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2009-07-23T22:20:00.000-07:00

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2008-08-08T04:41:00.000-07:00

How to take a loss

There are quite a few books written on how to make money in the market. Some of them are even written by people who have made money as traders! What you don't see often, however, are books or articles written on how to lose money. “Cut your losers and let your winners run” is commonsensical advice, but how do you determine when a position is a loser? Interestingly, most traders I have seen don't formulate an answer to this question when they put on a position. They focus on the entry, but then don't have a clear sense of exit—especially if that exit is going to put them into the red.

One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser. At some level, many traders equate losing with being a loser. This frustrates them, depresses them, makes them anxious—in short, it interferes with their future decision-making, because their P & L is a blank check written against their self-esteem. Once a trader is self-focused and not market focused, distortions in decision-making are inevitable.

A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermore 's approach to buying stock. He would sell a quantity and see how the stock responded. Then he would do that again and again, testing the underlying demand for the issue. When his sales could not push the market down, then he would move aggressively to the buy side and make his money.

What I loved about this methodology is that Livermore's losses were part of a grander plan. He wasn't just losing money; he was paying for information. If my maximum position size is ten contracts in the ES and I buy the highs of a range with a one-lot, expecting a breakout, I am testing the waters. While I am not potentially moving the market in the way that Livermore might have, I still have begun a test of my breakout hypothesis. I then watch carefully. How are the other averages behaving at the top ends of their range? How is the market absorbing the activity of sellers? Like any good scientist, I am gathering data to determine whether or not my hypothesis is supported.

Suppose the breakout does not materialize and the initial move above the range falls back into the range on some increased selling pressure. I take the loss on my one-lot, but then what happens from there?

The unsuccessful trader will respond with frustration: “Why do I always get caught buying the highs? I can't believe “they” ran the market against me! This market is impossible to trade.” Because of that frustration—and the associated self-focus—the unsuccessful trader does not take any information away from that trade.

In the Livermore mode, however, the successful trader will see the losing one-lot as part of a greater plan. Had the market broken nicely to the upside, he would have scaled into the long trade and likely made money. If the one-lot was a loser, he paid for the information that this is, at the very least, a range-bound market, and he might try to find a spot to reverse and go short in order to capitalize on a return to the bottom end of that range.

Look at it this way: If you put on a high probability trade and the trade fails to make you money, you have just paid for an important piece of information: The market is not behaving as it normally, historically does. If a robust piece of economic news that normally sends the dollar screaming higher fails to budge the currency and thwarts your purchase, you have just acquired a useful bit of information: There is an underlying lack of demand for dollars. That information might hold far more profit potential than the money lost in the initial trade.

I recently received a copy of an article from Futures Magazine on the retired trader Everett Klipp, who was dubbed the “Babe Ruth of the CBOT”. Klipp distinguished himself not only by his fifty-year track record of trading success on the floor, but also by his mentorship of over 100 traders. Speaking of his system of short-term trading, Klipp observed, “You have to love to lose money and hate to make money to be successful…It's against human nature what I teach and practice. You have to overcome your humanness.”

Klipp's system was quick to take profits (hence the idea of hating to make money), but even quicker to take losses (loving to lose money). Instead of viewing losses as a threat, Klipp treated them as an essential part of trading. Taking a small loss reinforces a trader's sense of discipline and control, he believed. Losses are not failures.

So here's a question I propose to all those who enter a high-probability trade: “What will tell me that my trade is wrong, and how could I use that information to subsequently profit?” If you're trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later.

Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and writes occasional feature articles on market psychology for a variety of publications. The author of The Psychology of Trading (Wiley; January, 2003), Dr. Steenbarger has published over 50 peer-reviewed articles and book chapters on short-term approaches to behavioral change. His new, co-edited book The Art and Science of Brief Therapy is a core curricular text in psychiatry training programs. Many of Dr. Steenbarger's articles and trading strategies are archived on his website, www.brettsteenbarger.com

source: fxpalace.com

Trending Everyone?? Hmmm I Wonder.....

2008-08-08T04:31:00.000-07:00

Is the trend predictable? Well, in theory, no, it isnt, it's just pure gambling. But in the wild things are a little bit different.

1. Lets suppose you flip a coin 3 times. You might get 3 tails on a row, or 3 heads on a row, according to probability laws it is possible and it can happen very ofter. But if you flip a coin 100 times, there is a VERY (and i mean VERY) small chance of getting 100 tails of 100 heads in a row. You'll most likely get around 50 tails and 50 heads. So, there is no way to predict this, it's pure luck. I have made a computer simulation of this, 1 for tail, 0 for head, numbers are being randomly generated. Here is the result:

001110001111101010001100110011111010010100100000101
011110001010100111001010000001001000000111101010

2. Lets now flip a coin 300 times. The result looks like this:

111000000000001000010011010010000100111010101111101
100110011011001001010000101101110000000000100010100
111111111111010011010001011001001111100010100010111
1101001011000000101000110100011011000100011010000100
1101110010100111110011101110110010111100100110001110
0000010110101010111111000111110000111000110

Please note that at the beginning we have a row of 11 zeros (heads). After the first 3 flips, one might say: "Enough heads, it's time for me to bet on tail". But no..head comes up again. After 5 or 6 consecutive losses one might say: "6 loses in a row? The next one must definitely be a tail". But he/she looses again, because the coin does not have memory, each event (flip) is independent. Pure chaos, we know that on a long term we have around 50% chances of getting a head or a tail, but on a short term, no one can predict the result. Thats exactly my point. Consider this while reading this tutorial further.

Here is another situation: we have 100 people, each one of them have a ball. The ball must be thrown in a basket daily. When the ball is thrown in the basket, we write down the time. We do this, every day, 10 days in a row. After 10 days, we gather and analyze the results. The examiner might notice that most of the balls were thrown in the basket around, lets say 13.00 PM. So we might say that the next day, most of the balls will be thrown around same hour. This is an example of a predictible event. The conclusion is that everything that depends on humain behaviour CAN sometimes be predicted.

Lets go back to our trend:

1. Do not apply technical analisys to a small timeframe, because no one can predict the trend on a small timeframe, things are quite chaotic there (the volatility is random). Pivot points, resistance and support levels, chart patterns are useless there. We can improve our odds on small timeframes, but wel'll see how on another tutorial.

2. Pay attention to support and resistance points, but also to price momentum (wait for the price momentum to change, do not suppose it will happen, because sometimes price can break the support/ resistance levels).

3. Choose a pair and stick to it, watch its timeframes, write down hign and low daily points and the time when that happened, so one can predict the values for the next day. Watch carefully the support/resistance levels, see if the limits are being broken, how, what conditions, etc. Some pairs are more predictable than others.

4. Use as many indicators as you can for a timerame

5. In our first example we saw that results can be predicted on a longer timeframe, but not on a smaller one. Use weekly support/resistance levels in order to get more accurate results.

source: fxpalace.com

2008-08-03T19:47:00.000-07:00

Online FOREX Trading - To Be A Success Don't Pay Attention To The News!

Can studying the news help you make profits in online FOREX trading? The answer for most traders is a no.

In fact, paying attention to the news in online FOREX Trading will lose money. Why? Read on and let’s find out.

How and why prices move

In online FOREX trading (and any financial market for that matter) prices move based upon the following equation

Supply & demand fundamentals + Trader psychology = Market price

Which is most important? In today’s markets definitely the latter – Why?

Quite simply, markets discount fundamentals quickly and with the internet its done in seconds.

In all corners of the globe the internet delivers information quickly and it’s immediately discounted in the market price.

This means traders make opinions on what will happen in the FUTURE and it is their psychology that is the key to future price direction.

Sure, the papers and news wires are great at telling you why things DID happened and their normally wrong about WHAT will happen.

Traders get deluded by the experts in online FOREX trading and fail to see their wrong most of the time.

Will Rogers once said:

“I only believe what I read in the papers”

Now, he was joking, but most traders take news services as gospel.

Reuters and Bloomberg stories agree with them, so they must be right, is the view of most online FOREX traders. Don’t think so, in fact we know so, based upon the facts and the so called experts past performance.

It’s easy to be wise in hindsight, but looking into the future is much more difficult!

They write stories for a living they DONT trade, traders that are interested in making profits should not be following news stories or media hype.

It’s a fact: Most important market tops and bottoms and formed when the news is most bullish or bearish. When the trends change of course, news wires have an explanation but that does not help you trade!

In the 1987 crash they were bullish in the tech stock boom they were bullish and these are just tow examples of media experts being wrong and there are many others.

Understand the past and look to the future

This is the key to successful online FOREX trading. Quite simply the fundamentals are digested in seconds and reflected in the price.

Its trader psychology that’s important as they look at the future and how they determine the supply and demand situation is reflected in price changes.

Human psychology has remained constant over time and thats why many price patterns are so reliable and point to important market tops and bottoms when the market is either very bullish or bearish.

Of course, prices then go the other way! confounding the so called media experts.

Technical analysis of markets

The only way you can win in online FOREX Trading is to use a technical analysis system that focuses on price.

Why use a technical system in online FOREX trading?

There are two main reasons

1. You will not be distracted by media stories and news hype and will keep your emotions in check.

2. If you are involved in online FOREX trading you can look at charts and see long term trends that last for months or years and many of them (in fact most of them!) run against what the papers and the so called experts say!

To be a success in online FOREX trading all you need to do is focus on these trends and forget the news and media, media experts don’t get paid to trade, they get paid to write stories.

Focus on the reality of the price, not the media hype and you can make big profits in online Forex trading.

MORE FREE INFO

On finance including investments and becoming a succesful trader succesful trading visit our website for articles features and downloads at:http://www.net-planet.org/index.html

Article Source: http://EzineArticles.com/?expert=Sacha_Tarkovsky

source2 : fxpalace.com

2008-05-13T03:28:00.000-07:00

Risk Management:
How to avoid losing your shirt while trading forex.

Ask not for whom the margin calls.

Have you ever seen things like these on a website or in a review?
"I followed those trading signals, and my account dropped 70% in 3 days."
"I tried this method and got margin called in less than a week."

Let me put this simply. It doesn't matter if some trading method, trading room, signals service, or anything else has a perfect reviews and a 5 year history showing that it never had a single losing trade. It doesn't matter if it's endorsed by Felix, Crazy Cat, Sir Pipsalot, me, and the heads of the IMF, ECB, and the US Treasury. Not matter what "proof" is offered, no matter how well endorsed it is, no matter what the guarantee is, DO NOT EVER RISK TOO MUCH OF YOUR ACCOUNT ON ANY ONE TRADE.

No human, no computer, no "perfect" signals or other trading method can be right 100% of the time. It's possible to backtest and optimize something so that it's "perfect" with old data, but the forex market is an unpredictable beast. Good systems and signals can be right much of the time, but NOTHING will ever be right 100% of the time if you let it run long enough.

Risk Management is the concept of having a plan that sets a maximum amount of risk that you will place on any one trade. How much risk is "too much" risk is the subject of much debate. I've seen numbers ranging from 1/2% to 5%. Some of this will depend on the forward tested success rate of your system, and some will depend on what you consider to be an acceptable level of risk.

"But if I don't risk much, I can't make much." is a common complaint against risk management. To some extent, this is true. On the other hand, if you have nothing in your forex account to trade with, you won't make any money at all. If you risk too much and there's a big gap in price (or your broker gives you too much slippage), you can not only lose all the money in your account, but you can possibly even end up OWING money to your broker.

Let's say you have $10,000 in your account. Then you decide to risk $5000 for the chance to make $5000 (a 1:1 ratio). If the trade goes your way, you have $15,000. That's great, but what if it goes the other way? Then you only have $5000. Now, you need to double your $5000 to get back to where you started. If you risk half your account again and the "99% accurate" system fails you again, then you only have $2500 left. Now you would have to quadruple your account to get back to where you started. Fail one more trade like this and you have only $1250 left. You would have to have more than 5 perfect trades gaining 50% each time to get back to where you started. After 3 losses in a row wiping out over 85% of your account, would you really want to trust this trading method to work 5 or 6 times in a row now?

Let's say you feel like using the highest end of typical risk management recommendations and risk 5% of your $10,000 account on each trade. Once again, we'll use a 1:1 ratio just to keep the math simple. This means you'll risk $500 on the first trade while hoping to make $500. If the first trade goes bad, you have $9500 left. You would have to lose many trades in a row to lose half of your account, and far more to go all the way down to $1250. It is true that you won't be able to make money as fast, but what good is making huge sums of cash if you can lose most or all of your hard earned profits from a single bad trade.

I would NEVER risk more than 1/2 percent of my account per trade on something I hadn't personally forward tested on a live account for an extended period. If I have confidence in a system that I have tested live over time, I slowly and carefully scale up the size of each trade. I’m not going to say exactly what my personal maximum risk is, since I want you to select your own, not just copy what I do.

If you want to try something new, first try it with a demo account, but remember that demo accounts get filled quicker and have little or no slippage. A real account is much more likely to have slippage and requotes, thus cutting into potential profits. If demo testing looks good, then move it to your live account and trade the smallest amounts possible, just to see how the trading works with your broker.

The Daily Trading Signals here at the FPA are a good example of how different demo and live accounts can be. It's not that hard to catch a news spike (or to straddle the price with pending orders) on a demo account. With a live account, even the best broker won't fill every order perfectly if you try to catch the news spike. Some brokers even go so far as to prohibit news trading. This means that if you make a profit trying to catch a news spike, they will confiscate it. Somehow, they never will give you a refund if you lose money on a news trade. Since I'm primarily a technical trader, this isn't a problem for me. If you really want to try to catch news spikes, Felix strongly recommends MB Trading. I haven’t tried them out for news trading, so I can’t give a personal opinion on this.

If you are using forex signals or some other system and you have successfully traded it for long enough to be comfortable with it, ask the signals (or other product’s) support staff what the maximum risk they recommend is. They should be more familiar with the product than anyone else. Just remember to start small on any new system and never to exceed your own personal maximum risk per trade no matter what anyone else says.

Although a historic record of pip gains for a signals service, trading room, or trading method is a good thing to consider, the actual results you get will always be a little different. See where I've been reporting the results of my tests of Intelli4x's signals. At the moment due to pure dumb luck, I've actually been doing a little better in total pips on the trades I’ve taken than the "official" record for the signals I've taken from them. Sometimes I've entered a little better, sometimes I've missed a close signal and something went on and hit the take profit number. If my schedule had been a little different, this could just as easily gone the other way and cut into the results.

Setting your risk is easy with most brokers. You just need to set a stoploss on each trade. Remember that xxxUSD pairs are worth $10 per pip for a full lot, $1 per pip for a minilot, 10 cents per pip for a microlot, and 1 cent per pip for a nanolots. For other pairs, it's a very good idea to check a pip value calculator. If you wanted to take a maximum risk of $100 on a trade, then you can only set the stoploss to a mere 10 pips if you plan to trade a full lot of a xxxUSD pair. On the other hand, you can trade 5 minilots and with a 20 pip stoploss or 1 minilot and use a 100 pip stoploss. Usually, the stoploss is determined by your trading method and then you need calculate the maximum lot size of the trade that you can risk. If the smallest amount your broker will let you trade would exceed your maximum risk, skip the trade (or find a broker that lets you trade smaller amounts).

Remember, some brokers are better at closing your order exactly where you set the stoploss. Others frequently have very bad slippage and will fill your order at a price that is worse for you. If your broker does this too often, reduce your total risk per trade to compensate for the potential slippage loss and look for a better broker.

If you plan to leave an order open after the New York trading session ends on Friday afternoon, be aware that there might be a gap in price when the Tokyo market opens (Sunday evening in New York). If price gaps across your stoploss, you could lose a lot more than you planned. Alternatively, some brokers won't observe the stoploss under these circumstances and the price could continue to move against you even more. Until you have a solid understanding of market dynamics, your broker’s methods, and understand all of the risks involved, you might want to close all positions on Friday before the market shuts down for the weekend and then re-open them when the market opens on Sunday.

My personal advice for ANY trading method you are considering would be to start with a combination of backtesting as well as forward testing on a demo account. Don't base your decision to go live on 1 or 2 trades. Remember, coin tosses are accurate 1/2 the time, and getting heads or tails 3 or even 4 times in a row isn't that hard to do. Once you have enough data to feel confident, trade TINY amounts of money live to make sure that the method can work under real world market conditions with your broker. If it's still profitable, scale up at a reasonable pace, but NEVER exceed the maximum amount of risk per trade that you set for yourself. Even the best system in the world will still have an occasional losing streak.

Always remember this. You can't make your fortune if you lose most of your account on a few bad trades. To get rich trading forex, you must first learn not to go broke.

I can't promise that following this advice will absolutely save you from losing all of your money, but at least you'll lose it slowly enough that you'll have a chance to improve your trading technique before blowing your account.

from FPA forumers for education purposes

2008-03-16T20:55:00.000-07:00

Fed Discount Rate Cut Statement

The Fed has cut the Discount rate by 25 bps in an emergency market to primarily "Reduce the spread between Fed Funds rate and Discount rate".

The Fed is still likely to cut the headline Fed funds rate by 75 bps on Tuesday, its scheduled meeting.

The Statement along with Discount rate cut has been given below. It has been taken from http://www.federalreserve.gov/newsev.../20080316a.htm

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

Second, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective immediately. This step lowers the spread of the primary credit rate over the Federal Open Market Committee’s target federal funds rate to 1/4 percentage point. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.

The Board also approved the financing arrangement announced by JPMorgan Chase & Co. and The Bear Stearns Companies Inc.

Trade Wise, Trade Well!
__________________

Vikrant Goyal
Kshitij Consultancy Services Analyst
Forex Factory Analyst

erm.. put anything

2008-02-11T20:53:00.001-08:00

Fibonacci theory a mental game challenge?

2008-02-05T23:39:00.000-08:00

Leonardo of Pisa was an Italian mathematician who lived between 1170 – 1250, also known as Fibonacci. In his Book of Calculation (Liber Abaci) he presented a modern number sequence named after him known as the Fibonacci numbers. The Fibonacci numbers looks like this:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc

a number being the sum of the preceding two numbers. The Fibonacci sequence can also be found in nature,in leaf buds, spiral seeds, sunflowers, scales on pineapples, petals on artichokes, daisy petals, fruits, pears, pine cones, pine needles, and many more natural objects. The sequence is also found in musical theory, there are 13 notes in an octave with 8 white keys, 13 follows right after 8 in the sequence.

If we divide one number in the series by the number that follows it, we will find out that each number is 1.618 times greater than the preceding number. For example:

5/8 = 0.625
8/13 = 0.615
21/34 = 0.617
55/89 = 0.6179

The Fibonacci key points used for trading are being calculated as follows:

First ratio: 8/13 = 0.6153 - 61.8% ratio

Second ratio: to obtain it we divide one number by the number found two places after it.
8/21 = 0.380 - 38.2% ratio

The third ratio: we divide one number by the number found three places after it.
8/34 = 0.2352 - 23.6% ratio

For unknown reasons, these numbers represents the support and resistance points, as you can see from the above chart:

There is no logic behind this market behaviour, as there is no logic behind the appearance of the sequence in natural patterns, but most of the times is happents, thats why traders are using the Fibonacci indicator. I have found one logical explanation though. Like any other prophecy, we make it happen by trading according to its prediction. For example if the trend reaches one of fibonacci retracement point, everyone will sell/buy thus making the prophecy happen.
Fibonacci is being also used for identifying Elliot waves, because most of the time the waves are formed around fibonacci retracement point.

2007-12-19T08:49:00.000-08:00

Bush Signs Landmark Energy Bill Into Law

12/19/2007 11:30:45 AM President Bush signed into law on Wednesday legislation that will set higher fuel economy standards for cars and light trucks and phase out the use of incandescent light bulbs.

The legislation is “a major step toward reducing our dependence on oil, confronting global climate change, expanding the production of renewable fuels and giving future generations of our country a nation that is stronger, cleaner and more secure,” Bush at a ceremony at the Department of Energy in Washington.

The bill was roundly passed by the House on Tuesday by a vote of 314 to 100. It marks the first time fuel economy standards have been updated by law since 1975, and will require vehicles to average 35 miles per gallon by 2020. In addition, the annual production of renewable fuels will be upped fivefold to 36 billion gallons by 2022.

According to the Renewable Fuels Association, an organization that lobbies for distillers of alternative fuels like ethanol, by 2022 36-billion-gallon annual production will represent a sixth of overall fuel consumption.

“At that level of consumption, 36 billion gallons of renewable fuels will effectively drive us through the months of January and February,” the group said in a statement. “No oil 'til March.”

The legislation, known as the Energy Independence and Security Act, was hailed by Bush as an important step in curing the United States' “addiction to oil,” an issue he gave large attention to in his 2007 State of the Union.

Incandescent light bulbs will likely be eliminated within the next 10 years, according to measures in the legislation. The law also requires reduced energy use by several appliances, including dishwashers, washing machines, and walk-in coolers and freezers.

The bill has been praised by House Speaker Nancy Pelosi (D-CA) as groundbreaking.

“You are present at a moment of change, of real change,” she said before Tuesday's House vote.

However, critics counter that it will increase automobile costs and potentially compromise safety. Also, the efficiency of ethanol has been questioned recently, and has the potential to raise prices of corn and grain. The bill has also been criticized by some Democrats and environmental groups as too watered down. Bush had threatened to veto a bill that would have required utilities to utilize renewable sources like wind and solar energy for power and would have been funded by higher taxes on oil companies.

Wanna be a FOREX Trader?

2007-09-10T19:57:00.001-07:00

Forex Articles!

Do you like to read articles? Online Forex market nowaday had came out few Forex Articles web-site. I has place it at my sidebar. Below here is the best recommended forex articles for you to read.

1. Forex Subject .com - Welcome! Forex Subject presents the tools for those who wish to provide or collect articles about the forex (currency exchange) market. If you want to submit forex articles or collect them for your projects, Forex Subject is the best place to accomplish your goal. Any time possible, please let us know how we can improve Forex Subject to better serve your needs. We will appreciate that very much.

2. FX academy - Your guide to understand forex. Teach yourself forex trading now! It will be the most important step towards your financial freedom. One of the secrets to successful trading is " millionaire traders are ordinary people like you".The only difference is they have taken time to learn and understand how forex works. Placing profitable trades and making money with forex is easy once you learn and develop the required skills.
FXacademy has forex tutorials aimed at explaining the forex market concepts to beginners.It is a simple guide meant to explain concepts of forex using easy to understand tutorials. Tutorials range from basic to advanced and caters for beginners and experienced traders

3. Go Learn Forex - Do you know 7 out of 10 traders keep losing money in Forex market; while the rest of the 30% work freely at home and earn millions annually?
Wonder what differs between the losing 70% and the winning 30%? Forex trading skills and the trading system! If you want to work less than 20 hours a day at home, if you want to make millions by trading freely at home, if you want to have financial freedom by trading Forex; you better LEARN Forex trading before you start trading Forex. Forex market is definitely not a game for newbie and you need to brush up your skills before getting your hands wet.

4. Trade Forex 2000 - Welcome to TradeForex2000 Forex Article Directory - There are now 459 Forex Articles in our Directory from 77 Authors.

5. Forex Yellow Pages - The world largest Forex directories.

6. IpLine - Forex Articles site. Must visit!

7. Forex Fresh - Fresh insight into forex trading. Another must visit!

8. Forex Article Directories - Your one-stop source for free Forex related articles. Do you need content to add to your web site? Or articles for use on your opt-in newsletters and e-zines? Forex Article Directory is the #1 source for quality articles specific to the subject of Forex. Simply register today for free membership, then click on the appropriate category to read the articles. As a member can use as many of the articles as you wish as content for your website or ezine, free of charge.

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Tsunami

2007-09-05T21:51:00.000-07:00

The Tsunami, I call it the Tsunami, you’ll get the reason later on. First of all, I want to talk about the money changers, what they do is – they land you money, when Interest Rates are very low and they create an environment for you to lend money, because it’s easy money, easy to pay back, it’s normally when the economy of the country is really having a good time, and everybody is buying new cars, and new houses, and go on holidays and things like that. Then, at the certain stage there is too much money floating around, so now they’ve got to do something to stop that, people are lending are all over the place. And things don’t balance any more, the one side gets heavier than the other side and then they decide to raise the Interest Rates. Then they start collecting from you. And if your budget was not very nice, you either have to give back your car, or give back your house. And that’s what they do. They create a playing field, where they lend out money, but the reasons for them is to make money.

I want to show something, that I’ll do by illustration, by explaining how I see this. Now, who are the money changers? I call the “the big ones” “the big guys”. I haven’t met one of them yet, I don’t know who they are, fund managers, governments, banks, I don’t know. But somehow, at certain stages they create a sort of environment; I call it “the playing field” in the Forex market. At this specific point you’ll remember, if you go back saying in a year, two or three from now, or even ten years from now, and you take the exact date, today, and you’ll take three weeks back, you’ll see the past three week have been difficult. If you look at the Euro, if you look at the British pound, you’ll see there are a lot of ups and down. That’s “playing field”, there is a lot of emotion going on, there’s a lot of movement going on, but it goes nowhere.

Now, it’s like sitting on a beach, you see people running all over, I can not run after every one, that come run past me. Because he might just play with a ball, it might be just someone running past, so if I get up and run after everyone I am gonna be tired by the end of the day. So, what do I do? I can sit there and I can put on my dark glasses, put on my suntan lotion, and forget about everything. But by doing that the Tsunami might hit me, and I won’t even know that. So, what do I really look for? I look for an unease or a pattern of movement that’s not a part of a playing on the beach. You’ll start to realize, well, people are not playing anymore now, there are some people running toward the gates, so there is something going on. You don’t know what yet, so what do you do? There are basically three things that you can do. You can totally ignore it, as I said put on your sun glasses, and be hit by tsunami. Or, what most of us do, we get up and we appoint a commissioner, of commission, couple of people that must go and find out, why are those people running. And you get yourself deep in to the fundamentals, and you start reading here, and you start reading there, and by the time you figure out: “Oh, it’s a Tsunami”, and you got hit by it. Then it’s too late. That’s a second part.

But, there’s a third part as well, you can run with the people running. And why you running with them, you can ask: “Why are we running?” And you’ll get an answer, if they can’t answer you, at least, you have a choice to decide, I’ll stay with it until it stops, and that is what market is doing. When it runs, you’ve got to be in it. Sometimes you know it’s news, sometimes you know it’s this and that, but sometimes you don’t, as long as you are there. But now comes the main part, you must desern, I’m using the word desern, because desern - is a separation. First of all, you’ve got to recognize, when it’s playing time, like we had now these last three weeks. It was playing time and then, the next step is you’ve got to desern, when the informed are leaving the playground. When those money changers, when they start moving. You’ve got to desern it, it’s a separation, technically, you’ve got to see the emotions on the faces if you are on the beach, they serious. And then you must desern when the playing is about to end. You know it’s gonna end, but you don’t know when. And then I‘ve got this last on B1 of the followers, of the informed. There are people that are informed in this whole playing scenario. And you’ve got to know the motion of the market in terms of its movement, because price is moved by people, by decisions of people. And their decisions make the market run, and why is it running – you don’t know yet, but you have recognized, that playing time, the playing field – is about over. The end is about there, but you don’t know exactly when. And that is what MACD system sort of tells you. Gives you an early indication when playing time is over. And when it runs you’ve got to be on board. That’s very important. And then when it runs it’s got a certain emotion, you just happen to be in that flow, you run with it, because if they want to take you out, they must take themselves out, but they not gonna do that, so you’ve got to be in that flow all the time. And that’s what I’m gonna teach you as well later on. Is to know the market rhythm, and to know when the market is moving, in a certain patter, in a certain rhythm, to stay with it as long as possible. So, remember to desern when the move is on.

Source: (Phillip Nell)Profesional MACD Guru.

Moving Average Conversion Diversion Review

2007-09-01T09:07:00.000-07:00

Saturday, September 01, 2007

Trading The MACD Divergence

Moving average convergence divergence (MACD), invented in 1979 by Gerald Appel, is one of the most popular technical indicators in trading. MACD is appreciated by traders the world over for its simplicity and flexibility because it can be used either as a trend or momentum indicator.

Trading divergence is a popular way to use MACD histogram (which we explain below), but, unfortunately, the divergence trade is not very accurate - it fails more than it succeeds. To explore what may be a more logical method of trading MACD divergence, we look at using the MACD histogram for both trade-entry and trade-exit signals (instead of only entry), and how currency traders are uniquely positioned to take advantage of such a strategy.

MACD: An Overview
The concept behind MACD is fairly straightforward. Essentially it calculates the difference between an instrument's 26-day and 12-day exponential moving average (EMA). Of the two moving averages that make up MACD, the 12-day EMA is obviously the faster and the 26-day is the slower. In the calculation of their value, both moving averages use the closing prices of whatever period is measured. On the MACD chart, a 9-day EMA of MACD itself is plotted as well, and it acts as a trigger for buy and sell decisions. MACD generates a bullish signal when it moves above its own 9-day EMA, and it sends a sell sign when it moves below its 9-day EMA.

The MACD histogram is an elegant visual representation of the difference between MACD and its 9-day EMA. The histogram is positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA. If prices are rising, the histogram grows larger as the speed of the price movement accelerates and contracts as price movement decelerates. The same principle works in reverse as prices are falling. See Figure 1 for a good example of a MACD histogram in action.

Figure 1 - The above is an example of MACD histogram. Note that as price action (top part of the screen) accelerates to the downside, the MACD histogram (in the lower part of the screen) makes new lows and vice versa as prices turn.

As it responds to the speed of price movement, the MACD histogram is the main reason why so many traders rely on this indicator to measure momentum. Indeed, most traders use the MACD indicator more frequently to gauge the strength of the price move than to determine the direction of a trend.

Trading Divergence
As we mentioned earlier, trading divergence is a classic way in which the MACD histogram is used. One of the most common set-ups is to find chart points at which price makes a new swing high or a new swing low but the MACD histogram does not, indicating a divergence between price and momentum. Figure 2 illustrates a typical divergence trade.

Figure 2 - Here is a typical (negative) divergence trade using a MACD histogram. At the right-hand circle on the price chart, the price movements make a new swing high, but at the corresponding circled point on the MACD histogram, the MACD histogram is unable to exceed its previous high of 0.3307. (The histogram reached this high at the point indicated by the lower left-hand circle.) The divergence is a signal that the price is about to reverse at the new high, and as such, it is a signal for the trader to enter into a short position.

Unfortunately, the divergence trade is not very accurate - it fails more times than it succeeds. Prices frequently have several final bursts up or down that trigger stops and force traders out of position just before the move actually makes a sustained turn and the trade becomes profitable. Figure 3 demonstrates a typical divergence fakeout, which has frustrated scores of traders over the years.

Figure 3 - A typical divergence fakeout. Strong divergence is illustrated by the right circle (at the bottom of the chart) by the vertical line, but traders who set their stops at swing highs would have been taken out of the trade before it turned in their direction.

One of the reasons that traders often lose with this set up is they enter a trade on a signal from the MACD indicator but exit it based on the move in price. Since the MACD histogram is a derivative of price and is not price itself, this approach is in effect the trading version of mixing apples and oranges.

Using the MACD Histogram for Both Entry and Exit
To resolve the inconsistency between entry and exit, a trader can use the MACD histogram for both trade-entry and trade-exit signals. To do so, the trader trading the negative divergence takes a partial short position at the initial point of divergence, but instead of setting the stop at the nearest swing high based on price, s/he instead stops out the trade only if the high of the MACD histogram exceeds its previous swing high, indicating that momentum is actually accelerating and the trader is truly wrong on the trade. If, on the other hand, the MACD histogram does not generate a new swing high, the trader then adds to his or her initial position, continually achieving a higher average price for his or her short.

Currency traders are uniquely positioned to take advantage of this strategy because with this strategy, the larger the position, the larger potential gains once the price reverses - and in FX, you can implement this strategy with any size of position and not have to worry about influencing price. (Traders can execute transactions as large as 100,000 units or as little as 1,000 units for the same typical spread of three to five points in the major pairs.)

In effect, this strategy requires the trader to average up as prices temporarily move against him or her. This, however, is typically not considered a good strategy. Many trading books have derisively dubbed such a technique as "adding to your losers". However, in this case the trader has a logical reason for doing so - the MACD histogram has shown divergence, which indicates that momentum is waning and price may soon turn. In effect, the trader is trying to call the bluff between the seeming strength of immediate price action and MACD readings that hint at weakness ahead. Still, a well-prepared trader using the advantages of fixed costs in FX, by properly averaging up the trade, can withstand the temporary drawdowns until price turns in his or her favor. Figure 4 illustrates this strategy in action.

Figure 4 - The chart indicates where price makes successive highs but the MACD histogram does not - foreshadowing the decline that eventually comes. By averaging up his or her short, the trader eventually earns a handsome profit as we see the price making a sustained reversal after the final point of divergence.

Conclusion
Like life, trading is rarely black and white. Some rules that traders agree on blindly, such as never adding to a loser, can be successfully broken to achieve extraordinary profits. However, a logical, methodical approach for violating these important money management rules needs to be established before attempting to capture gains. In the case of the MACD histogram, trading the indicator instead of the price offers a new way to trade an old idea - divergence. Applying this method to the FX market, which allows effortless scaling up of positions, makes this idea even more intriguing to day traders and position traders alike.

By Boris Schlossberg, Senior Currency Strategist, FXCM

** This article and more are available at Investopedia.com - Your Source for Investing Education **

Words Of Wisdom

2007-09-01T09:01:00.000-07:00

Jacko's Words of Wisdom

Why do I trade Forex?

Because I am ABSOLUTELY CONVINCED that this is the best "business" in the world.

There are:

● no rent of offices (that is, NO dealing with Realtors, Lawyers, and government

departments...man, what a pain in the ass). Also no office fit-out costs

● no staff, (man, unless you have had large numbers of staff depending on YOU for their

paypacket each week, you cannot know what a huge pain in the ass it is. They ALL want you to

solve their problems)

● No inventory or stock to buy. No shrinkage (theft of stock) and no "slow moving" items. No

massive amount of funds tied up in inventory

● You can "borrow" as much as you want (by increasing your leverage), WHENEVER you want.

(Try running a big business and going to the bank for a short term loan for $10 mill...it will take

a month minimum). I am trading $10-12 mill all the time and I get it instantly through the

brokers by the use of leverage.

● If the business becomes a hassle for whatever reason, you can shut it down (that is, close all

positions) instantly...and re-open (initiate new positions) whenever YOU want to re-open your

"business."

● You can "scale" your business to whatever size YOU want simply by increasing/decreasing

your positions.

● Absolutely minimal paperwork. Simply send your 12 month summary Profit and Loss

Statement to your Financial Accountant for tax payment purposes.

● You can trade from anywhere in the world. My wife and I travel most of the year. (take your

laptop or PDA or whatever else they will come up with and trade while sipping a nice drink as

close by as your local cafe or as far as some open air cafe in some remote little town in beautiful

Italy while you watch a bocce match at the park.)

I could keep telling you more of the benefits of this business, but suffice to say...this is the best

"business" in the world. I run a multi-multimillion dollar business from my laptop.

And did I mention that it was exciting and fun????

source: mr.jacko. profesional trader