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Have you ever wondered how (your) emotions influence (your) trading? The trader’s emotional stability is just one aspect. In his interview with George Papazov

Trading Strategies

All You Wanted To Know About A ‘Pullback’ In Trading

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One of the most familiar ways for trading the financial market is to use the outback strategy. That really means to jump into the market which has been established as a trend and then goes against it. The concept is that you wait for the price to “pull back” during a movement for a better entry price. When the market is going higher, and you think that it will be exactly the same for a long time for the lowest price possible. This pullback trading will guide you to find such opportunities.  A pullback is a moderate drop in commodities and stock for a pricing chart with recent peaks of continuing uptrend. A pullback is like a retracement​ or consolidation because of the same terms. The term pullback is usually applied to somewhat short pricing drops – for example, a few consecutive sessions – before the uptrend resumes.

KEY TAKEAWAYS

  • A pullback is a temporary setback in the price action of an asset or security.
  • The duration of a pullback is only a few successive sessions, and a longer delay before the uptrend resumes is generally referred to as an alliance. 
  • Pullbacks can offer an entry point for traders looking to join a position when other technical indicators remain bullish.

 

What Does a Pullback Tell You?

Pullbacks are seen as buying opportunities after a share has undergone a significant upward price movement. For example, a stock may substantially increase- following a favorable earnings announcement and then face a pullback as an investor with existing positions takes the profit off the table. Yet, the fair earnings are a primary signal that says the stock will restart its uptrend.

Most pullbacks affect a share’s price moving to a place of technical support, such as a moving average, before resuming their uptrend. Traders should observe these key support areas since a breakdown could signal a reversal rather than a pullback.

 

 What Are The Famous Strategies Of Pullback Trading

 

Knowing how to trade pullbacks can be a great mastery as an investor. Pullbacks take place at every time, and if you know how to trade pullbacks. You can improve your stock and find many more high-probability trading scenarios. Pullbacks come in many different forms. Here we will explain the five most famous pullback trading strategies:

 

Pullback 1: Breakout pullback

 This is one of the common types of strategies that every trader has experienced once in a lifetime. Breakout pullbacks generally take place when a market turns into price and breaks out of the consolidation pattern. The most popular consolidation patterns are wedges, Head and Shoulders, rectangles, or triangles.

Always take precautions that moving a stop loss to break even is hazardous and unprofitable. The reason behind this is that pullback breakout happens more oftenly. The price entry is triple top after an extended uptrend. The triple top has a defined lower support level. Many traders operate such levels to make their breakout entries. But where they face the problem is – When they move their stop loss to break even too soon. And when the breakout pullback happens, they will get kicked out of their trade.  It is such a common pullback scenario that you will start noticing it all the time.

 

Pullback 2: Horizontal steps

You can observe this during many trending phases across all monetary markets. It is the natural price pattern and shows the flow of market conduct. During ongoing trending stages, the price will often present those stepping designs. This pullback approach is an excellent multiplication to the earlier explained breakout pullback. The breakout pullback occurs very near to market turning points. But if a trader skips the initial entry chance, the horizontal phases can allow the trader to find an alternative entry as the trade progresses. Furthermore, a trader could also use the stepping pattern to pull the stop loss behind the trend safer. In this circumstance, the trader waits until the price has completed a step and then pulls the stop-loss after the last pullback area. The stop loss is then covered and not as weak.

 

Pullback 3: Trendline

Trendlines are another well-known pullback tool. The flaw is that trendlines often take longer to be validated. You can always connect two random facts, but you look at a trendline only when you get the third. Therefore, the trendline pullback is traded at the third, fourth, or fifth contact point. Trendlines and other pullback methods can work well as a standalone, but the trader may miss many chances because the trendline validation takes a long time.

 

Pullback 4: Moving Average

Moving averages are among the most favorite tools in technical analysis, and they are used in many ways. And you can use them for pullback trading as well. You could use a 20, 50, or 100-period moving average. It doesn’t matter, and it comes down to whether you are a short-term or long-term trader. Shorter-term traders generally use shorter moving averages to get signals quicker. Of course, shorter moving averages are also more vulnerable to noise and wrong signals. On the other hand, Longer-term moving averages move slower, are less susceptible to noise, and may miss trading opportunities in the short term. You have to calculate the pros and cons of your trading.

 

Pullback 5: Fibonacci

Fibonacci pullbacks can be merged with moving averages very effectively. When a Fibonacci retracement drops into the same place with a moving average, those can be high probability pullback areas. As you have seen, there are different methods to approach pullbacks, and you can even merge the various tools to come up with even stronger signals. Which one is your favorite, and what are your experiences with pullbacks? 

 

How Do You Buy A Pullback?

Pullbacks are seen as buying opportunities after security has experienced a significant upward price movement. Although there are many methods to approach pullback trading, we will discuss the two main concepts of pullback trading. These principles are applied to all other pullback scenarios in this essay.

The forceful trader waits for the price back to the pullback place and enters a trade straight away here. There are some points you need to think about when choosing such a course:

  • You may enter for the most acceptable price as this point can often mark the end of the correction wave and the pullback step.
  • The possible reward/risk ratio is highest practicing this approach because the stop loss is placed tightly.
  • The disadvantage is that you enter a trade against the price direction, and the price could go fast against you much further.
  • Such an approach, thus, can have a lower win rate. The higher/reward risk ratio may cancel it, though.

The conservative trader waits until the price drops. The conventional entry happens right when the price drops. With this approach, the trader goes with the momentum. The traditional access occurs later, and, therefore, the potential reward/risk ratio is also smaller.

There is no right or wrong. It comes down to the particular preferences of the trader. Notice that the price would have come back into the pullback area again in this example. It shows how common pullbacks are, because they highlight the natural price wave structure in any financial mark.

 

How To Use Pullback Strategy 

 

Failing trades with pullback plays tend to arise for one of three reasons:

  1. You miscalculate the counter trend wave’s scope and join too early.
  2. You enter at the ideal price, but the counter trend keeps going, smashing the logical calculation that puts off your entry signals.
  3. The bounce gets underway but then aborts, crossing through the entry price because your risk management plan failed.

The last case is the easiest to manage. Place a trailing stop behind your position as soon as it moves in your favor and adjust it as the profit increases.  The stop required when you first enter the place is directly related to the price desired for entry. As you earn experience, you will notice that many pullbacks reveal logical entries at several levels. The longer you wait and the more in-depth it goes without breaking the technical. It is easier to stop just a few ticks or cents behind a significant cross-verification level. You will miss perfect reversals with a deep entry strategy at intermediate levels, but it will also produce immense profits and the most negligible losses.

 

Give An Example Of How To Use A Pullback

 

The first step to pullback trading is recognizing a trend and then trading in its direction. If you’re trading in the daily routine, then you must have to trend on the daily time routine. For example, a business may report blow-out earnings and see stakes jump upto 20%, and the stake may face a pullback the next day as short-term traders seal in profits. However, the strong earnings report indicates that the stock’s business is doing something good. Buy and hold traders and investors will be attracted to the stock by the healthy earnings reports, supporting a sustained uptrend in the near term.

Joy wanted to enter in the trading, but he calculated the price share is high, and it may not go higher than this but could go down in price. So, Joy waited for the share price to go down and bought shares at the determined price. In a pullback strategy, traders don’t chase the price. They wait for the order to come to the market and then go in their favor.


Advantage: you will have a better Risk to Reward on that profile.
Disadvantages: Sometimes, the market doesn’t want to pull back and go in a straight line. But that all is part of the market.

 

The Difference Between A Pullback And A Reversal Trading

 

A pullback is temporary within the cycle, whereas reversals are changes in the process itself. A typical mistake that traders make is to pick the highest and the lowest shares, and they miss most of the general moves. We know staying with the trend can deliver the best possible output, but how to make it happen?

 

Data-driven analysis can help you achieve this. There is a narrow line between “pullback” & “reversal.” A pullback is temporary within the cycle, whereas reversals are changes of the cycle itself. So, if we can successfully differentiate between pullback and reversal, we can help our trades.

 

Reversal

A reversal is when the price trend of an asset changes direction. It means that the price can continue in that reversal direction for an extended period. These directional shifts can happen to the downside after an upward trend, or upward after a downside trend. There is a large shift in price. Yet, there may be pullbacks where the price reclaim the previous direction. It is impossible to tell instantly if a temporary price revision is a pullback or the continuation of the reversal. The change can be an instant shift or take days, weeks, or even years to arise.

 

Pullback

A pullback is a shift within a trend that doesn’t reverse the trend. Therefore, an uptrend reversal doesn’t appear until the price drops on the time frame the trader is watching. Reversals always start as potential pullbacks. The pullback is a short-term action opposite the longer-term trend, offering an opportunity to join an uptrend at a favorable price. A pullback says that the overall market trend has temporarily paused.

 

The Final Thoughts

 

If you are new, use pullback strategies that benefit you. Study and forecast future opportunities by calculating pullbacks. Observe how often pullback is occurring and make plans accordingly. Yet there will be some risk even after you have studied enough, so create a backup plan and combine two or more strategies to avoid losses.

Also, Gain Some Knowledge About,  Why Do Traders Use Fibonacci.

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Trading Strategies

Great Mechanical Trading Systems that Aid Success (Mechanical Trading Strategies)

by admin
written by admin

Every trader in the present time has asked for great mechanical systems to get a successful trade. Some people earn $250000 with trade while some get $15000 per year. We are not aware of how much money we want and how much to trade for.  Some traders take 100% risk while trading, while some stop at 40% risk. The real matter with trading is what you are dealing with and what you are willing to win from the trade. And the trading discipline you follow.  Most of the traders do not follow a discipline while trading. They don’t plan a proper routine for following and holding the trade. Many traders get confused with the time required for trading. You do not need to give much time, just a few hours of watching the spreadsheet on your phone, computer, or television screen is enough. 

The mechanical trading system, as the name suggests, depends on rules. These rules are set when there are technical indicators for buying or selling.  Mechanical trading systems are one of the best and most profitable forex strategy trading systems as they involve very little discretion.  The best example to understand mechanical trading is that it is similar to moving average crossover. Here you do not need to wait for a particular point of the moving average but simply wait for the trigger of bullish or bearish patterns for crossover buying or selling. The trader here needs to oversee the trade so that you can code the algorithm of trade.  Mechanical trading is a comprehensive concept with multiple trading strategies. Consider an example of dollar-cost averaging to describe your mechanical investment. Here the mechanical trade strategies are always accompanied by technical strategies. Here 70-day, 150-day can be considered triggers for selling and buying or selling of assets. Other signals considered for mechanical trade indicators are Relative strength investment and moving average convergence divergence. 

Here are some things to remember for aiding success in the mechanical trading system: 

  • Overconfidence

Avoid being overconfident about the fact that you have the ability to act on information at the correct time and placing extreme faith in your information. An overconfident trader at a high frequency usually fails at diversifying their portfolio. 

  • Regret 

Every trader faces harsh times in trade, where the trader passes on the trade or stays on the trade for a long time and has seen failure coming. It’s advised to avoid regrets as it restricts the trader from making potential decisions. 

  • Limited Perspective

Humans stay under limited perspective when it comes to choosing in between so many stocks. Traders usually have access to those situations where they can accumulate much knowledge. These traders chose good decisions rather than choosing effective choices. 

  • Trend chasing

When traders tend to direct patterns and uncover the meaning, then the market becomes more erratic, which is why traders usually fall for trend-chasing. 

How Mechanical Investing Works?

 

Mechanical trading investments are mainly traded signals that a trader uses to make a trade. They are called mechanical traders as they make trades regardless of what is happening in the market.  The concept of mechanical investment eliminates all the emotions and biases, as a trader needs to follow a system no matter what. The mechanism of mechanical investment is supposed to make several pips every day without fail. To understand the working of mechanical trading, let’s consider an example of Apple.Inc, consider a thick line at the 200-day moving average and a thin line at the 50-day moving average. A mechanical trading system here would buy bullish crossover and book profit over certain price moves or exit the trade after some time.

  Here what makes the mechanical system govern the rule is buying and selling of stocks.  At the very beginning, shorter moving averages cross below the longer moving averages. It is also known as the death signal, and the market here is bearish. Hence short positions are considered. Later in the day, the 200-day covers the 50-day, which is known as the golden cross. Long trading positions are initiated at these levels. The above example is considered mechanical as there is no discretion involved, and rules are set straight to the point.   There are several automated trades with mechanical nature. They involve a few complex algorithms on trading systems, and they can also be discretionary.   Mechanical trading systems are also developed from a fundamental basis and macro-economic factors. 

 

What are the rules of Mechanical Trading?

 

Your mechanical trading system should be the way you like, and it can be primary or advanced. Here are some general rules for developing mechanical trading:

  • Timeframe 

It is essential to choose a time frame for your system. Basically, there are seven-time frames while trading, 1minute, 5minute, 10minute, 15minute, 30 minute, and 60 minutes daily. It is recommended to stick to a single time frame rather than choosing them all. It’s a golden rule for trading. The shorter the time frame lower is the average profit per trade. It also lowers the risk with a significant number of profits. It’s upon the trader to choose the timeframe that suits them the most.

  • Defining entry rules

There are thousands and millions of entry points to rustle up your trade. These rules fall under two categories: following trend rules or reversal rules. 

Trend rules try to capitalize on an established trend in the market. They are based on the moving average and directional movement strategies. The logic with trend rules is that a potential trend starts when moving averages are fast moving towards the slow-moving averages from the bottom. 

Reversal rules, on the contrary, try to identify changes in the direction of the market and capitalize them. A simple rule here is that the assets can be oversold or bought for trend reversal when the long-run hits 25 RSI and the short-run hits 75 RSI. 

  • Defining exit rules

When you are already in the trade, you need to define the rules to get out of the trade. There are two rules to look after while exiting a trade, a stop-loss rule to protect the capital and a limited profit rule from releasing profit. There are five things you need to set when it comes to defining the exit rules. First of all, limit the amount of trade, then determine the percentage of capital. You are later defining the percentage of current money and volatility with respect to time. While combining these details, you can also manage your stop loss at 3% of the capital invested. You can close the trade after two days of opening the trade. 

  • Backtesting 

Now when you have defined all the rules for trading, you should backtest it over the previous data to check if there is anything good. The results from backtesting indicate system profitability over time. 

 

Mention Various types of Mechanical Trading Systems

 

Mechanical trading systems are defined in three types depending upon the time horizons. These are the day trading time frame, swing trading time frame, and long-term position timeframe.

  1. Mechanical Day trading system: The day trading system can automatically hold the positions from as short as a few minutes and long as the end of the trading session, and this could be a few hours or more. Day trading systems are pervasive in the market futures within the market indexes such as S&P 500, NASDAQ 100, and DOW30. When selecting the market’s viability, it’s essential to have deep knowledge about the market. The optimal of the day will offer a high level of trade in the market, and they have sufficient viability to make intraday swing trades in the market. Additionally, these prices enable you to overcome frictions associated with smaller trading time frames. 
  2. Mechanical swing trading system: Swing trading has different meanings for different traders. Swing trading defines the time frame that holds the trade for short positions, maybe a few weeks or a few days. They provide an average win amount for transactions as compared to day trading systems. While holding the trade for long, we can make high profits by keeping the transaction cost low. Several traders switch to swing trading without initiating too many additional adjustments. 
  3. Mechanical trend following system: These strategies are considered best when traded in high frequency. They are built on weekly data with other time frames. The trader can hold the position for shorter as well as more extended time frames. These trends are efficient in energy, metal, financial and agricultural fields. 

 

 Advantages of an Automated Trading System

 

There is a huge list of advantages from automated trading systems. A few of them are listed below:

  • Minimizes emotions

Automated trading minimizes the emotions throughout the trade. It helps the trader keep feeling in check and makes it easier to stick to the plan. The trade orders here are executed automatically once the trade rules have been met and the traders do not feel hesitant with the trade. It also helps the traders to pull triggers with apt buying and selling opportunities. 

  • Backtesting 

Backtesting trading rules are applied in the trade to determine the viability of the idea. When designing an automated trading system, you need a set of rules with no interpretation. The computer does not make guesses, and they just do what they are told to. Traders here can make a precise set of rules, and backtesting is done earlier and use previous data before risking the live trade. Careful backtesting allows the trader to evaluate a fine trading idea. 

  • Preserves discipline

As the trading rules and execution are established automatically, discipline is preserved even in volatile markets. These disciplines are often lost due to emotional factors. But automatic trade ensures maintenance of the field, and the trading plan is followed perfectly. One of the biggest challenges with trade is planning and following the trade. Even a potential trader can lose his trade if they are distracted from their set of trading rules. We cannot say a trading plan wins 100% of profit after all losses are part of every trader. Automated trading allows achieving consistency in the trade. 

  • Diversifies trade

Automated trading allows the trader to make multiple trades at a time. A computer can quickly scan all the opportunities across the market for operating and monitoring transactions. They have the potential of creating protection against losing trades. However, it is none less than a challenge for the traders to execute the trade as efficiently as implemented by the computer. 

 

What Are The Goals of Your Mechanical Trading system?

 

Traders in Mechanical trading systems goal to make money in millions. There are two most important goals a trader aims for with mechanical trading:

  1. You must be able to define trade trends as early as possible
  2. You must be capable of avoiding whipsaw

If you have both these goals accomplished, you have a high chance of making a successful trade. You might find it hard to contradict both of these goals. If you aim to achieve these goals early, you are a high chance of getting faked out. On the contrary, if you do not focus on whipsawing both of these goals, you might have a late trade.  It’s all upon the trader to make a balance between both of these trades and distinguish between the fake ones.  

 

The Final Thought

 

Mechanical trading is used to examine the trading strategy. They provide solutions for analyzing your trading systems by giving a detailed report.  They are beneficial in time-saving and analyzing the trading system on your own. At last, the rules and strategies of mechanical trading as per their requirements.  One of the essential things to remember is not to focus mainly on gains but also on maximizing the risk exposure in the market. Another important factor to consider is understanding what assets and timezones you are using during your trade.  Mechanical trading is much desired now. But they also have several disadvantages that every trader needs to be aware of. Traders must create a balance between the advantages and disadvantages concerning their style of trading.  Several forex traders post their views, tips, and tricks on mechanical trading; using them while making rules will make your trade easy. 

 

Also, Read Some Amazing Information About Everything You Need To Know About Social Trading Platforms.

 

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Trading Strategies

Everything You Need to Know About Forex And Formulating a Profitable Strategy (Profitable Forex Strategy)

by admin
written by admin

The Forex (foreign exchange) market is a global, decentralized market and comprises banks, commercial companies, central banks, hedge funds, investment management firms, and retail investors and brokers. It is the largest financial market in the world. The basic facility of Forex is to trade currencies in order to, hopefully, make a profit; these transactions are made by traders, who speculate on the strength of a particular set of currencies. Thinking about a profitable Forex strategy is the first step to start trading.

 

How to Get Started with a Successful Trading Strategy

 

If you’re new to Forex trading, then making a trading strategy before you begin is a great idea. To start, consider the investment you have available, your timeframe, the current state of the market, and, crucially, how your personality may affect the type of strategy likely to work best for you.  Many trading beginners use a demo trading platform to allow them to experience and hone their skills before investing in the ‘live’ market.

 

 

It’s important to also consider position sizing, risk management, and how to exit a trade. The four trading styles below have remained consistently popular choices so maybe worth thinking about in terms of identifying the best forex strategy for consistent profits that best suits you.

 

 

Scalping

 

Scalping moves are very short-term trades – sometimes held for mere minutes. This is a fairly advanced style that can be used to quickly generate small profits; it can be stressful and requires significant self-discipline. Scalpers will often need to spend many hours at their screens while being ready to act quickly. This type of strategy requires market volatility to work effectively, and traders will seek out things like overlapping markets or sudden breaking news events and then move swiftly to make multiple small but profitable trades. A profitable Forex scalping strategy involves reacting at the moment the market shows any sign of shifting.

 

Day Trading

 

Day trading is the style that most beginners use. It’s a way of ensuring that live trades aren’t affected by any major market fluctuations overnight. Day traders exit their trades before the day’s end, with these trades often only lasting for a few hours.

Traders will need to be able to analyze the market effectively in order to be in the best position to make profitable moves; day trading strategies tend to be concerned with regularly occurring, small price movements. When choosing a broker for day trading, ensure they can achieve excellent trade execution speed and are able to trade directly from graphs.

 

Swing Trading

 

Swing trading is all about short-term price patterns and their potential profitability. Trading positions are normally held for a few days, with a trader checking bars about every half hour to an hour. Many traders use technical analysis to interrogate trends, and moving averages to determine the best positions to enter and exit trades.

Swing traders are advised to use a daily chart for at least 3-6 months to help analyze the market and check the direction of any present trends.

 

Positional Trading

 

This style of trading is concerned with generating profit from significant shifts in price and is usually a long-term position. Traders using this style need to have a broad and in-depth knowledge of the markets and how they operate and require a lot of patience. Positional trading usually necessitates checking end-of-day charts, and traders will usually focus on specific sectors in order to benefit from longer-term trends.

For the best chance of success using a positional trading style, it is key to consider long-term market trends, have a specialism in one or more financial markets, and to set up a trailing stop loss to protect any profit generated.

Once you’ve decided on the style of trading, the level of risk you wish to take, and the time you want to allocate to trading, it’s time to consider trading strategies. Some of the most popular are listed below:

 

Daily Chart Strategy

 

This strategy is made up of three key elements: trend location (identifying long drawn out moves in the market); staying disciplined, in order to keep your capital back for the larger opportunities; and using larger stops and less leverage.

 

1 Hour Trading Strategy

 

The currency pairs likely to provide the best potential for profit in this strategy are EUR/USD, USD/JPYGBP/USD and AUD/USD. In terms of buying, traders can enter a long position when the MACD histogram goes beyond the zero line. For selling, short-term positions can be entered when the histogram drops below the zero lines. Traders using this strategy only need to check the market every hour, making this an ideal choice for those unable to watch the Forex for significant periods of daily.

 

 

Weekly Trading Strategy

 

Traders often favor this strategy as it provides somewhat more stability and flexibility. When employing this strategy, it’s common for traders to use price action trading patterns, such as haramis and hammers. This is a great strategy to deploy for traders who have only limited time to dedicate to monitoring the markets: checking positions once daily is usually sufficient.

 

Trend Following Strategies

 

There are various trend-following strategies that you may wish to use, such as the Donchian Trade System. The basics of this system are to consider buying if the market value goes above its prior 20 days high, and selling if the price drops below the prior 20 day low.

 

5 Reasons That Traders Lose Money

 

Sadly, the majority of traders lose money on the Forex and end up throwing in the towel – around 80-90% of traders aren’t successful. However, by bearing in mind the following 5 things, you can drastically boost your chances of bucking this trend.

 

Overly Aggressive Trading

Beginners often make the mistake of trading too aggressively or trading against trends in an attempt to ‘beat the market,’ and this is often catastrophic, especially if the trader is starting out with only a small amount of capital. In order to resist this temptation, traders just starting out should make it their priority to keep the value of their initial investment rather than gaining on it – this latter goal should come second. Aggressive trading always means exposure to larger, more frequent risks, and this should be avoided until traders have built up a solid market knowledge.

 

 

Too Little Start-Up Capital

It’s tempting to start trading with very little initial capital – especially if you are trading to try to make a fast profit or to resolve debt issues. However, to mitigate risk and have the best chance of making a profit on your investment, $1000 is considered to be the smallest viable start-up capital to have at your disposal. This also guards against the emotional reactions (and subsequent mistakes) that having a very low initial investment can precipitate.

 

 

Not Accounting for Risk

Risk management is absolutely vital to successfully trade on the Forex. Protecting your investment should always be your first priority, and keeping this in mind will help you to manage risk and make better risk management decisions.

Types of risks that are frequently encountered on the Forex include:

 

 

Currency risk -associated with the propensity of currencies to fluctuate

Interest rate risk – this risk is linked to market volatility and concerns sudden jumps or dips in currency interest rates

Liquidity risk – This is the possibility of incurring a loss due to the inability to buy or sell an asset quickly enough

Leverage risk – associated with margins and sustaining greater capital losses than anticipated

Stop-loss orders are a good way to help manage risk, as well as using sensible lot sizes. Remembering to exit a trade if something feels off will help, too.

 

 

Resisting Greed

By aiming for a reasonable profit, rather than trying to aggressively get every last pip from a trade, you are more likely to make better buying and selling decisions, such as holding out for too long on a trade. Try to remember that new opportunities will regularly present themselves.

 

 

Indecisiveness

It can be very tempting, especially for new traders, to switch positions back and forth as the market swings – or to switch as a result of anticipating a change. Frequent switching can lead to an increased risk to your start-up investment – it’s best, in this case, to choose a course and stick with it.

 

Does the Timeframe of Trades Matter When Looking for Consistently Profitable Strategies in Forex?

 

The most successful Forex traders know the right time to buy and sell, and, crucially, when it’s the right time to take a risk.

The principle Forex timeframes are long term, medium term, and short term. Some traders will use all three in their overall strategy, while others might use one long-term and one shorter-term time frame to weigh up potential trades.

Long-term moves tend to fall under the positional trading style and have a trend time frame of weekly, and a trigger time frame of daily. Medium-term positions are geared towards a swing trader strategy, with daily and 4 hourly as their trend and trigger time frames respectively. Short-term positions include day trading and scalping, with buying and selling often taking place within 5 minutes to 4 hourly time frames.

Shorter positions (from about 5 minutes to an hour) will prevent any exposure to overnight shifts and risks, with the opportunity to make quick profits. This might be perfectly suited to your trading style. However, longer charts with some increased risk and the odd incident of staying up all night to watch the market could work better for you. A consistently profitable strategy, therefore, will be the one that suits your circumstances, your personality, and the way you feel comfortable trading.

Scalping, with its short timeframes, could be the best option if you’re looking to make a quick profit. However, scalping must be undertaken with care to avoid the build-up of lots of small losses, and the racking up of commission fees.

Look again at your trading style and the strategy you’ve decided to pursue. Matching your trading strategy to the time frames you plan to trade within is likely to serve you well. For example, a swing trader could make unwise decisions based on trends viewed on a shorter time frame chart (maybe covering the period of a few hours), whereas, for this trading strategy, a longer time frame, such as daily, is more appropriate to judge trends and analyze risk.

Where multiple timeframes are used, traders will analyze a currency pair through the lens of different timeframes to identify both long-term trends and to pinpoint the perfect place to enter a market. 

 

Can a Trader Build a Consistently Profitable Strategy in Forex by Trading With Only Major Currencies?

 

With more than 180 currencies in circulation, plus 1500 different types of cryptocurrencies, there is certainly no shortage of choice when it comes to choosing which pairs of currencies to trade-in as part of your overall strategy.

The most popular currencies usually combine the Euro, the US Dollar, the Japanese Yen, the British Pound, the Australian Dollar, the Canadian Dollar, and the Swiss Franc. While it is very possible for experienced traders to make a profit by analyzing the markets in order to trade in minor and exotic pairs, along with the major currencies, for the beginner, to remain consistently profitable will usually mean sticking to the major currency pairs.

 

 

 

The Euro and US Dollar pair is considered to be extremely liquid and is traded globally. This pair has a tendency to be very volatile and major multiple shifts can happen throughout the course of a day.

The US Dollar and Japanese Yen pair are very difficult to predict: a swing trading style is usually best to use when trading with these currencies.

The British Pound paired with the US Dollar can be difficult to predict due to its sensitivity to the news and to the prevailing political situation. Long-term trading is the best strategy to use with this pair.

The US Dollar and Swiss Franc currency pair is considered to have a good flow, and is not as volatile as some of the other pairs; its comparative predictability makes this the best pair to trade for beginners. Day trading and short-term trading are often the best styles to use with this currency combination.

A minor currency pair is any pair that does not include the US Dollar. These minor pairs are often characterized by high liquidity and short-term volatility; short-term trading is likely to be the safest course of action with these currencies.

Exotic pairs are any currency combination that includes a developing country’s currency. They are significantly more challenging to trade profitably. The flip side of this riskiness is that these pairs can yield significant gains for traders with sufficient Forex knowledge and understanding of the developing country’s political, social, and economic landscape. For that reason, traders resident in one of these countries is usually best placed to use these pairs.

So, to conclude, it is certainly possible to build a consistently profitable strategy using just the major currencies; just as it’s feasible to be profitable in trading minor or exotic pairs – the key is in choosing the trading style and strategy that works for you and consistently applying it. It’s also vital to have a sound grasp on the fundamentals of the market, and on the possible volatilities of the currency pairs, you are considering trading in. Finally, knowing and being confident in managing the risks will play a significant role in a trader’s ability to maintain profitability. All of these factors combined can help determine the success or otherwise of a trader’s strategy, rather than the choice, in and of itself, to trade only in the major currencies.

 

 

Can Carry Trading Be Part of a Consistently Profitable Forex Strategy?

 

In the Forex market, a carry trade is defined as a scenario in which a trader borrows or sells a currency that has a low-interest rate to buy a different currency that has a higher interest rate. The difference in these interest rates is known as the interest rate differential. Effectively, carry trading means borrowing money at a cheap rate from a country that has a low-interest rate, and then investing it in a country’s currency that has a higher interest rate.

In Forex, at the end of a business day, a trader’s position will be closed, and subsequently re-opened the following day, with the overnight interest differential then added to the trader’s account. This is known as ‘rolling over.’

Leverage carry trading can also be a useful Forex strategy – this is attractive as traders don’t require a large investment sum as leverage carry trading allows for trading on a margin: a comparatively much smaller amount.

Risk management needs to be carefully attended to for any trader undertaking carry trading positions, as depreciation or appreciation in the market can drastically affect the profitability of trades. Similarly, carry trading in the currencies of countries with developing or small economies carries the more obvious risk of market fluctuations and volatility. Stop-loss orders can be a helpful instrument to apply to help mitigate some of these risks.

In terms of profitability, the carry trade strategy is the only one that has the potential to give traders a profit on their very first day of trading on the Forex. However, to yield significant profits, carry trading should be considered as part of long-term strategies – for example, if, after a year holding a position, a trader had only achieved break-even, they would still potentially make profit from the interest earned over this time period.

To conclude, as with trading exclusively in only the major currencies, carry trading can absolutely form part of a consistently profitable strategy: but the key is a trader’s ability to read the market to determine the optimum conditions to initiate carry trading positions, their personal trading style, and the capital they have to invest.

 

What’s Next?

 

To get started trading on the Forex market, it’s vital to learn how to trade properly and to understand the terminology and fundamental concepts. You may wish to undertake some training; alternatively, there are a number of in-depth guides available to help steer you through the process.

Next, as discussed above, decide upon your trading strategy. As well as considering which would suit your personality and startup capital, also consider your lifestyle: if you’re only able to keep a close eye on the markets at certain points during the day, then this needs to be factored into your decision, too. Stop loss and price action trading are going to probably be your best bets if this is the case.

 

 

The next stage is deciding upon a broker. A regulated broker may be more expensive but is a much safer choice in terms of keeping your funds safe. Your broker will probably give you access to some form of a demo account, which you should familiarize yourself with – this is perfect training for the real thing. 

Once the broker is in place and you’ve spent some time on the demo account, you are all set to begin trading on the Forex for the first time. It’s important to bear in mind that even the most successful traders will make losses on trades: as you learn the ropes, it is best to limit your exposure to risk in the early days and keep set reserves in place. It’s also a great idea to regularly review your strategy to see how well it’s working for you and to make adjustments as necessary.

Some traders decide to try trading on the Forex for a living. This is certainly achievable, but traders considering taking this step need to be clear that, in the vast majority of cases, making a profit needs to be played as a long game, and many traders sustain regular losses along the way. 

In conclusion, whether you are considering day trading on the Forex now and again, or are thinking about investing significant capital and attempting to earn a living from the market, then the importance of patience, self-discipline, and the facility to learn from mistakes should not be underestimated.

 

Also, Read Some Interesting Information About Best Forex Brokers For Beginners.

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InterviewsStrategiesTrading Strategies

Risk and Emotion Management – Your Key to a Successful Trading Career

by bojan
written by bojan

Have you ever wondered how (your) emotions influence (your) trading? The trader’s emotional stability is just one aspect. In his interview with George Papazov, a full-time professional trader, Trent (drinkforex.com) explores how human psychology and emotion still drive the market in the era of algos, tackling the subject of insider trading as well. George also shares some valuable and concrete advice on how to manage your risk and be on top of your trading career.

In association and permission from drinkforex.com we made transcript of most important parts of great video interview with George Papazov made by drinkforex team.

Day Trading vs. Swing Trading – Two Styles of Trading Options

TRENT HOERR (TH): Can you give a brief rundown of your background in the trading industry?

GEORGE PAPAZOV (GP): Yeah, absolutely.

TH: …And what you do.

GP: Yeah, for sure. I started trading on the, with a friend. We, we founded a proprietary trading company on forex. It was just the two of us so it was our own capital. Uh, I was fairly young at the time and we had a pretty good successful run for a couple of years and, of course, like any partnership, partners eventually end up going their own ways. Um, we got out of that, then I went to school for… to learn how to trade a little bit better. I went into finance thinking “hey, this is gonna be the answer”, while I traded, learned that it’s not gonna teach you anything about trading. From there I went to work for one of the biggest banks in, in Canada, on their trading floor. And I was actually on the desk in 2008 and ’09 when the, when the crash happened and the calls that we took – I’ll never forget ’em – I have mega chills down my spine when I still think of it cause I remember every word; some of the most – how do I say it – dark, um, conversations that I’ve ever had with anyone that I’ve never met before happened in those days. And so I said “You know what? There were signs that this was gonna happen.” And back then I was publishing a blog, kind of calling for this crash, and when it happened I took absolutely no happiness or pride in it and I said “Wow, I, that was one of those times when I was like, I wish I was wrong.” And you know, things went downhill and from there I said “This is my inspiration, I wanna actually help people learn how to do this.” I wanted to let the retail crowd have a level footing with the professionals and learn how to trade successfully. So that’s why my catalyst is 2012 – I started the company and since then I’ve essentially just been running TRADEPRO and trading and teaching others how to accomplish success at the markets.

TH: You mentioned you’re a day trader. What exactly is a day trader for those that don’t know?

GP: Yeah, for sure. So it’s the time span… When you, when you kind of refer to yourself as a day trader it’s a time span that you hold a position. So the way you could see it is: if you buy a position, if you start with cash, get into a trade and get out, end up in cash, you’re considered to be a day trader. You might hold for a few minutes, a few hours, up to a day but usually at the end of the day you’re out in cash. So my positions are based on momentum through a chart on the one day: I’ll get in and then I’ll get out. So I’ll start with cash and at the end of the day I’ll end with cash and I’ll sleep easy.

TH: Ha ha ha!

GP: Swing trader is a more longer term, right, it’s a couple of days and um I, I was a swing trader before. It’s interesting, my bread and butter were swing trading options and then I recently got into futures – couple of years now, when I say “recently”. I’ve been doing it, I’ve been at this game for a long time but recently with futures I’ve become more of a day trader just because that’s how those markets are. It’s hard to hold swing trade positions with, um, with all this volatility, right?

Emotions and Psychology – Two Things That Really Drive the Market

TH: Emotion – can you go into a little bit about that? Because it’s not as if you’re, you know, you’re trading in the pit someplace where you can see the person emotionally getting upset and physically getting upset. You’re, you’re seeing bids and offers and trading in the market, like, what, what is emotion to you?

GP: Right. And that’s a, that’s a really solid point that you bring up, it’s… When, when you’re looking at a chart you see all these numbers flow through and when you’re looking at it as a trader you don’t realize that what you’re actually looking at is psychology. You’re looking at an auction market: there is, there’s bids, there’s offers, and if you’re going on – OK, I’ll give you an example – if you’re on Kijiji looking to buy something and you show up…

TH: If you’re on, sorry, if you’re on what?

GP: On, um, Kijiji. So let’s say you wanna buy…

TH: What is that, what is that?

GP: Oh yeah, um, the website, the, the buy and sell website for…

TH: Is this a Canadian thing?

GP: Is it? Oh, um…

TH: How do you spell it?

GP: K-I-J-I-J-I.ca. I’m not affiliated with them, I’m not a… Maybe it is a Canadian… Or craigslist, it’s a quality craigslist.

TH: OK, yeah, I know craigslist.

GP: Yeah, yeah, so you show up on let’s say on a craigslist ad you wanna buy a PS form from somebody and what you don’t realize is you’re in a market right there, it’s an emotional transaction. You show up and you have, let’s say, 300 bucks, and you say: “I’m gonna try and see if I can buy this thing for 280.” And if you go to the guy and say: “You know what, I’ll offer you 280” and he says: “Sold.” – right then and there you’re thinking: “Man, maybe I could’ve offered a little bit lower, he took it too quickly”, right?

TH: Right.

GP: And that, that’s the same process that the market’s going through. So despite just seeing numbers moving up and down, it’s still emotion. You’ve gotta look at levels where traders are feeling pain. And I say this in the chat room a lot, I say: “Where the market usually goes, where it’ll cause the most amount of pain and financial loss for the most amount of people.” And you can start to see that on the charts. I’ll give you an example: if the trend’s going up a little bit and there’s a lot of buying and you look at it on the order flow, that’s a key, um, key dynamic that we follow on the order flow stuff. You see it’s at a, at a high, there’s a lot of buying, there’s a lot of volume going through but it’s not going anywhere, all you’ve got now is a bunch of buyers with a bunch of sell stops below. So there’s a good chance, when everyone’s bought, it’s gonna go down because who else is left to push it higher, right?

TH: Right.

GP: So we’re just, we’re basically all day analyzing emotion. There is a lot of emotion in the chart, it’s just how you read it and the perspective you bring to it.

Coping with Insider Trading and Spoofing

TH: Do you think a lot of insider trading goes on at that level? Like, what are your, what are your thoughts on that?

GP: I mean, I don’t think it’s human psychology that if you preview some kind of information that can benefit you and your well-being, you’re, you’re probably gonna take advantage of it, um, you know, but I, unfortunately I think there is, it does go on and there’s, there’s no real way to stop it as long as there’s a free flow of information and there’s, there’s a way to benefit from it and I think that people will, right? If you were able to make a couple million bucks, you’re in that position, it’d be a tough decision to say no to that, um, I do think it happens, it’s, it’s unfortunate but…

TH: It doesn’t, it doesn’t happen though like futures or options, right? Or is it possible there? Or just equities? Cause I can see on like the equities’ side, with company information, if you know a company’s gonna go out of business, you might as well start shorting that company now.

GP: Exactly, yeah.

TH: Is it possible, like, you know, I guess, oil, do you… I guess you could get the oil number quicker than somebody else and be able to short it, but do you think insider trading is more prevalent and – I guess is my question – on the equities’ side versus futures?

GP: Um, probably more on the equities’ side because when, when you’re a company, it’s a single company, the management knows a lot more of the business and the future direction of the company, whereas oil, no matter who you are and how high of a position you’re on, you don’t really know much more than others, right? It’s a bigger market than the one company.

TH: Yeah.

GP: Um, but I will tell you this: I think insider trading is actually great because – it’s not great but, I mean, spot it – what I’m saying is, it’s a tradable opportunity. No matter what they try to do, they can’t hide volume. If you’re moving real size, and you’re looking at the right things, you can see it. I have a, on my, um, interactive brokers, I’ve got a plug-in that identifies large orders so I’ll know right away. If you see a bunch of call options shared at a certain price, they’ll all alert me so you can say: “Hey, there’s a whole bunch of volume that came out of nowhere.” And another…

TH: Is it… So it’s, it’s actual trading, not just bids and offers going in the market?

GP: Yeah, exactly, it’s, it’s traded, it’s transactive volume. So if there’s more volume on the, on a certain option price than there is open interest, it will start to trigger the alarm. And I’ve got some settings to, to identify those opportunities, but, um, they can’t hide. If they take an insider position, you can see it. And another two I can actually maybe share is insidercow.com  I believe is the website…

TH: insidercow.com?

GP: Yeah.

TH: Okay.

GP: Don’t worry, you don’t have to do a Control + Shift + P or Control + Shift + N, it’s a completely legitimate website. It’s basically any insider that does a trade or transaction, they have to file that, um, and you can see that, it becomes public information. So that’s not real insider trading but it’s useful to know if Tim Cook from Apple’s dumping a whole bunch of shares. You could see that. You’d know exactly when and what price he sold them at.

TH: That is definitely good to know. I used, I used Finviz to look at that, they do all the trader pooling at the bottom too, um…

GP: Yeah, that is a great screener too.

TH: On the… that someone brings up a good conversation, uh, spoofing in the futures market. I know it’s been a hot-button topic the last couple of years, so like, I haven’t been in the futures market since it became outlawed to spoof, but…

GP: Yeah…

TH: It was one of the things that drove me out of the market, was all of a sudden in oil you’d see somebody come in with 200 bid or 200 offer and you’d hit one of ’em and it would just disappear.

GP: Yeah, exactly.

TH: Like, how, how has that – cause you’ve been trading over that duration – how has the regulation of spoofing changed how you trade or like how has it changed the markets in your opinion?

GP: Um, yeah, it’s a, it’s a good point. Since they cleaned it up a little bit, the, the spoofing on the S&P 500 isn’t as bad, it’s not as rampant or blatant, but, I mean, there’s, there’s always high frequency trading. I read a statistic about 55%, 60+ percent’s actually, uh, computer generated volume. And I was reading one of the institutional desk went from 60 traders to just two. So, I know a lot of the volume is going computer generated. I think it was actually Goldman Sachs – they’re down to just two traders on the floor. I just read an article…

TH: The first, I mean the first prop firm I worked at was over a hundred of prop traders and I think they have, like, 10 maybe left.

GP: Yeah, exactly.

TH: So obviously they’re going to group trading or it’s going to automate it, there’s not a lot of discretionary traders out there at the institutional level.

GP: Yeah, it’s tough, right? And, and a lot of that’s a regulation too, the, the Dodd-Frank kicked them out. We’ll see what Trump does with that but if he lifts, and lifts on those regulations or redoes the legislation, it could open it back up, the banks get into prop trading, right? And then it becomes really lucrative again.

Can Algos Beat Psychology and Can Psychology Help with the Inevitable Slumps in Your Trading Career?

GP: … and that’s why I think the business, it’s, it’s not gonna become any easier for us as traders but it’s always gonna be possible to, to be in the market and trade profitably and, believe it or not, a 100% because you can’t ever automate emotion and human psychology, right? And I think that’s what drives the market – it’s not, it’s not technical analysis, it’s not volume, it’s not these indicators that we seek. What really drives the market is psychology. What those indicators do is show us psychology, but they’re not ahead of psychology. Psychology’s what created that pattern, right? Um, I don’t think you can ever change that, so, despite the algos – and I can see them working right now, they’re working these 58 halves on the screen – despite the algos, there’s always going to be a space or spot for us to trade and make some money, so…

TH: That’s, yeah… There’s always going to be discrepancies in the market place, like, that’s, that’s what the, the exchange is – it’s the, you know, to find those discrepancies and find the true value of something.

GP: Exactly.

TH: Um, then actually, you know, it goes, we’re going back to the “Billions”, um, conversation. Would you ever go see a trading psychologist? Like, would you think that it would be beneficial to sit down and, and have a conversation? Cause that’s, that’s a big component of their training is that they sit down whenever they’re having struggles or having good periods of times and just discuss it with her to either help get back on track or continue with what they’re doing.

GP: Remember, um, in the first season, where – I forget, I forget his name, I can’t recall it right now, but – he had a really hard time with some trades and she sat down with him and there was this really good scene and she kinda just walked through him like: “What’s wrong with you?”, like, kinda pumped him up. You remember that? It was the… I forget the exact…

TH: Yeah, I remember, I do remember it, I don’t remember the trader’s name though, that she was, that she was talking to, um…

GP: If you guys, if anyone who’s listening watched it, you’ll know exactly the scene I’m talking about. He was kind of, he had a really big slump and she went into his head and pumped him up and I, and at that time I was going through a pretty, it wasn’t a big slump; in the trading career – you’ll have slumps, you’ll – it’s not a slump, it’s more kind of like a few bad days will string together, you’ll be able to get out of it. And that show really hit me when, with that one episode and I said: “Man, I’ve gotta hire a trading psychologists ha ha!” I thought it was very uh, very interesting aspect, so, I do think, I’m not sure… At your prop firm, did you guys have one or not?

TH: Um, when I got hired on, I had to sit with one.

GP: Did you?

TH: So before they hired me, they made me go in and get evaluated to see if my psychology was good for trading. Turns out that it probably wasn’t, but…

GP: And they cleared you?

TH: Yeah, exactly.

GP: Wow ha ha ha!

TH: Ha ha ha exactly!

GP: Good job! How much did you pay ’em?

TH: They, they just wanted to make sure we weren’t gonna kill ourselves if we, you know, if we had a losing period of time and make sure that we were gonna be, be emotionally stable to… Say, say you have a large trade on and it’s not going in your favor, they wanna make sure you’re not gonna blow out the owner’s money.

GP: Exactly.

TH: You know, like, oh, you know, and I watched it, I watched a guy in the, the rookie class above me, he, we were trading and all of a sudden – he sat right behind me – and I just heard him go off, you know: “F*** this!” And he, and I look back and he’s in, like, 50 lots of a product. And I don’t wanna get into specifics but 50 lots of a product and there is a big quote board where you can see people’s P&L – every, every trader in the room’s P&L you can see it and so, he’s in 50 lot and you’re seeing that he’s drawing down, like, 10.000 dollars, let’s just say hypothetically 10.000 dollars, where his stop should’ve been 5.000 for the day. So he’s already over his stop and he puts on another 50 lots that, that double up the pay…. And he blew out, he lost, like, some absurd amount of money and they, they fired him, like, that day. They, he was out the door, they, like, you know, they can’t have somebody that’s that emotionally unstable, you know, trading. Cause when he should’ve won or lost 5.000, let’s say he lost 50.000 dollars and it’s gonna take him that many days to make up that money, it’s just, you know, what happens if it happens again?

GP: It’s so funny you mention that, that, that story itself should have so many learning lessons for people coming into this business cause, think about that, you get fired for making that decision, but how many times do retail traders think that, “hey, the best way out of this trade is to average in and buy more”? Or that Martingale strategy: “Let me keep adding until, until I make money.” Great, you’re gonna make money but one day you’re gonna go broke with that strategy, right?

TH: Do you think that’s because of stocks, though? Do you think stock trading has taught people to do that? Cause that’s a, that’s a popular strategy, that Dollar-Cost Average.

GP: Absolutely, yeah.

TH: …they teach that in finance class, you know?

GP: Definitely. DCA, buy the stuff. But I think, I think where the disconnect happened was that Dollar-Cost Averaging was used to sell a lot of mutual fund products and bundle diverse fight strategies and then people started to apply that to single stock and to this day I’ll talk to people who’ll say: “Yeah, I’ll just get the drops, great, it’s a sale, I’m gonna buy more. And it’s not a Boxing Day sale, this is an investment, right? You, you’ve got to, you’ve got to treat it a little bit differently. And the problem with Dollar-Cost Averaging is that if you pull up any chart, right now, any chart, any symbol you’re thinking of, any three, four letters, you’re gonna see opportunities where Dollar-Cost Averaging works, but think about the companies that have gone out of business. There’s more companies today that have been bankrupt than they are alive at the moment. And you’ve gotta remember, the stats are: if you Dollar-Cost Average in any of those, what if you did on Enron – you would’ve been broke. So…

TH: Right.

GP: Yeah, and I think that’s kind of where that psychology comes in – you pull up a chart of a company, it’s gonna work, but what about the dead ones?

TH: Oh, right. And, and then on, you know, like, commodities, like there, there’s no way that can pass and work in commodities cause they go up and down all the time. Think of the people ever doing with gold, and I, I’m a gold bug personally, but think of the people who were doing gold back in 2011-2014.

GP: Yeah.

TH: Like when it shot up to 1700 dollars and then it’s coming off, they’re buying at 1600, 1500, 1400… I don’t know what’s that now, like 11 or 12 hundred dollars an ounce, like, they’re getting? They’re getting crushed…

GP: 1257, yeah.

TH: Wow it’s came up, it came up quite a bit.

GP: It’s popped the bay, they got the chance to get long last week, but… I like gold too. Actually when I’m, when I’m up on a, on a gold day I play the Austin Powers quote: “I love gooold!”

Risk Management – It’s All about the Lot Size!

GP: …and it shocks people that in trading you can be right one out of ten times and still make money. It’s all about how you manage your risk.

TH: Right. That’s a, that’s a great point. Do you, do you, uh, do you scale up and down in your trading? Like, so, do you trade one lot and then if it’s going well you, you put another lot on, and if it’s going well, you put another lot? Cause to go to that point where if you only did one lot, uh, on nine of the trades you lost, but then you did a ten lot on one of ’em and made money, you can make more money on that ten lot than you can on the nine losers.

GP: Exactly. Definitely, it’s a, that’s a really good point. Some markets are really good for that, if you’re, if you have a nice trending market, like if you go on a daily chart and you’re seeing some consistent trends, um, it’s a good opportunity to, to be able to get in there and build positions. For day trading I found that whenever I scale into trades, by the time I scale in, everyone else is kind of jumping in with me as well and then that trade’s over. Because they’re, they’re shorter lived opportunities, I don’t scale as much on a, on an intraday perspective but a longer term, it’s definitely an opportunity to, to scale in and add more lots on the way up.
…
GP: I, I have a rule, on Friday… I have a rule actually, um: quitting while you’re ahead. So if I have two winning trades and profit on a Friday before 11:30 I’m out, like, I… Yeah, but...

TH: OK, sorry, I was just pulling up the, pulling up the chart.

GP: So you’re gonna look at it probably like “What is he talking about, 1 or 2 and a half points?” But for me, that’s my full move, I’ve scaled out by now, I’ve probably taken… I look for plus 4, 6, 8 and 12 – that’s my strategy, so I’ll do quarter lots, I’ll exit on the way out. So, for those of you who don’t know what that is, I’m essentially going for 1 point, 1 and a half, 2 points and 2 and half points maximum on S&P. And being able to capture that multiple times a day is much easier than going for a 6 point winner.

Trading on Demo Accounts – Yes or No?

TH: Do you, um, do you encourage people to trade on demo accounts?

GP: I do, I like to… For long enough that you get the sense of how the market moves. I think I’m a big believer of pattern and you’ll start to spot it. When, before the day begins I’ll typically know whether it’ll be a range day or active day. And, and it’s based on a lot of years of experience but I started to kind of see the charts, sometimes I look at the computer and it’s like little numbers falling, like the Matrix. But, um, but yeah, I encourage people to, to look at it, um, at a time, so…

TH: Do you think there’s a point where you just need to get off of it, say “enough’s enough”: either quit and don’t move forward or move forward to a live account? Do you think there’s, uh, that period of time in there?

GP: Um, you’ll, so you’ll usually know. It’s one of those things that you’ll know, um. I think, I think there’s two things you’ve gotta remember: you’re always kinda balancing – you’re balancing the strategy – the vehicle that you’re trading – and then kind of the operator of that vehicle. And the demo is not so much to test the strategy, the demo’s more to test the operator. It’s kind of like a driving test, right? Before you get in the car you usually have a written test.

Your Hope Is Increasing but Your Edge Is Slipping? It’s Time to Get Out!

GP: Yeah, and I’ll share one thing actually that, that we teach in TRADEPRO Academy: it’s, it’s the curve that crosses. So, if you picture – I dunno if, I’ve gotta look at the camera – if you picture, like, your edge in a trade – when you get in, your edge starts here and as you wait, your edge starts to drop. So as, as time passes, and you’re not being profitable, the edge of your trade, from a statistical point of view, starts to drop, its conditions are changing. And at the bottom you have the curve of hope: the longer you’re in a trade, the more your hopes are increasing you’re going to start making money. And I try to catch the moment in my trade where my edge slips enough and my hope goes up that they cross. Whenever I start… When I’m holding it, if I get in based on all my parameters being hit and it’s a great trade, great, I’m in. But when I start to notice that hope is increasing and I’m slipping a little bit on the edge, conditions are changing, some of the market correlations are dropping off, and I start thinking: “Alright, well, it’s not goin’ up, but maybe it’ll go up, right, I hope it’s gonna start going up” – that’s when I try to can that trade and get out, because you’re dead at that point.

You Don’t Know the Direction of the Market? Don’t Worry, No One Does! But Here Is What You Should Worry About

GP: …I think the one algo that I would probably be a 100% confident in is the point in the market is to do the exact opposite of what Gartman says.

TH: Ha ha ha!

GP: I would love to set up an algo with a fades Dennis Gartman. But he… Look, I read his newsletter for, for a little while, he has some cool things that he points in there, and, I mean, I think it’s what we try to take out of these people that we follow, we try to get the one Holy Grail of direction, where the market’s gonna go. And I see benefit and value in everyone’s opinion, and like, you know, I can’t say that he’s a bad guy or anything, I just don’t really care about what anyone else thinks because at the end of the day, it’s my money. And you shouldn’t either. Nobody should care about what the other guy thinks. Uh, formulate opinions, get as much info as you can, but when you click that button, you’re, it’s all you, that’s the beauty of the business, right?

TH: No, no one else is gonna pay, pay the loss if you lose it.

GP: Yeah, what am I gonna do, say: “Hey, Dennis, like, I lost this trade, now can you give me some of that back?” No, right? But on the flipside, when you make the money, you don’t have to pay it out to anyone else either, so… Um, I would say don’t look for direction. One of my good, my favorite sayings is, when people join and say: “Where is the market going?”, I don’t know. And I say: “I don’t know, nobody does, but we’ll be along for the ride.” And the most important part is, even if I told you where it’s going, if I told 99% of traders: “Hey, you know what, the market’s gonna go, it’s gonna close at 23,70, that’s 6 points higher than right now.” Most people will say, with that information they can make money, right? They’ll say: “Great, I’ll buy it.” But what if I told you that you only had a four tick stop loss? So the second you hit the stop loss, you’re done. Now you may not make that six points, now it becomes a lot more challenging. So don’t worry about where it’s going, worry about where you’re gonna get in and why, but more importantly, when you’re gonna get out and why. So that’s…

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The-Bladerunner-Trade-avatar
Trading Strategies

The Bladerunner Trade Strategy

by Jack
written by Jack

Making the bladerunner trade can be as easy as trading with price action, to those who know what they are doing. This price action Forex strategy uses nothing but good old-fashioned price action to identify price action patterns and reel in the rewards to the trader behind it.

As far as price action trading goes, this type of price action strategy may not be for everybody. But it does not mean it lacks merit. If candlesticks, round numbers, support and resistance levels as well as pivot points are all within your scope of expertise, then price action Forex trading is just what the doctor ordered.

Introduction

When it comes to price action indicators, there are traditionally none of these except for those coming with your charts. But there is no rule against involving any indicator of your choosing that you deem useful or necessary as a part of your very own take on this price action strategy.

Of course, MACD, RSI and stochastic analysis are a given, but an extra Fibonacci never hurt anyone if that is your thing. The bladerunner trade and the bladerunner Forex price action trading strategy rely on the fine art of Forex price action scalping. The “scalpel” in question is usually the 20-day EMA or Bollinger bands. Most traders who employ this type of trading strategy tend to stick to one of these, and there are currently no prevailing opinions on which one is the best.

Either way, unlike most price action trading strategies, the bladerunner trade does not restrict its user in terms of currency pairs it can be applied on or the time frame that needs to be used. Although it is advisable to keep the appropriate charts at hand. Again, most traders tend to stick to 5 minute charts.

markets.com

Another concern that needs to be addressed right away is that of timing. Even though it is true that this strategy works better during certain hours and that the bladerunner trades that “coincide” with the opening of Asian trading sessions tend to profit from this ‘rush hour’ of sorts, this means nothing in the long run. This strategy can be used whenever it suits your interests, which is one of its key selling points. And if you notice certain parts of the day seem to ‘favor’ your trading style, there is no reason not to make use of it. Trading price action is not without its risks, either, and that will also be addressed later on.

Bladerunner Trade

Whether the name is a cruel ironical reference to the ’80s movie or it strategy happens to coincide with walking on the knife’s edge, this strategy seems to use the 20-day EMA or a similar indicator as a reference point for price action. At any point the bladerunner trader looks at the charts and compares the actual price action to what it is supposed to be and adjust their trades accordingly.

In other words, if the current price action is above the EMA, it is likely to drop in the near future. The opposite also holds true, at least in this strategy: if the price action is below the EMA line, it is likely to rise and rise soon.

The Bladerunner Trade

In other words, the trader looks at the price action that is below the EMA and in this situation his assumption would be that the price is going to rise to the EMA level, touch it at some point, and then drop back. However, if this does not happen and the price action switches polarity, then the expectation is that the price will rise to a certain level, drop back to the EMA and then start rising again. Of course, the polarity could switch again at some point, in which case the trader’s bias will follow suit.

We already mentioned how this strategy works better during certain hours of the day, and this can also translate to the recommendation that one does not simply enter without careful deliberation on the issue. First, you need to make sure the price is trending – otherwise, the bladerunner trade will be pointless and will likely cost you. Once you are certain the trend is indeed running its course, make sure to retest the EMA before you enter.

A good read: How Does Currency Work?

Wait for the price to touch the EMA and move in the direction you predicted. If the price action is above the EMA, wait for it to drop and touch the EMA. After that, it is supposed to bounce back and rise in value. Similarly, if the price action is below the EMA, it needs to rise to that level and then drop, in order to make sure the bladerunner trade is viable at this point.

On candlestick charts, make sure the candle that approached the EMA also closed on the same side. Otherwise, the moment is simply not right. If it does, it will serve as the signal for your trade. If it does not, you do not trade – until your predictions are confirmed, that is.

The Bladerunner Trade

However, if you wish to be on the safe side, you could wait for a confirmation as well. If the price action does it again and the cycle repeats itself, then this is the confirmation you have been waiting for. Of course, you could wait for the whole pattern to establish itself, although this is entirely optional on your part.

This strategy may seem a bit too straightforward to be true, but some people like to keep things simple. And besides, actual price action as well as fundamentals are already factored in, so no careful trader is simply going to jump into a trade that goes against the EMA or whatever indicator they chose. The trick behind this strategy and the secret to its success can be applied on any and all successful Forex trading strategies in the world. You only trade when the conditions are favorable for you; when they are not, you do not risk it. Rather, you wait patiently for the opportunity to present itself and then seize it.

A good read: Brexit Effect on Pound

Rather than go looking for it, the bladerunner traders wait for the opportunity to come to them. The more reasons that suggest now is the good time to enter a trade, the better – and vice versa. Also, keep an eye on anything that might disrupt your trading session, such as news announcements, especially if they are scheduled.

Bladerunner Trade

Try to trade ‘around’ them. It does not really matter if they are positive or not, the rush that comes with people who will trade based on those announcements can be enough to disrupt your session. And finally, never, ever trade against the trend in this strategy. The bladerunner trade follows the direction of the trend, rather than challenge it.

What next?

Well, if you are going long, the best bet would be to put buy stop orders roughly two pips above the confirmation signal; whether you are using a candlestick chart or some other type does not matter here.

For the sake of this example, let us say you are using a candlestick chart. Your orders are supposed to expire by the time the next candlestick starts, which depends on the time frame of your chart. Your stop loss is supposed to be two pips below the candle that touched your EMA. Of course, you may place orders wherever you choose, but this is the recommendation you are given. Finally, the take profit should correspond to the risk you are taking. Placing multiple orders can be a bit tricky, but also manageable, for an experienced trader.

NSFX forex broker

If the plan is to go short, the procedure is roughly the same. Except this time you are placing sell stop orders, roughly two pips below the candle you used as a confirmation signal, and the stop loss is 2 pips above the candle that served as the original signal. The rest should work the same way, with the risk being in proportion to the profits, so make sure your target profits are realistic.

Conclusion

The bladerunner trade is not for everyone. If this strategy seems a bit simplistic, it kind of is.

By relying solely on the price action, the trader eliminates a lot of subjective factors from the equation, but they also give up a measure of control as well. Also, keep in mind that no trading strategy is 100% foolproof and even the best ones can go awry. Do that, and everything should work out in the end.

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Horizontal Support and Resistance
Trading Strategies

Horizontal Support and Resistance

by Jack
written by Jack

In identifying horizontal support and resistance (S/R) we must first look for a zone where price touched a certain point and reversed or stalled there. Then we must look back on the charts and see how price reacted to that level. If we have at least two touches of the level, then we have our S/R level. The more times price touched a level and then reversed, the stronger support or resistance is in that area. Like I said, S/R levels are rarely within the pip. Think of it more like a zone.

The Basics of Horizontal Support and Resistance

Look how price reacted then it touched the red line. That is a good level of resistance and this is what you should be looking for.

Horizontal Support and Resistance

Notice that the second time price tried to overshoot the red line, it encountered strong resistance and dropped immediately after. As you can see, massive profits could be made if you went short there. The drop was 500 pips. Looking back on the chart, you could see that price was rejected from that level several other times. Here’s a zoomed out picture (click to enlarge):

Horizontal Support and Resistance

We just talked about Resistance, but what about Support? Well, it’s the same thing, except it supports price, when it’s hit from above. Check out the picture bellow and see how price tried several times to break the support (green line). The fourth time it attempted to break it, was rejected for about 300 pips.

Horizontal Support and Resistance

Sometimes, price will not respect the S/R levels like in the pictures above and will go straight through. Horizontal Support and Resistance can be a tricky strategy. If this happens and a strong level of S/R is broken, there is a high probability that price will continue to move in the direction of the break. Look at it this way: sellers tried several times to take the price lower, but every time they encountered strong support of price from the buyers. When finally the level is breached, more sellers will join them, seeing that the level didn’t hold and price is heading lower. Also, a lot of buyers have stop losses a few pips behind the support level. As we all know, when the stop losses are hit, the buyers automatically turn into sellers. This will push the price even lower.

Broken support turns into resistance and broken resistance turns into support. This happens because, like I said, the market is driven by people and once a level was tested several times, it becomes a psychological level for most traders, a place where they know price bounced, reversed, stalled, in other words, it reacted. When price returns there, they will take some kind of action and that is why we will see price react again when it touches the level.

It is hard to predict when a S/R level will be broken or when it will hold and that is why this kind of trading is risky, but it also has a lot of reward in it.

Let’s review how he can find Horizontal Support and Resistance levels:

  • look for zones where price reversed or stalled
  • check how price reacted in the past to that level
  • the more price touched it and reversed, the stronger the level is

That’s it for today. Try to look for Horizontal Support and Resistance yourself on the charts and see if you can spot them.

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Fibonacci Trading
Trading Strategies

Fibonacci Levels

by Jack
written by Jack

Of all the strategies for navigating the treacherous financial markets, Fibonacci Trading stands out as one of the most widely used, and for several reasons. First of all, it works – as long as it is properly applied of course. More importantly, it sounds a lot smarter and more complex than it actually is. All these terms: Fibonacci series, Fibonacci sequence, Fibonacci retracement, Fibonacci levels etc. sound really smart and scientific, but the trick is learning to apply all that knowledge and make some money.

Fibonacci Trading

In any case, Fibonacci trading is based on something called Fibonacci retracement. Basically, there is an area that can be seen on some charts where support and resistance areas can be identified. Fibonacci trading (well, Fibonacci retracement, at least) is all about using horizontal lines across certain areas in order to identify their support and resistance, i.e. places where prices stop falling / rising and the trend reverses. In essence, if you draw a line between two extreme points you have identified on a chart and divide the distance by the key Fibonacci ratios, you get one of Fibonacci levels. In other words, your Fibonacci trading can commence.

Fibonacci TradingThe importance of Fibonacci trading lies in the fact that it can help you identify the exact places for some strategic transactions, or indicate where to place a target price or a stop loss. If you want to boil down modern trading to raw science, Fibonacci series is a good start.

By allowing you to take two extreme points on a chart and divide the (vertical) distance between them using Fibonacci ratios, you can start drawing horizontal lines in order to identify where to expect support and resistance. These ratios are: 23.6%, 38.2%, 50%, 61.8% and 100%. Each of them has a meaning and a function. But the actual Fibonacci series of numbers goes like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89…

This mathematical principle in Fibonacci trading is applied to find the golden ratio (61.8 %) and it is calculated by dividing the number in the series by the number that is next in line, and Fibonacci series is the perfect example of this relationship. The 38.2% ratio should be between a number on the list and the number that is two spaces to the right. The first example would be between numbers 21 and 34 and the second would refer to, say numbers 21 and 55. Another place to the right and you get 23.6% (e.g. 13/55).

The thing is, Fibonacci trading takes this principle and applies it on stock markets. Nobody knows why it works – probably because of the self-fulfilling prophecy paradox. If everyone believes it and they have similar predictions, saying that support and resistance are at a certain point, their actions alone will make it happen, regardless of other factors. In other words, it is probably traders themselves that make this work in real life unknowingly. If a Fibonacci retracement indicates that a support/resistance will set in at a certain price, a mass of traders acting independently of each other will reach the same conclusion and start trading in the same direction, causing the price to rise / fall, as predicted.

For more information, see the following video.

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MACD & STOCH
Trading Strategies

MACD & STOCH

by Jack
written by Jack

MACD indicator, or Moving Average Convergence Divergence, is one of the key indicators for identifying and following trends in the financial markets. Aside from that, many traders use stochastic indicators as well. But how does a trader deal with things like stochastic model, MACD divergence or MACD histogram? Let us see what these things are all about and more importantly – how they can be used to trade more successfully than the other guy.

MACD indicator

MACD indicatorFor starters, the MACD indicator is based on a relationship between two moving averages of prices – an average closing price of an instrument over a period of time that keeps moving one day at a time, hence the name ‘moving average’. If you factor in the importance of recent data and assign them more weight, you get an exponential moving average, or EMA. These moving averages are calculated for different periods, usually 12 and 26 days, and if you subtract the 26-day from the 12-day EMA, you get your MACD indicator.

The importance of MACD indicators is that they are relatively objective and easy to calculate, and enough people use them to create an aura of reliability that surpasses many other instruments, including the stochastic indicator. Every time the price stands out from MACD indicators serves as an indicator of an instrument being overbought or oversold. This type of MACD divergence between an arbitrary indicator and a real-life situation is usually rectified as thousands upon thousands of traders reach the same conclusion and pull almost identical moves simultaneously and MACD indicators ‘save the day yet again. All you can do is watch as the difference between the MACD line and the signal line in the MACD histogram melts away.

On the other hand, MACD indicator is not the only one trying to find a link between closing prices and future price action. MACD indicator 1Stochastic indicators work under the assumption that the closing price of an asset is linked to highest and lowest prices in the 5-day period (for the K line and 3-day period for the D line, see the second picture). Stochastic models can be used to estimate probability of an outcome when one or more variables are unknown. Statistically speaking, any outcome comes with a certain probability and this type of analysis is great for risk management.

As for stochastic analysis in general, it involves drawing two lines on a regular chart for a particular asset: the %K line is the faster one and it deals with highest and lowest prices of an asset in previous five days as well as the most recent closing price. The %D line is slower, but considered more important, as it deals with highest and lowest prices over the last three days. Thankfully, traders no longer need to calculate these lines manually, as there is software that does this for them automatically. All they need is a good platform and some know-how. In any case, investors need to watch out for these two lines, as they indicate if an asset is overbought or oversold. In combination with the MACD indicator, this can be a powerful mix.

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Range Breakout
Trading Strategies

Range Breakout

by Jack
written by Jack

We’ve decided not to write any fancy introduction about opening range breakout trading strategy. Instead of using various indicators, let’s start with an example and a picture:

opening range breakout

Opening Range Breakout – Explained

The chart is zoomed out to the max for you to better see the opening range breakout. Notice how price tested several times the upper and the lower parts of the horizontal channel. This clearly shows us a great level of indecision in the market. It is not shown in the picture, but we were in an uptrend at the time the picture was taken. The fact that a range is forming (the gray box) and price cannot continue its move up but cannot go lower either, gives huge importance to the outer limits of the channel.

In the upper part of the channel, the buyers want to take the price higher, but fail because sellers offer a strong resistance. In the lower part of the channel, sellers want to take the price lower, but fail because buyers support the price. All this translates on the chart into several tests of the upper and lower part of the channel. Now, the upper and lower parts of the channel are very strong and whichever breaks first in a decisive manner will dictate the next move of the market.

In our example, the sellers won the battle and more sellers joined them because now, the direction of the market was pretty clear. The signal that the battle was won by the sellers is given by a strong bearish candle, piercing through the support level. We are not going to go into detail, but that candle is called a Marubozu candle. Its main characteristic is that it has no wicks (or shadows) and it’s a very strong bearish signal (in this case).

opening range breakout

There are different ways to enter a trade with this strategy:

  1. Place a buy stop order 20-30 pips above the range and a sell stop order 20-30 pips below the range. We need to set the orders 20-30 pips outside the range to avoid a false break. When one of your orders is triggered, delete the other one and set a stop loss a few pips behind the broken level. Keep in mind that the amount of pips will change if you move to  a higher timeframe
  2. Enter the market when a clear sign of a break appears. This requires a better understanding of candle formations and price action

Remember that all strategies can fail and never risk more than you afford to lose. Here’s another great read to further your opening range breakout understanding.

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