Quick Way to Use a Popular Forex Moving Average to Find a Trade

- The 200-day simple moving average is one of the most widely watched technical indicators

- This moving average can be indentify a significant area of support in an uptrend

- The confluence of the 200-day simple moving average and a major price support zone provides a low risk trading opportunity to join an uptrend

Forex traders have an overwhelming selection of indicators to choose from to help them locate a trading opportunity. Some of these brand new indicators are costly and promise to be the “Holy Grail”. Others are free and not so new but have withstood the test of time. One such indicator is the 200-day simple moving average (SMA).

Since there are roughly 200 trading days in a year, a currency that is trading above its average 200 SMA is considered bullish. It can also be simply used to find major support so traders can enter an uptrend with an excellent risk to reward ratio.

Learn Forex: NZDUSD 200-Day Simple Moving Average Bounce

(Chart Created using Marketscope 2.0 charts)

In the example above, we can see a strong uptrend in the daily NZDUSD chart. The trend started at the end of August at 0.7718 from below the 200-day simple moving average crossed above the 200-SMA on 9/16 and reached a high of 0.8434 on 9/19. Traders who missed the over 700 pip move had a second chance to join this powerful trend as NZDUSD retraced back and bounced from the blue 200-day simple moving average in the 0.8200 neighborhood.

In Forex, numbers ending in “00” usually act as significant areas of support and resistance as well. The confluence of these two factors gave traders added confidence in a resumption of the trend. From the rebound on 10/2, NZDUSD did not disappoint as the bulls as price pushed up over 300 pips higher topping out at 0.8543 on 10/22.

However, nothing moves in a straight line forever including NZDUSD. But after a 300 pip decline, NZDUSD has just rebounded from its 200-day simple moving average (0.8177) and prior round number support at 0.8200. This setup could be a replay of the 10/2 rally and the 200-day simple moving average is about 80 pips away with the old 9/19 high at 0.8434 is 182 pips away.

In sum, the confluence of an uptrend line, round number support and our old friend, the 200-day simple moving average point give traders a good 1:2 risk to reward setup. Traits of Successful Traders research by FXCM of over 12 million real trades by clients worldwide in 2009 and 2010 revealed that the number one mistake that traders made was not using a minimum of a 1:2 risk/reward ratio.

Locating where price is in relation to the 200-day simple moving average can help Forex traders find entries that have a greater chance of making more money than the amount placed at risk.

 

Source: http://dld.bz/cTvMQ

Trading is Methodical - Markets are Emotional

Reasonable market expectations are a key to consistency

A trader’s method is often projected as the market being methodical

Learn to lose to become a better winner - trade in the smallest trade size possible

Over the next few days, we wanted to draw out some key concepts to help you manage expectations of the market to become disciplined with your forex trading.

It sounds simple and makes intuitive sense, yet too often many traders expect the opposite. As a result of expecting the opposite, we get roped into emotional situations that devastate our account equity.

For example, traders tend to get emotional because they think the market is methodical. Traders will have a methodical approach such as using trend lines to enter trades. Assuming this approach has worked reasonably well in the past, if the market moves against the position, the trader is surprised. There is a support trend line, the market HAS to bounce higher, yet it moved lower.

In essence, the trader has projected their methodical approach onto the market and begins to believe the market is methodical. When we believe the market is methodical, we rationalize the trend line break as a false break and hope prices return to a profitable level.

As you can see, the trader let their emotions into their trading by assuming the market was methodical. When the market doesn’t do what we expect, then we let poor trading techniques into our trading plan and account. Poor trading techniques such as adding to a losing position, using no stop loss, or widening a stop loss level are common mistakes emotional traders make.

What to Expect From Your Forex Account

As we place trades and orders in our account, remember that your strategy of when to place orders is THE method and do not want over emphasize each pip, trade, or market movement. Each trade is just one of a thousand insignificant trades. Trading is a game of 3 steps forward then 2 steps backward. When you expect perfection, you will be disappointed. Therefore, expect losing trades.

You may be wondering, how many losses are needed to become a better winner?

A common misconception is that a strategy’s success hinges on a high win ratio. That is simply not true. Some of the best strategies win only 40-50% of the time.

What is a good win ratio? There is no grand formula. It is not a one size fits all approach, but determine the strategy’s edge using the win ratio. Then confidently trade your method and let the market’s emotions determine the outcome of the trade.

Lastly, expect losses to be incurred and prepare for them through low leverage so the majority of your equity is preserved.

 

Source: http://dld.bz/cTveV

4 Rules for Selecting Great Forex Day Trade Entries

- Buying at a discount involves waiting for price to pull back to level of support before entering

- Using an oscillator like Slow Stochastics with settings 14,3,3 can help traders time entries

- Traders may miss trades in a fast moving market waiting for the “discount” level, but this will enhance the risk to reward ratio over time

Whether you are investing real estate, stocks, businesses or trading Forex the wisdom of “buying low and selling high” is universal. Even comparison shopping for a pair of shoes, a car, or a box of cereal, people like getting a good deal paying less than the listed price.

However, when it comes to trading Forex, many traders who trade with the trend may end up buying much higher near the top of the range. Since the trader’s entry price is so far above a level of support, there is much more risk taken on the trade. If the trade moves against them, price has much farther to fall and will take much more time to get into the profit zone. This usually leads to certain loss as price begins to retrace and the trader is unable to handle a negative move. Traders jump into a fast moving market thinking that they will miss potential gains though price has moved a significant distance from an optimal entry point. Ironically, they lose the pips they were hoping to attain.

Learn Forex: AUD/CHF Long Entries near Trendline Support

(Chart Created using Marketscope 2.0 charts)

The Solution

1. Only trade in the strongest currency pairs in the direction of the trend.

Traders will find the best low risk entries with the highest profit potential when they trade with the trend. Look for higher swing highs and higher swing lows with price moving in a stair step pattern. Draw a trend line connecting the swing lows from the lower left hand side of the chart rising to the upper right hand side of the chart

2. When the trend is up look to buy at or near the trend line with help of RSI

The closer you can buy to the trend line, the lower risk there is in the trade. Buying at or near the trend line enables a trader to place a stop, a few pips below the swing low. Chasing the market and allowing price to move too many pips from support increases the amount at risk while decreasing the amount of pips. Use an oscillator like RSI to pinpoint entries. When RSI moves down below 30 and rises back above 30 provides a buy signal confirming price action rebounding from the trend line.

3. Book profits that are at least twice the amount that you have at risk on the trade

Since the market moves in waves and does not move in a straight line, traders will want to take profits at the top of the range. This means that in an uptrend, traders should take profit just above the previous price high of the trend. In addition, traders who are short or trading in a downtrend will look to take profits just below the previous price low.

4. When currency pairs reverse and/or move into a range, stand aside.

Currency pairs range about 80% of the time, so if the trend becomes unclear and you have to ask your trading buddies the direction of the trend, you may need to look at other pairs for trading opportunities. If you only trade one or two currencies and both of them are not trending, then you may need to change up your strategies and use range trading strategies.

In Conclusion

Forex traders should enter trades in the direction of the trend on the strongest currency pairs. Traders can use a combination of trendlines and Slow Stochastic indicator with settings of 14,3,3 to pinpoint entries near the trend line support. Avoiding trading Forex pairs with unclear and ranging price action is a way of reducing account exposure to unfavorable trading conditions.

Appropriate stop placement near the trend line reduces risk while entries near the trend line maximize gain. Since the market moves in waves, taking profit near peaks in the range is a way of harvesting gains. Targeting a 1:2 risk to reward ratio puts the odds in your favor and reduces the number of times you need to be right in order to attain profitability.

 

Source: http://dld.bz/cTrcu

Video: Establishing EURUSD and GBPUSD Positions Pre-Fed

 

 

Currency Analyst Christopher Vecchio discusses the implications of the improving Spanish economy, and how the best GDP data in nine quarters might help the EURUSD find support ahead of today's Federal Reserve policy meeting. Trade setups for the EURAUD, EURJPY, EURUSD, and GBPUSD are discussed.

 

 

Source: http://dld.bz/cTrbV

How Measured Moves in Markets Can Show You Profit Target Guidelines

*Understanding Measured Moves

*How Measured Moves Can Improve Your Trading

*USDOLLAR Correction Is Coming To A Measured Move Target

“There is nothing new on Wall Street or in stock speculation.What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature that always gets in the way of human intelligence. Of this I am sure.” (Emphasis mine) -Jesse Livermore

Every time a crisis comes around, you often hear the words, ‘this time it’s different’. However, the beauty of technical analysis is that the emotions behind the price often play out in a similar manner as they do historically because human nature is as a whole doesn’t vary by much. Therefore, whether you’re looking at the Panic of 1907, the Wall Street Crash of 1929, Black Monday in 1987, the 1997 Asian Financial Crisis, or the 2008 Subprime mortgage crisis the emotions behind those ‘history altering events’ were similar.

Understanding Measured Moves

One old school price action concept that holds weight today is that of the measure move. The measured move states that any given trading instrument will often impulse or correct in similar price & time pattern to how it performed in recent history. This can be applied to both time and price as the distance travels is often similar and the time it takes to reach that point is strikingly similar as well.

Learn Forex: Measured Moves in Time & Price As Shown on SPX500

Presented by FXCM’s Marketscope Charts

What is surprising about this type of price action is in the witnessing of market rhythm. With market rhythm all the fundamental forces are still in play like CPI, NFP, FOMC and everything else that can steer and pull prices but the effect of those news events are often limited to the rhythm of historic price action. This would be similar to finding a distinct pattern in the road so that even if you were blindfolded and driving (which I don’t recommend!), you could begin to sense when you should begin preparing for the next turn.

Learn Forex: The GBPUSD Channel has displayed strikingly similar impulses & corrections

Presented by FXCM’s Marketscope Charts

How Measured Moves Can Improve Your Trading

There are multiple ways that measured moves can assist your trading. The two that I like to utilize the most for trading is in analyzing correction exhaustion and over acceleration or blow off tops of an impulse. Regarding the exhaustion point of a correction before a trend resumes, you’ll often notice that the counter trend crowd will likely only test their efforts so much before taking their risky profits and letting the trend followers take over. When trading with Elliott Wave, this is often known as an equal wave correction which will often precede resumption of the trend.

Learn Forex: Equal Wave Corrections are simply measured moves

Presented by FXCM’s Marketscope Charts

The second time and price aspect that I like to look for takes place when price has met the measured move objective but the market has far exceed the common time taken in prior impulses to hit the price target. When this happens, you’ll often see a measured move of 250 pips in 12 days reach a target of 250 pips in 6 days. This typically happens off a news shock like FOMC or NFP that was outside of expectations and then you’ll typically see a strong consolidation in the market until you meet a proper target for a correction like a Fibonacci ratio or a polarity point in the market to resume the trend.

USDOLLAR Correction Is Coming To a Measured Move Target

Since July, the USDOLLAR has been rocked across the board by all of its major counterparts. EURUSD is at 2013 highs, USDCHF is near 2013 lows and the GBPUSD is within an earshot of its 2013 high. As you can imagine, many traders are getting to the point where they feel like the USDOLLAR will continue falling through the floor but the measured moves concept can be of assistance here as well. As the USDOLLAR shows early signs of reversal it is also well within range of 2011 & 2012 corrections.

Learn Forex: Prior Major USDOLLAR Corrections Are In-line with what we’re experiencing

Presented by FXCM’s Marketscope Charts

We’re approaching multiple signals that the USDOLLAR is looking for a bottom based on the measured moves technique. However, as we approach these levels or time windows that we’ve seen historically stop a correction, we begin looking at price action to tip its hat that the trend is about to resume via a reversal signal but please do not take a trade blindly on the time or price matching up to a historical level. This technique is very helpful but it isn’t magic so it’s best to look for confirmation before taking the trade. 

 

Source: http://dld.bz/cTqUE

How to Use ATR in a Forex Strategy

Forex traders can use ATR to gauge market volatility.

Traders should use larger stops and profit targets as ATR increases.

Reading ATR can be made easier through the use of the ATR in pips indicator.

ATR (Average True Range) is an easy to read technical indicator designed to read market volatility. When a Forex trader knows how to read ATR, they can use current volatility to gauge the placement of stop and limit orders on existing positions. Today we will take a look at ATR and how to apply it to our trading.

Learn Forex –EURJPY Trend with ATR

(Created using FXCM’s Marketscope 2.0 charts)

ATR is considered a volatility indicator as it measure the distance between a series of previous highs and lows, for a specific number or periods. ATR is displayed with a decimal to indicate the number of pips between the period highs and lows. This is important to a trader, as volatility increases so will a charts ATR value. As volatility declines, and the difference between the selected periods highs and lows decrease, so will ATR.

Traders can use ATR to actively manage their position in accordance to volatility. The greater the ATR reading is on a specific pair the wider the stop that should be used. This makes sense as a tight stop on a particularly volatile currency pair is more prone to be executed. As well a wide stop on a less volatile pair may make stops unnecessarily large. This can also hold true with limit orders. If ATR is a higher value, traders may seek more pips on a specific trade. Conversely, if ATR is indicating volatility is low, traders may temper their trading expectations with smaller limit orders.

Learn Forex –ATR in Pips Indicator

(Created using FXCM’s Marketscope 2.0 charts)

The ATR in pips indicator is a custom indicator for the Marketscope 2.0 charts found inside of the FXCM Trading Station. This indicator was designed to help traders interpret the ATR values of their favorite currency pairs. It does this by taking the decimal value of the traditional ATR indicator and turning it into an easy to read number translated into a specific number of pips. Notice in the EURJPY example above, the ATR in Pips indicator has conveniently converted the .96 value seen in our first graph to a simple to decipher 96 pips.

 

Source: http://dld.bz/cTpgP

How to Manually Trail a Stop on a Forex Trade

- Many Forex traders trail stops to lock in hard fought for gains

- Keep a trade open to benefit from directional move

- Possibility of keeping some pips if price turns around

Have you ever entered a trade that was profitable by 40 or 50 pips only to have it end up as a loss?

Have you ever taken profit on a trade only to see it go hundreds of pips further?

One technique that Forex traders have employed to address these two challenges is the manual trailing stop. Traders can lock in gains as well as participate in the further rise.

Once a trade has been entered with a beginning stop below a swing point, traders will look for price to move to a new high and then pull back to a higher low. This initial move confirms that the trend is on its way as other traders begin to enter and momentum builds. After price makes this new higher high, the stop can be moved up a few pips below the new swing low.

Learn Forex: Manual Trailing Stop on 4-Hour EURUSD Chart

(Chart Created using Marketscope 2.0 charts)

In the above example of a 4-hour EURUSD chart, notice how after the new high was broken, the stop was moved up or ‘trailed’ below the new higher swing low at 1.3647. Now, if price suddenly were to pull back below the swing low and trigger the stop, a profit of 79 pips would have still been pocketed.

Next, the Euro made a new swing high in the 1.3788 area before pulling back and the stop is moved up to 1.3740. The worst case scenario is that price falls below 1.3740 and we are stopped out for a 172 pip gain. Being stopped out with a profit beats being stopped out for a loss any day of the week!

Remember that no strategy or method is perfect and stop outs for loss can still happen with the manual trailing stop strategy of money management. So choosing the strongest trends is as important as the entry and money management technique that you employ. So if you want to stay with the trend longer and lock in profits along the way, manual trailing stops should be part of your money management plan.

 

Source: http://dld.bz/cTjQ3

Trade the Trend with CCI Retracements

Oscillators such as CCI can be used to trade dips in an uptrend on Forex pairs.

Overbought and Oversold levels offer clear market entry signals.

Traders will time their position with momentum returning to the underlying trend.

When traders think technical indicators, normally oscillators come to mind. Oscillators are a class of indicators designed to track price by moving (oscillating) either above or below a centerline. Knowing how to read and understand oscillators can specifically help pinpoint market entries for trend bound markets. Today we will review using the Commodity Channel Index (CCI), and discuss how we can use it to trigger trades during strong Forex trends.

Learn Forex –CCI Overbought / Oversold

(Created using FXCM’s Marketscope 2.0 charts)

If you are already familiar with RSI (Relative Strength Index), MACD, ROC (Rate of Change), or other oscillators, you are one step closer to understanding how to trade with CCI. All of the above indicators will utilize a unique mathematical equation to depict overbought and oversold levels for traders.

Pictured above we can see CCI plotted on the graph, moving between a +100 value to indicator overbought levels, while below -100 value represents an oversold value. The indicator will swing between these points as the market changes direction with CCI residing between these points nearly 70-80% of the time. As with other overbought/oversold indicators, this means that there is a large probability that the price will correct to more representative levels. Knowing this, trend traders will wait for the indicator to move outside of one of these points before reverting back in the direction of the primary trend. Let’s look at an example using the current trend on the AUDCAD.

Learn Forex –AUDCAD Trend with CCI

(Created using FXCM’s Marketscope 2.0 charts)

Above we can see an example using a hourly graph of the AUDCAD currency pair. The pair is in an established uptrend with price remaining above a 200 period moving average. Knowing this, trend traders should look to initiate new long positions buying the AUD (Australian Dollar) against the CAD (Canadian Dollar). The primary way of timing entries with CCI in an uptrend is to wait for the indicator to move below the oversold value marked at -100. With price now at a relative low, traders will enter into the market when CCI moves back above -100. This creates an opportunity to buy the currency pairs momentum is returning back in the direction of the trend.

With CCI now reading over +100, traders will need to wait patiently for the next entry signal.

 

Source: http://dld.bz/cTfUQ

An Easy and Advanced Way to Find Trades in the Forex Market

Trading the Forex market entails taking a stance on two currencies simultaneously

Traders are best served by focusing on matching a strong currency with a weak currency

We cover two different ways traders can perform this analysis: Advanced, and Easy

We’ve all been there.

Cash is sitting idle in the account, and the market is moving – it’s just that we can’t find anything to trade…

This happens regardless of the market you’re in. If you’re a stock trader, well right now would be a fairly logical time to have that vantage point. While stock indexes sit at all-time highs, economic data continues to show massive weakness (hence the $85 billion capital injections that have been required JUST to prevent a major meltdown). This isn’t exactly an environment that is ‘easy’ to trade if you’re focusing on stocks and using any element of prudence in your analysis.

The Forex market can present some compelling advantages; not only in this environment but quite a few others.

You see, in stocks – there is really just two ways to trade; you either buy or sell.

Have an opinion on Apple? Ok, great – you can buy it or you can sell it. Matters are pretty simple. Same goes for any other stock that’s listed on one of the major exchanges. You can buy stocks fairly easily; and if you can find a broker to let you borrow shares, you should be able to sell it pretty easily.

In the Forex market, one of the greatest benefits is also one of the most difficult things for new traders to grasp.

Forex Lesson: Realize what you’re trading, and focus appropriately

Every trade-able asset has two sides in the FX market, and each of those two sides has two ‘scenarios (strength or weakness in each of the two currencies in the pair).’

If trading EUR/USD, you have to ask yourself…

Created with Marketscope/Trading Station II

Meaning, it’s not as simple as saying ‘The Euro looks weak, I want to sell it.’ Because you can get into a trade selling the Euro and if it doesn’t get weaker than the currency you matched it up with – you will lose. You will lose, even though your analysis in expecting weakness in the Euro was correct.

Created with Marketscope/Trading Station II

Let’s look at an example to illustrate this point.

Let’s say that you decide you want to sell the Euro as you’re expecting additional weakness, and you match it up with the Canadian Dollar. So, you trigger the short EURCAD position, and look for the pair to trade lower. This means that you are short Euros, and long Canadian Dollars.

Perhaps, at first – the trade moves in your favor; only to be followed by news out of Canada that sparks even more weakness in the CAD than what was being seen in the Euro.

So, the Euro can still be getting weaker against US Dollars, and Australian Dollars, and even British Pounds… but if it’s not getting weaker against Canadian Dollars, well it doesn’t even really matter. Because you will lose on your trade and there isn’t much you can do about it.

Let’s flip this example around to see how this can actually be beneficial to traders…

Same example, you want to sell the Euro because you expect it to get weaker; but this time, you take matters a step further and you analyze the market to see what currency has been really strong. And in your analysis, you notice that the Japanese Yen has been one of the strongest currencies in the market.

So, rather than taking the EURCAD short position and hoping that it works out, you match up what you feel will be a weak Euro, with what has recently shown strength in the Japanese Yen.

Now, this doesn’t eliminate the risk of taking a loss; but it can assist in moving the probabilities in your favor based on what has been exhibited in the marketplace.

If the Euro weakens, as you expect it to – and if the Yen stays strong, you’re short EURJPY position looks good. But even if the Euro doesn’t weaken, and if it gets strong against US, Canadian, and Australian Dollars – as long as the Yen remains stronger, the position will move lower.

Created with Marketscope/Trading Station II

By focusing on both sides of the currency pair, the trader increases their chances of success. So the next logical question is ‘How?’

The Advanced Way: Separating the Strong from the Weak

 

We call this ‘strong-weak analysis,’ the process of which includes grading each currency to isolate the strongest individual currencies from the weakest. We can do this with a fairly simple process by focusing on the US Dollar. We can measure the movement of each currency relative to the US Dollar so that we can look at each on an apples-to-apples basis with each other.

So, for instance, if EURUSD is up considerably, but GBPUSD is down – that shows us that Euros have been stronger than dollars; and also that dollars have been stronger than British Pounds. So, from this very simple analysis we can notice that buying EURGBP may be more amenable than buying EURUSD (since GBP was weaker than USD and we want to marry that strong Euro up with the weakest currency).

We can measure the movement of each currency against the US Dollar, and compare each to determine an order of strongest and weakest currencies.

Comparing each currency by focusing on change in USD

Taken from How to Separate the Strong from the Weak, data from 7-13-2012

From this analysis, we can determine which currency has been strong, and which has been weak. Notice that the NZDUSD is showing a gain of 92 pips. By dividing this into the price of NZDUSD at the time of analysis, we can see that NZDUSD moved up by 1.156% (which also means that US Dollars lost 1.156% against NZD).

We can also see that USDJPY has moved down by 14 pips. But, because USD is the base currency in the quote (listed first), that means that the US Dollar has lost 14 pips against the Japanese Yen. But, after we divide this into the price of USDJPY at the time, we notice that it really isn’t that large of a move; as the dollar has only weakened by .177% against the Japanese Yen.

We can take all of the above information to create the following table, ordering each currency by its percentage movement against the US Dollar:

Taken from How to Separate the Strong from the Weak

Notice that each currency in the previous table strengthened against the US Dollar, so that would mean that USD has actually been the weakest currency during the analyzed period.

This means, we can look to match up what has been a strong New Zealand Dollar with a weak US Dollar. If we want to avoid the US Dollar, that’s ok too… and we can simply choose the next weakest currency on the list as the Japanese Yen.

Or, using the earlier example in which the trader just knew that they wanted to short the Euro; noticing that it’s the 6th strongest currency could reinforce that motivation; but the trader can now instantly see that given recent price action, they would want to investigate selling Euros against New Zealand, and Australian Dollars.

And once again, this doesn’t guarantee that the trade will work out… this simply allows traders to give themselves the best chances of success based on what has happened in the market.

With a focus on probabilities, strong risk management, and a cohesive trade management protocol – traders are ready to Trade the World.

So we just went over a rather in-depth process to find some very important information that can increase our chances of success in the market. And just as I mentioned at the beginning of this article, quite a bit of mathematics and calculation is required.

The Easy Way

So we just went over a rather in-depth process to find some very important information that can increase our chances of success in the market. And just as I mentioned at the beginning of this article, quite a bit of mathematics and calculation is required but that doesn’t mean that you have to do this on your own.

After doing this analysis for a few weeks, you can get the process down to about 15 minutes of your time while doing daily chart analysis.

But we’ve seen so much popularity behind this analysis, and found so many folks that abhor math that we’ve created a tool that will do all of this for you.

This is the StrongWeak App from FXCM, and all of the calculations that we did previously are done automatically by the software.

The FXCM StrongWeak App grades currencies by strength based on 4 TFs

The StrongWeak app will do all of the work that we had done previously in about 15 seconds. As you can see from the picture above, currencies are monitored based on four time frames, and a bar graph will be used to show which currency has been the strongest, and which has been the weakest over the measured period.

And just like in the ‘advanced method,’ we would want to focus our approach on marrying a strong currency with a weaker one, in an effort to get the probabilities on our side as much as we possibly can.

To take matters further, the app will not only measure strength and weakness, but it will use that analysis to show the greatest disparities based on each time frame. These could be looked at as potential ideas for traders to investigate for future trade setups.

The Strong/Weak App automatically finds the largest disparities

So, for the scalper looking to initiate ideas, they could focus on the 15 minute time frame, investigating potential long GBP/CAD positions.

Longer-term traders can look at the Daily grade of a strong GBP, and a weak NZD to look at potential GBPNZD long positions.

If you REALLY want to avoid trading pairings

While trading two-sided pairs is an inevitable part of the FX market, we’ve seen many traders coming from other markets that have had difficulty with the nuance. So, FXCM has created an alternative route for traders that might want to approach the currency market similarly to stocks or futures.

Through the FXCM Mirror Trader platform, traders can trade ‘currency baskets.’

This basically means that traders can simply say ‘I want to short the Euro,’ and voice that opinion by selling the Euro against a diversified basket of currencies.

 

Source: http://dld.bz/cTfPp

How to Trade the Forex Bullish AB=CD Pattern

- AB=CD Pattern is easy to identify on the charts

- AB=CD Pattern has a structure made up of equal price legs

- The AB=CD Pattern must happen at specific Fibonacci points

Would you pay $1500.00 to learn this pattern? If you answered “No!” then would not have purchased the book with the first appearance of this pattern in 1935 written by none other than H.M Gartley, the father of harmonic patterns.

The Forex AB=CD Pattern or equal wave pattern is an impulsive move in the market. It is part of Elliott Wave theory, but you don’t have to know Elliott Wave in order to make use of this easy pattern.

The BC leg usually retraces to the 0.618 Level of AB but it should not retrace beyond the 0.786 retracement. If leg BC moves lower than the 0.786 Fibonacci retracement level then the pattern is invalid.

In addition, a shallow retracement to the 0.236 or 0.382 level shows traders are eager to end the correction and resume the uptrend as they are unwilling to wait for the 0.618 level

Learn Forex: EURJPY AB=CD Pattern

 

Notice in the above example of EUR/JPY on the 2-hour chart how the “A” leg was formed with the impulsive move from 131.14 and ending at 133.78 for point “B”. After a stellar run of 264 pips, traders will wait for a profit taking decline to end at a Fibonacci level. While the average retracement is to the 0.618 level or 163 pips for this move; the decline was only 100 pips from point B (133.78) to point C near 132.77. In the above trade the risk to reward was 1 to 5!

A sharp rebound from point C could have been entered on October 16th at 133.08 with five range bound candles before EUR/JPY really started moving. After entering long at 133.08, a protective stop could have been placed at 132.57 just below point C at 132.60.From there, a 264 pip limit could have been set at 135.25 which was handily hit on October 22nd.

In the above example the distance from point A and B was fairly equal to the distance from points C and D. However, an expansion of volume can lead to the D target point to move higher to other Fibonacci expansion ratios of 1.272, 1.382, 1.618 and even 2.618. Taking part of a trade off at the 1.00 expansion target and using a trailing stop for the rest of the position will allow a trader to participate in more of the move.

As you can see, the AB=CD is a useful pattern to add to your tool kit as it can provide trades with small amounts of risk in relation to the possible reward. Now you know your ABCD’s to finding good trades!

 

Source: http://dld.bz/cSUNH

How to Understand the Three Building Blocks for Trading Elliott Wave!

How To Understand the Basic Pattern

How To Understand Corrections vs. Impulses In Markets

How To Understand Fibonacci In Relation To Wave Development

Elliott Wave is a great trading tool for trading trends. However, it’s not as confusing as a lot people make it out to be when you consider the primary objective of the tool. Elliott Wave is meant to put the current move of the market in context for you, the trader.

Putting the market in context for you is of great help. For starters, if you know a market that has recently been in a strong trend is correcting, you can look for a resumption of the prior trend to enter at a favorable price. Also, you can look to see if the pattern is starting to break down to see if the prior trend has exhausted itself, and look to either take profits or enter a new trade in the direction of the new trend.

Understand the Basic Pattern

Learn Forex: The Overall 8-Wave Elliott Wave Cycle

The picture above is a mock-up that shows the progression of markets as seen in Elliott Wave. As you can see, the market is often broken up by strong trends and minor moves against the trend. The with-trend moves are known as impulse or motive waves and the counter trend moves are known as correction.

Another key aspect of Elliott Wave is that trends are fractal. Simply put, that means that each impulsive wave can be broken down into 5 smaller waves and each correction can be broken into 3 smaller segments of a counter-trend move. However, it’s often not overly necessary to label every single aspect of the wave.

How to Understand Corrections vs. Impulses in Markets

Learn Forex: 5-Wave Impulse & 3-Wave Corrections unfolding in GBPUSD

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As illustrated above, the trend or impulse unfolds in 5-waves whereas corrections unfold often in a 3-wave pattern. You’ll often hear Elliott wave fans discussing trading based on 5-s & 3-s and that is because they identify the trend and countertrend moves based on the unfolding of a move in 5 & 3-wave patterns.

Furthermore, in understanding the basic 5-wave impulse or trend, you can be on the lookout for a 3-wave correction or developing correction. The purpose of looking for a correction is that as the trend resumes, you can look for the correction to be losing steam so that you can enter at a good price. What many traders who are unfamiliar with Elliott wave often end up doing is chasing the price or enter on the extension of the trend right before the correction begins. This causes them to get stopped out because they did not understand the context of the market and current trend when they entered the trade.

When looking at the 5-wave pattern and 3-wave correction to get context, you can see how the breaking down of GBPUSD has us looking for a correction to continue. Therefore, I’m taking the context as provided by Elliott Wave to get a better feel for GBPUSD. Once this corrective move to the downside completes, then I can look for a buy on a resumption of the overall trend to higher prices.

If you’re not trading GBPUSD, you can take a look at the chart you’re trading and see if you can identify any 5-wave or 3-wave structures. That will help you grab a context of the current market so that you can look for the maturity of the current trend or ideally the exhaustion of the correction. After you’ve identified a current market as ready to resume the trend, you can then look to Fibonacci numbers in order to see where the market is likely go to go as according to Elliott Wave.

How to Understand Fibonacci In Relation To Wave Development

“When R.N. Elliott wrote Nature’s Law, he explained that the Fibonacci sequence provides the mathematical basis of the Wave Principle”

-Elliott Wave Principle, Frost & Prechter pg. 91

Once you’ve been able to get context for the current trend, you can then look to Fibonacci numbers in order to find price objectives within Elliott Wave. In other words, the reason why Elliott Wave traders often utilize Elliott Wave is because you can have definitive levels as to where the correction may end with Fibonacci Retracements. Furthermore, you can have price objectives by utilizing the Fibonacci Expansion tool.

Learn Forex: Fibonacci Provide Price Objectives within Elliott Wave

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One key thing to note when utilizing Fibonacci retracements within Elliott Wave is that there are levels to watch out for but rarely a level that the market must hit. Therefore, you want to focus on price action near levels like the 61.8% on a wave 2 and a 38.2% on wave 4. If you see a lack of conviction past these levels then you can look to a resumption of the overall trend off of these levels.

In terms of price objectives, you can use the Fibonacci expansion tool. The expansion tool takes three points on the chart to project the exhaustion of the next impulse. The most-commonly used targets are the 61.8%, 100% & 161.8% expansion. This simply means that this impulse is either 61.8%, 100% or 161.8% of the prior wave and simply shows you the progression and strength of the current trend.

Closing thoughts

Elliott can be a headache if you worry about labeling every wave and every correction. Instead, I’d recommend focusing on the big picture. In other words, are we in an impulse or a correction? More importantly, if we’re in a correction that’s about to be exhausted, where can we enter on the resumption of the trend?

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Why Many Experienced Traders Favor a Trend Trading Approach

Longer-term moves capture price moves caused by fundamental shifts

Prices are not random and outlier moves are often extended

Money seeking the most favorable trade will often develop extended trends

You need to be able to determine when to trade trends and when not to

Traders who look for a system that is low maintenance while allowing for access to nice market moves often turn to trend trading. Trend trading is a method that allows you to take advantage of the big market moves while ignoring the small moves in hopes of making money often capturing the big move. However, it’s important to note that this trend trading should only be utilized in trending markets and are best left alone when markets aren’t trending.

Learn Forex: Trend Following Is About Capturing the Big Moves

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Longer-term moves capture price moves caused by fundamental shifts

Price trends like the one seen above in the USDJPY pair is often influenced by Economic trends. The USDJPY is specifically being influenced by a plan of the Prime Minister of Japan to weaken the JPY and as an effect drive up both the USDJPY and Tokyo’s stock market the Nikkei 225. As you can imagine, economic trends take a while to develop and often persist until a shock to the system or an eventual decline of new buyers begins to see the trend to its end.

Many traders take a multi-faceted approach to the market. They do this by waiting for the technical picture or price action patterns to converge with the fundaments back-drop before taking a trade. As you can see from above, price moved above the 200-day simple moving average which is a technical buy signal as the Japanese government committed publicly weakening the JPY which helped push the USDJPY higher by over 1,700 pips in the last 12 months.

 

Prices are not random and outlier moves are often extended

When looking at a price chart unfold, there’s a constant feeling that haunts many traders. That feeling is that the rising trend that they just entered is about to be topping out or that buy trade they just exited as a loss is nearing the bottom of its move before moving higher. However, more often most traders would expect, there is an unusually large number of strong directional price moves especially at the last leg of a move.

Learn Forex: Moves Often Continue Past Market Consensus

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However, when you tend to embrace trend trading, this point of anxiety whereas you were likely trying to buy the bottom and sell the top has now become a favored point in your trading. I often share as one of my preferred that trading rules that stood the test of time price can often outlast your capital and its best to not fight the trend but rather join it. Naturally, a trend will eventually turn when the fundamental news (see #1) begins to change or when there are no longer enough buyers to push up prices to new heights but in the meantime, it’s much better to gain on the trend’s momentum that be opposing the momentum.

Money seeking the most favorable trade will often develop trends

Lately, I’ve been rather bullish on the Australian Dollar as it looks to me as the AUDUSD and AUDJPY has likely put in a bottom. However, beyond the technical argument, the yield is simply much better for the Australian Dollar than in other currencies and the map of the world is often a flow of investor funds seeking the best yield. As you can imagine, as this picture becomes clear to many, additional money will likely flow into the Australian dollar and continue the trend.

Learn Forex: AUD ties NZD as the Highest Interest Rate among Major Currencies

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Now, please understand, my view on the AUD is one that is temporary working but I don’t know if it will continue. A few things could offset this positive price action like a US default of its debt or a slowdown in Chinese demand and production. However, should things continue course and money continues to seek a safe yield like it traditionally has then the uptrend in the AUD is likely to continue.

You need to be able to determine when to trade trends and when not to

If a new trader came up to me and asked what one piece of advice I had for someone who wanted to trade trends, I would simply reply that make sure you are only trading when a clear trend is present. In other words, you will likely frustrate your efforts if you try and squeeze a trend out of a clear range. While this may appear as trite advice, it’s clear that a trend system will quickly run out of purchasing power if it enters in a sideways market that continues sideways.

Learn forex: USDJPY Should Only Be Entered on a Breakout if you’re Trend Following

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The purpose of trading breakouts is to enter on the resumption of the trend after the sideways price action has preceded. I recently wrote about polarity points on the charts and the concept goes that once a ceiling or floor in the market is broken, the role of that level is often flipped. Therefore, what was once a price ceiling becomes a price floor when broken and vice versa.

Closing Thoughts

You should now have a clearer understanding of why trends develop and why they can often last longer than many anticipate. As opposed to being frustrated by the presence of a trend, it’s often best to join the trend while it is in action. However, it is often best to wait for a breakout to make sure that you’re entering on the resumption of the trend so you don’t get caught up in the sideways price action that often develops after a big move and many of the traders in the prior trend are taking profits.

 

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