes the best trade.
• Be selective in which trades you take – often less is more!
• Learn to minimise your losses and maximise your gains – this is NOT easy and requires mental fortitude.
• Don’t open a live trading account until you are consistently profitable in a Demo account over a period of at least 6 months if not a year.
• When you do open a Live Forex trading account start off with a Micro-Account, because when you blow it up (as most do) you should be able to reseed it with minimal pain and also make sure it is sufficiently capitalized.
• Learning how to trade Forex is more of a marathon than a sprint so pace yourself.
• There is no substitute for experience in this game especially as the Forex market conditions can change quickly, so learn as much as you can from your Forex Mentor.
• Experience can also be gained from others – so don’t trade alone, try and find a group of like minded people to trade alongside with this can help you be more disciplined and you will learn from them too, we offer a Live Trading & Education Room and Skype thread where you can do just that 24/7.
• WARNING:
• When you start don’t set you sights too high – be realistic.
• There is NO one Golden Button/Indicator/Robot or one perfect method to make millions in Forex.  You have to build up a tool kit.
• 99% of all indicators are lagging – Price action is key!
• Trading Forex live is often different to that described in text books and is an art rather than a science and requires judgement on a case by case basis.
• Forex Trading can be addictive so be aware of that and remember that there are other things in life besides Forex.
• Don’t stare at your screen all day – learn how to set Alerts and then go and do other stuff whilst waiting for trades to setup.
• No one can really afford to lose money, so any money used to trade Forex should be Risk Capital in addition to your savings etc.

If, after reading the above, you are still interested in learning how to trade Forex then we might be able to help you realise that New Year’s Resolution at Forex-Crazy & FxTribe.  

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Forex-Crazy & FxTribe wishes everyone a prosperous and Happy New Year!

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Copyright Forex-Crazy.com & FxTribe.com 2011.  All Rights Reserved.

To Spreadbet or Not To Spreadbet Forex? - That is the Question!

Hi Traders,

Often I am asked whether it is better to trade Forex using a Spread Betting Account or a traditional Forex Broker Account and my answer is always - that depends upon several factors and they are:

• If you are not yet a consistently profitable Forex trader then stick to a Forex Broker micro-account/mini-account.  This allows you to trade smaller lot sizes and stay trading for longer and costs less to re-seed your account should you have to, whilst you are learning to trade Forex profitably.

• If you are a consistently profitable and you are making sufficient money in the Tax year to have to declare your profits to the UK Tax Man (HMRC) - i.e. are you liable for Capital Gains Tax, then you may like to consider trading in a Spread Betting Account, the profits of which are currently tax free.  Everyone has a Capital Gains Tax Allowance of £10,100.  So currently you would need to be making more than £10,100 and then the additional figure would be taxable at 18%, for 2009/10 tax year.  (These figure may change after Weds 24 March 10 - Budget Day)

• The next issue to consider is whether you have sufficient funds to place in a Spread Betting Account.  Most people open a Spread Betting Account with insufficient funds and then proceed to lose it all.  To stay in the game you must be able to withstand a run of losing trades and also apply Fractional Money Management to your trades, so that you are not risking more than 1% of your account on any one trade.

• Spread Betting Accounts often have restrictions on the smallest position size you can take, so you need to make sure you are able to operate your fractional money management and not risk more than your allotted account percentage on any one trade by having sufficient money in your account.

• However, if you are sufficiently capitalised, consistently profitable, making more than the current UK Capital Gains Threshold and also a UK taxpayer then it may be advantageous to trade Forex using a Spread Betting Account.

• One useful aspect of Spread Betting is that you can then trade Forex Quarterly contracts (like a Futures Contract), this is useful for longer term position trading and cuts out the daily swap or spread at daily rollover.   You can also set up your accounts to automatically rollover these types of contract at each quarter end, if you so wish.

The next question I am then asked is who would you recommend for a Spread Betting Account?  I have two Spread Betting providers that I favour they are:

• IG Index - minimum spread bet size is £0.50 a point
• Capital Spreads - minimum spread bet size is £1 a point

Both have user friendly platforms and good customer support.

IG Index also offers their Trade Sense beginners course and introductory period with minimum spread size of £0.10 for weeks 1 - 2, then £0.20 for weeks 3 -4 and then £0.50 for weeks 5 - 6, once you opened an account with them.

Capital Spreads also offers free seminars to help the novice Spread Better, through to Trading Strategies and Advanced Trading.

You will still need to plan and keep tabs of your trades in your chosen charting platform such as MT4 which tend to have better analysis tools than Spread Betting Account providers, but it is fairly simple to have both applications open at the same time to set up your trades.


A Top Forex Trading Tip is to make sure you have the selected Spread Betting Account Dealing Desk Telephone Number written down somewhere accessible and also programmed into your phone so that you can mange your trades should you have a laptop or PC crash on you.

I hope that helps to answer those questions.

Great trading

Martin

www.forex-crazy.com