Forex Trading System

This is a blog about all the great forex trading systems.

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Long Term Trading Strategy for Forex is a great article or trade setup posted on Winners Edge Trading

New Post has been published on https://winnersedgetrading.com/long-term-trading-strategy-for-forex/

Long Term Trading Strategy for Forex

  Long Term Trading Strategy for Forex

There are a lot of reasons why I believe that a long term trading  Strategy sets you up for success more so than using smaller time frames to trade, and I will get into several of those reasons within this article.

I also lay out a few of those reasons in a more light-hearted tone in my Scalp vs Swing Article which has gotten a lot of attention.

The first thing I want to do is clarify that when I say “Long Term” I am meaning at least looking on the daily charts. I believe that one of the big issues with Forex traders today is that they are so caught up in short-term trading and scalping (which again, I really do have a hard time believing traders can be profitable with), that they don’t even recognize what long term trading is.

I have had many traders say something like this to me: “I want to begin looking at best long term forex trading strategy because scalping has not worked for me. I am now using a long term strategy, trading the hourly charts.”

See, I think the above statement is one of the issues with Forex Traders today and why so many have a lot of trouble being profitable. Learning this type of trading is one way you can learn how to become a successful forex trader.

For some reason, the majority of traders—especially beginners—are so bent on scalping that they don’t even have a realistic idea of what long term trading really is (I know my friend, Zaheer, will agree with me on this one).

So again, when I am talking about “Long Term Trading,” I am talking about using the Weekly charts (and even the Monthly) as your guide for set-up potential and targets, and then, perhaps, using a lower time frame to actually execute the trade for more precision.

Before I get into the actual strategy I want to share with you, I want dig a little more into why the right perspective is so important when it comes to trading long term strategies—I know that many of you only care about the actual strategy guidelines, but I believe that the following information about perspective and a holistic approach is actually more important than the strategy guidelines (comment below if you agree/disagree with me on that).

As an example of how this “Short Term Mindset” can get you into trouble, let’s take a look at the EUR/USD.

Someone looking at the EUR/USD on a 4HR chart would see something like this:

EUR USD 4 HOUR CHART

  In the above chart, you see that there is a lot of bullish momentum moving toward higher highs. From this perspective, it looks as though all bullish continuation set-ups will be great entries; however, a longer term view of the EUR/USD at the same exact time tells a different story:

WEEKLY EUR-USD CHART

You can see by looking at the Weekly chart, that the EUR/USD is in a long term forex trading strategy down trend, and that the bullish rally on the 4HR chart is just a pull-back rather than a raging trend as it appeared before.

Not only is it only a pullback, but it is a pullback heading into unsuspected resistance (unsuspected if you only look at the 4HR and don’t realize what is going on long term).

If we move a little bit ahead in time, you can see a bearish bounce off the resistance level. To the trader viewing only the 4HR chart, this may look like a great time to buy again in anticipation of Bullish trend continuation…

buy set up on eur usd

What the 4HR trader may not realize is that this is not a pullback of the 4HR trend, but rather a continuation of the Weekly trend. So, where the long term trader sees obvious Bearish continuation potential, the short term trader thinks this is “just a pullback.”

So to the 4HR trader, this looks like an unexpected major reversal in the market, but to a long term trader, it is an obvious and expected continuation of market flow, looking like this on the Weekly view:

WEEKLY CONTINUATION

This is why it is so important to have a long term view of the market ESPECIALLY if you are going to call yourself a long term trader. Again, so many people looking at 4HR charts think they are long term traders, but they are ignoring the real long term time frames—and that can get you into big trouble just like in this real life example… Those two bearish weekly bars you see would crush someone trying to take long positions on the 4 Hour chart, yet they are just part of the flow on the Weekly view.

Now, I am not saying that you cannot trade profitably on the 4HR charts; I am saying that it is very difficult to make consistently profitable trades when you do not have a good perspective of the markets longer term movement—especially when trying to trade an intermediate time frame like the 1 or 4 hour time frames.

With that said, let’s talk about my long term strategy for traders who want to be profitable and consistent! 🙂

One major note about this strategy is that you must be disciplined if you want to succeed. Yes, you need to be disciplined with all strategies to expect success, but in particular, if you want to trade a long term strategy effectively, you must control your emotions and desire to “get into the market.”

One of the biggest mistakes that unprofitable traders make is over-trading and over-managing their trades. As human beings, we have the desire for action and involvement which tends to cause us to always want to have a trade open or always want to manipulate the trades we do have open, and I can promise you that this will only lead to less and less profitability.

If you want to be successful using the long term strategy that I am presenting to you, you must accept that there will not be a ton of entries (which is a good thing, in my opinion) and that there will not be a need to “jump in” to the open trade and manage it.

Here is how the strategy works:

1 Take a look at the Monthly and Weekly charts.

Looks for trends on these longer term charts that have good momentum in the respected direction. Something like this:

WEEKLY CHART OF TREND

Identify the direction of the trend (bear or bull) and make a note to only look for entries in the direction of that trend (for instance, if it is a bullish trend, look for buys).

2 Zoom into the Daily Chart and draw a Fibonacci Retracement from the current high to current low (or the other way around).

Here is how to draw a Fib Level for those that don’t know:

  3 Look for pullbacks on the Daily time frame that are approaching the 38.2, 50.0, or 61.8 Fib Levels.

usd cad daily forex chart

If price is getting close to one of those 3 key fib levels, be prepared to make an entry.

4  Look for Candlestick Entry after Fib Level is Tested (touched by Price)

As soon as price touches a weekly Fib level, you are now in the “waiting for signal” mode. In other words, the criteria has lined up for you to make a trade, now all you need is the signal to confirm your forecast.

For this strategy, the signal is a momentum daily bar in the direction of our long term trend. An ideal daily signal candle will have a tail that has tested (pierced through) the Fib level, but then reversed back into the direction of the trend:

test of fib level

5 Take the Entry. Place your stop and target.

Here’s how…

    6th Wait… then win or lose.

Just like I showed you in the video above; some trades win and some lose.

Don’t try to manage the trade or get fancy, just trust the strategy and let the trade be a winner or a loser. Trading is all about Math—a good strategy has winners and losers, but at the end of the year, the winners out-weigh the loser. They will in the strategy if you follow it with discipline!

Hope you guys enjoyed learning one of my favorite long term strategies. Please leave a comment with any feedback.

Comment if you plan on trying the strategy or comment if you hate the strategy!

Either way, I’d love to get your feedback!

  Winners Edge Trading is offering a special discounted offer to our long term trading strategy.

[tradingsystemsforex]

Strategy: Trading the Break of the Day is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/the-daybreak-strategy/

Strategy: Trading the Break of the Day

Last month we discussed a price action strategy (I’m partial to price action strategies using near-“naked” charts) using Pin Bars. While I like that strategy and will continue to use it, it requires the trader to be attentive to every chart, every hour. That doesn’t work well for me, as I like to be “done” by 11 AM NY Time and many of the good trades come after that.

The Daybreak Strategy

The Daybreak Strategy allows you to look at the charts once a day, set up the trades, and walk away if you want. I actually watch them a little better than that, only because I don’t want to be in the money and then stop out with a loss. 

Find a pair for which there is no red-tagged news anticipated for the remainder of the day. Look at a 15 minute chart of your chosen pair around 9 AM Eastern US Time (GMT – 5). Be sure the “period separators” are enabled to make it easy to find the beginning of the day (Charts/Properties/Common/Show period separators.) The first step with our strategy is to determine if the pair is trending or ranging. If the pair is trending, pass on it for the purposes of the Daybreak Strategy. We’ll discuss a strategy for the trending pairs later.

AUD/USD Trending (20 Sep 17)

EUR/USD Ranging (20 Sep 17)

Setting The Daybreak Strategy Orders

Determine your risk and calculate your trade size based upon a 10 pip stop using a position size calculator. (e.g. http://www.myfxbook.com/forex-calculators/position-size) and place a sell stop order one (1) pip below the LOD and a buy stop order one (1) pip plus the spread above the HOD. If you do not include the spread on the buy stop order, the order will trigger before the chart price pushes above the HOD (assuming an MT4 bid-type chart.)

USDJPY Orders

I set the expiry for the orders at 5 PM NY Time. Use a 10 pip stop loss and a 30 pip take profit for the trade. At this point you can just walk away from the trade and let it run.

Taking Profit

If I’m around, as with most of my strategies, I lock in the trade at +10 pips (take a portion off to cover trading expenses and set the stop loss on the rest to break even.) As always, if the price action nears the take profit level, I will usually close it early.

I use this strategy on all the major US pairs and some of the major crosses. I try to keep the pair count smallish and will only allow a couple of trades to trigger each day. If I risk ½% on each trade, then I can expect 1% to 1.5% profit per trade. That way I can easily hit my goal of 1% gain/day with one winner and come close to my goal with one winner and one loser. If I get 3 losers in a day, I shut the rest of the orders down and don’t trade any more that day.

Standard Trading Advice

As with any trading strategy, remember, never bet the farm. No single trade should be big enough to make or break you as a trader. Protecting your trading account is your first job as a trader. Without it you’re done. The only way you can be a full-time professional trader is to manage your risk like a professional.

Always have a plan. A plan to get in; a plan to get out. A plan for a win; a plan for a loss. Follow your rules. Discipline, discipline, discipline.

I know you regular peeps are probably tired of hearing this. But do it anyway.

Recommended Reading

These books are not about trading strategies, they are about trading psychology – which I believe is MUCH more important.

Trading in the Zone – Mark Douglas

The Disciplined Trader – Mark Douglas

Available at Amazon.

[tradingsystemsforex]

Automated Forex Trading Testing ... Testing 1, 2, 3 is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/automated-forex-trading-testing-testing-1-2-3/

Automated Forex Trading Testing ... Testing 1, 2, 3

Mark Thomas — Trade On Track

An important step in the development of an automated forex trading strategy (trading robot or EA) is the testing phase. Testing should involve back-testing as well as forward-testing and be performed as accurately and extensively as possible. No amount of testing can absolutely assure future results, so the idea is to be as sure as possible!

Why Test?

The answer seems obvious … so that you can be reasonably sure of what you’ll get from your automated trading strategy in future. Testing means you can see how your strategy has reacted in the past to different market conditions. You can gauge whether the strategy has worked against different currency pairs or different time frames. You can test variations of the strategy to see what works best overall, and what should be avoided. Testing a strategy can give you the confidence to keep using the strategy in future if the past results have been profitable and consistent.

How do you test?

To back-test a trading strategy, you first need to obtain some historical data. The historical data contains information about price levels in the past, such as open, high, low and close information. You can get historical data for daily intervals (this is the easiest to get), where each record contains open, high, low, and close prices for each trading day. More detailed data can also be obtained for shorter intervals such as hourly, 5 minute or even 1-minute intervals. Generally, the shorter the time frame, the more accurate you can make your back-testing.

The first place to look for historical data is your broker. Many brokers offer free data downloads if you have a live account open with them, and the data is usually of quite good quality. Your broker’s historical data will also most likely be the same data that is used to draw the charts that you trade off, so it’s easy to look back through your charts and visually check how your strategy plays out.

There are other sources of data too, some are free, some involve a cost. It’s a good idea to obtain good quality data from a number of different sources for your back-testing. Data can vary, so it’s good to be able to test your strategy on the different data sources to see if it holds up. Dukascopy (http://www.dukascopy.com) is a good source of data, and you might also try Gain Capital (http://ratedata.gaincapital.com/)

To actually perform the back-testing, you’ll need a software program which processes the historical data and executes your trading strategy using that data. Trades aren’t actually executed, of course, the execution is just emulated within the software. Based on your strategy, the program can keep track of when the trades would have been taken, how profitable they were, how many winners compared to losers you had, and many other statistics related to the performance of your strategy.

The most accessible automated trading forex software program to do this is Metatrader 4 (MT4). It has a built-in strategy tester and you don’t even need to download any historical data first – it will do it for you automatically. The downside to MT4 is that you first need to write an EA which implements your trading strategy. Writing an EA involves writing a computer program in the MQL4 language – the scripting language that MT4 understands. So, you’ll need to be able to program in MQL4 or get a programmer to do it for you if you want to go down this route.

If you like to get your hands dirty in computer code, you can also just write a program to back-test the strategy using the historical data. There is usually a library available for your favorite language which contains the indicators and other statistics you may need to test the strategy, such as EMAs, SMAs, MACDs, RSIs and so on. For instance, there is a freely available library called “profitpy” for the Python programming language which allows you to build a strategy tester.

For non-programmers, check out http://www.thinkingstuff.com. Their system allows you to develop and back-test strategies using point-and-click technology. What this means is that you don’t have to write any programming code, you just use your mouse to select options and the Thinking Stuff software builds the back-testing code for you.

Other related sites for strategy testing include: http://forextester.com/ and http://forexsb.com/

Testing Pitfalls

Back-testing and getting good results doesn’t necessarily mean that you have a good automated trading strategy. There could be flaws in your back-testing procedure or data which is affecting your results. Some common back-testing problems include:

Optimizing (or curve-fitting) the strategy too much. If you tweak and re-tweak your trading strategy to give the best results possible using the data that you have available, then you run the risk of tailoring it too close to that data. If there are too many parameters or filters involved to make the strategy work, then you may have problems in getting that strategy to give satisfactory results in the future. Sometimes you’re better off NOT optimizing so much – give the strategy a little room to breathe, make it a little simpler or more flexible. A lightly curve-fitted strategy is likely to give better results in the future.

The data isn’t detailed enough. If you have 15-minute historical data and you’re testing a strategy that works on the 15-minute chart, then the accuracy of back-testing is going to be quite limited. For instance, if in one 15 minute period (one 15 minute bar) price shoots up and reaches a point that would have hit your target and it also reaches down to a place where it would have taken out your stop loss, how do you determine whether your target was hit first or your stop was hit first? The answer is, you can’t. Without going down to a lower time frame or even tick data, there is no way from your historical data that you can tell whether price went up first or down first. You only have open, high, low and close information. So, if your data is limited in detail, your back-testing program should take the worst case scenario in this example and assume that the stop was hit first.

Data is bad quality. Some free data sources are terrible quality. There are gaps in the pricing (from the close of one bar to the opening of the next bar), there are incorrect prices, and sometimes there is just no data where there should be some! Try to obtain decent quality data and when in doubt, try to obtain data from a number of sources and get the best results possible from all sources.

Forward-Testing

All of the above has dealt with back-testing, but forward-testing is also important. Forward-testing an automated trading strategy involves running the robot trading software in a live (or demo) trading account and monitoring the results over a period of time. You may be surprised that something that works really well when back-tested, does not perform very well when running on live data. This can be because of the curve-fitting problem mentioned above, or because you’re striking market conditions that haven’t been tested in the past. Forward-testing can also uncover other problems in your back-testing that you weren’t aware of, so it’s essential to forward test, preferably on a demo account before moving to a live account.

Once you’ve back-tested your strategy on a good sample of historical data and you’ve forward-tested it too, you can be confident that your future (or at least, near future) results will be fairly similar to the results you’ve had to date. Never just let a trading robot loose though – always monitor what it’s doing because markets can be unpredictable you want to be ready to pull the plug should something go wrong.

[tradingsystemsforex]

Japanese Candles: An introduction and how to use them is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/japanese-candles/

Japanese Candles: An introduction and how to use them

Japanese Candlesticks

  Introduction to Candles

Candle Formation

Using Candles in Forex

  Introduction to Candles

  Japanese Candlesticks have been around for centuries they were originally developed by the Japanese and are used to today on trading charts. In this article, you will find the forex trading candlestick patterns.

The colors represent if the price went up or down during that candle. The candle represents a period of time. It depends on what kind of chart you have open. If it is a five-minute chart than the each candle represents the total movement of the price during that candle. I always enter trades after a candle closes because sometimes you can get a price spike during a candle that will not last and if you enter then you can get caught with a losing trade.

The Candle Below is called a Doji that means the price did not change during the candle. It went up and down while the candle was open but at the time the candle closed the price was the same or very little change.

Sometimes a doji candle can signal a reverse in price if there has been a strong run one way or the other.

Candle Formations

  Sometimes a doji candle can signal a reverse in price if there has been a strong run one way or the other.

The hammer is when the price has had strong movement down then it suddenly stops and reverses as shown by the wick. A strategy you can implement is to enter a trade on the next candle after a hammer if the new candle is heading the opposite direction.

Below is a pattern called the shooting star

Shooting star is the same as a hammer only to the upside and can be used the same way. Enter a short trade at the opening of the next candle. This pattern can also be called a morning star.

The next pattern is called engulfing candle

This pattern shows a reversal because the small candle is getting engulfed by the larger one but the key is that the engulfing candle must be going the opposite way.

Using Candles in Forex

  Try to identify some of these Japanese candlestick patterns and formations on your charts and with your demo account make some trades by using them. Then later on in our lesson, we will learn to incorporate these patterns into your trading strategy using support and resistance levels and indicators.

We use Japanese Candlesticks to find our buy and sell setups. Watch the video below to find out how to find precise entry and exit points.

[tradingsystemsforex]

Different Trading Platforms is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/different-trading-platforms/

Different Trading Platforms

  Choosing the right Forex trading platform is essential if you’re going to be trading on every single day. You need a flexible trading platform that fits all your personal trading needs. Trading the market is a very difficult process so you want to make sure you make your life as easy as possible so you can focus on the market action.

Going forward, you’re going to learn what are the most important features that you need to seek when choosing a Forex trading platform. First, you need an easily operated and accessible Forex trading platform that offers you all the tools needed for your technical and fundamental analysis.

You need a reliable and stable trading platform that doesn’t go offline the moment you open a trade. Furthermore, it’s crucial to have a secure trading platform that can offer you a transparent trading environment. Ultimately, as a trader, you want to research what are the best options available to you in terms of Forex trading platforms before you trade with your hard earned money.

We live in a fast moving world where new technological innovations have enabled an explosion of ultra-competitive Forex trading platforms that are available to you.  We have written a practical guide that covers the most popular and trusted Forex trading platforms and the most competitive platforms.

  MetaTrader 4 – Fx Trading Platform

    The MetaTrader 4 trading platform is without a doubt the most popular Forex trading platform. Millions of traders with different level of experience and different trading needs have chosen MetaTrader 4 as their main trading platform. The MT 4 platform was first released in 2005 and it was developed by MetaQuotes Software. Since it’s widely accepted and used by many traders the MetaTrader 4 platform is provided by the majority of the Forex retail brokers.

The MetaTrader 4 is not just a charting platform, it’s also a platform that you can sync with your broker, you can connect it with multiple accounts and unlike with the regular charts, the MetaTrader 4 provides you with full functionality where you can set automated trades also called Expert Advisors or EAs.

The MT 4 platform is rich in technical indicators as it comes with more than +50 free indicators that you can customize and you can modify. For a novice trader, the MetaTrader 4 is the best technical analysis solution and charting software as it’s very intuitive to use.

With the MT4 platform, you can also have the One-click trading option which is the fastest way to trade through a chart.

TradingView – Fx Trading Platform

    TradingView is a web-based Forex trading platform. Actually, it’s also a multi-assets online trading platform because it offers charting solution for stocks, commodities, indexes and many more instruments. You can access the TradingView platform through any internet browser.

What really separates this software apart from most other ones is the social aspect of trading. TradingView is more than just a simple trading platform is a social network platform that allows traders to interact with each other and share trading ideas. TradingView was really designed from the ground up to allow traders not just to do your technical analysis, but then also to be able to publish and share ideas and receive feedback.

TradingView offers a broad range of charting tools that can help you improve your Forex analysis. You can also subscribe for a monthly fee to their Pro account where you can have access to even more features.

cTader – Forex Trading Platform

    cTrader is a cutting-edge Forex trading platform catered for institutional traders. Even though you can easily customize the default interface of the cTrader platform has a professional design that can cover almost all your trading needs.

Unlike other trading platforms, cTrader is a very stable platform that rarely freezes which is something that all trading platforms should strive for. The cTrader is a standalone trading platform, but at the same time, you can access the platform through any internet browser which means you won’t need to go through an installation process.

The main feature and characteristic of cTrader is the DOM (Depth of Market) ladder which means that you’ll be able to see the liquidity available on both sides (buy and sell side) of the market. This means that you’re connected directly to the liquidity providers instead of trading against your broker.

  TradeStation – Forex Trading Platform

  TradeStation is a platform with great tools, it has a great data feed and it’s a broker so you have everything you need to start trading all in one place. TradeStation like many other trading platforms can be accessed through desktop, web browser and last but not least through mobile apps.

Just about everyone who invests or trades can have a great experience with TradeStation. In terms of usability, TradeStation is a little bit more complex trading platform because it’s a multi asset platform not just for Forex trading.

When it comes to trading speed is very important and you should always be concerned how fast you can execute your trades. How many milliseconds does it take to execute a trade? Trading is about speed and velocity of movement and in this case TradeStation is very fast

The main downside with TradeStation is the fact that you’ll need to pay a small monthly fee in order to be able to trade through this platform. If you’re thinking seriously about trading, TradeStation is one trading platform that you can consider using.

One of the reasons why so many traders choose TradeStation is because it has Easylanguage which is a proprietary programming language used to create automated trading strategies and build indicators. Best of all, you can backtest and optimize your strategy.

Summary

  Choosing the right trading platform can be detrimental to your future success, especially if you’re just starting in this business. There is no perfect product that can satisfy all the users. In this regard, you should choose the Forex trading platform that can meet all your trading needs and above all, it needs to make your life as a trader much easier.

There are many options you can choose from so you’ll have to factor in the most important feature that your trading is dependent on. Once you figure out what your trading needs are, you can move from there and narrow down your available choices. Last but not least, no matter what your preferred trading platform is, make sure you first have a profitable trading strategy.

Thank you for reading!

[tradingsystemsforex]

Everything you Need to Know About Brokers is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/everything-you-need-to-know-about-brokers/

Everything you Need to Know About Brokers

Every time that you buy a stock the price of that stock would be the same no matter which broker you bought it from. This happens because the stock market field is strongly regulated and the prices are obtained from one central exchange such as the New York Stock Exchange. In the Forex market, it works a little bit different because the prices are not obtained from one central exchange instead they are derived from the Interbank market.

The Interbank market is a conglomerate of various banks and financial institutions that provide prices for currencies to various different Brokers around the world. The prices provided by these Brokers will vary depending on the relationship between themselves and the Brokers, so obviously the better the relationship, the better or the cheap the prices are.

  What is a Forex Broker?

To kick things off, let’s first talk about what is a Forex broker? A Forex broker is simply a vehicle that gives individuals like us access to the markets. It’s an intermediary or a middleman between you the trader and the foreign exchange market that facilitates your trades, both the buys and the sells orders. Usually, they are licensed and regulated by national regulatory bodies.

A Forex broker will charge their clients a commission or fees or a spread – fixed and variable spreads. Depending on the type of your broker they can charge you a combination of commission and spread. This should be considered to be just the cost of doing business in facilitating your traders. It’s important to note that different brokers have different levels of engagement with their customers.

  Different Types of Forex Brokers

In the Forex industry, there are two different types of Forex brokers:

Dealing Desk (DD) brokers or Market Makers (MM);

No Dealing Desk Brokers (No-DD) which can be further divided into three separate categories:

ECN (Electronic Communication Networks)

ECN + STP (Straight Through Processing)

DMA (Direct Market Access)

  The ECN and STP broker is transacting your trades directly into the market or with their liquidity providers. On the other hand, some brokers are going to make their money by taking the opposite side of your trades – dealing desk brokers. These types of brokers are trading against their clients. So, when that happens basically there’s a conflict of interest because when you win they lose and when you lose they win.

Guess who is going to lose more often? The house always wins.

A dealing desk broker will be holding your trades on something called the B book. This means that they sort of manage their trades internally usually through a dealing desk. Generally, when a broker is using a B booking approach then they’ll do all sorts of internal controls to manage their risk, to hedge positions and to make sure their volumes are balanced and things like that. They do this also to reduce the risk of them to lose money.

When a trader starts becoming consistently profitable or starts trading really large volume this presents a bit of a problem for a dealing desk broker. And in this situation, they run a different book called the A book where they place the profitable traders so they can either hedge the whole A book or simply sends the order coming from the A book directly to the Interbank market.

In a DMA environment, multiple banks will feed quoted prices to the DMA broker. The DMA broker will aggregate these quotes and select the best available bid and ask price, which means you’ll have the best available spread. In other words, the client will be sending his orders directly to the Interbank market and you’ll be having complete transparency on who is on the other side of your trade.

  How to Choose a Forex Broker

There are so many Forex brokers out there that it has become a difficult task to know how to choose the “right” broker. The most important point you need to look out for is regulation. If you want protection and assurance then you need to check first of all that your broker is regulated.

Your broker can be regulated by a shady jurisdiction, which we recommend to avoid, or they can be regulated by big financial institutions which have bigger resources and strict financial requirements like the UK FCA (Financial Conduct Authority) or the USA NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission). These regulatory bodies are more trustworthy and their umbrella of regulation has also more integrity.

Understanding the business model of your Forex broker is the next thing you should look for when choosing a Forex broker. This is really important, especially if you’re going to be trading large amounts of money. In general, you want to choose brokers that are not going to trade against your position. In other words, you must avoid dealing desk brokers and chose a non-dealing desk broker.

A non-dealing desk broker has a vested interest in you doing well because the more you’re trading the more money they’re making from commissions. So, they are on your side in this situation.

Another criteria for a good Forex broker is the one broker regulated by a jurisdiction that offers some kind of deposit insurance. So, in the case your Forex broker goes out of business you at least can get your money back.

Last but not least, you should look for a reliable speed execution. Trading in fast-moving markets such as the Forex market means that you want to be able to enter and exit the market quickly. Any delays can either cause you to miss a good trading opportunity or even worse, it can make your losing position even bigger if you can’t exit your trades instantly.

  Summary

With so many options available to choose from we hope that this Forex broker guide can help you better examine your broker. Ultimately, besides the security of your funds and the integrity of the Forex broker – regulation – you want to choose a broker that covers all your personal needs as a Forex trader.

The bottom line is that if you trust your broker, you’ll be in a position to focus your time on the things that matter most which are developing your trading edge and your Forex strategy. But before sending your money to any Forex broker, doing some research will help you gaining access to a fairly trading environment that can ultimately increase your odds of success.

Thank you for reading!

[tradingsystemsforex]

How do you Trade and Make Money? is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/how-do-you-trade-and-make-money/

How do you Trade and Make Money?

The way one makes money in the Forex market or any other type of market for that matter is simply through buying and selling securities. Obviously, in order to make money on the Forex market, you have to buy low and sell high. Obviously, the main purpose of trading is to make money and in the Forex market, you make money by exchanging one currency for another currency, assuming that the currency exchange rate will change and go in the direction you forecasted.

    If for whatever reasons, either technical or fundamental reason, you believe the EUR/USD exchange rate will rise, you simply want to buy and go long. In the financial world, when a security or an instrument is rising in value in a persistent way, we call that a bullish trend.

    Conversely, if for whatever reasons, either technical or fundamental reason, you believe the EUR/USD exchange rate will decrease, you simply want to sell and go short. In the financial world, when a security or an instrument is decreasing in value in a persistent way, we call that a bearish trend.

    Where does Trading Take Place?

  Depending on what security you’re trying to buy or sell there are two places where trading takes place:

Trading on Exchanges: An exchange is an organized marketplace where you can buy and sell a variety of instruments like shares (E.g. New York Stock Exchange), futures and options (E.g. Chicago Mercantile Exchange). As technology has evolved so has the stock market, as the majority of transaction happens electronically and orders are matched more efficiently.

Trading Over-the-Counter (OTC): In an OTC environment trades are made directly between two parties. All the trading activity happens through decentralized dealer networks. The world’s biggest and most liquid market is the Forex market, which is actually traded over-the-counter. This means that there is no physical exchange where Forex trading happen, which is done electronically within a network of bank dealers and brokerages that deal directly with each other.

How to Trade?

    Before opening a trade you have first to decide what instrument to trade. Secondly, you’ll have to decide if the trend is either bearish or bullish, which ultimately will help you determine whether you should buy or sell.

Normally, when we’re moving in a bullish trend you want to buy and conversely when we’re moving in a bearish trend you want to sell. Last but not least, when opening a trade, you also have to decide on your trading size, where to take profits and where to hide your stop loss.

  How does Trading Work?

For every BUY order executed there must be an equivalent opposite BUY order in order for a transaction in the market to happen. Conversely, for every SELL order executed there must be an equivalent opposite BUY order in order for a transaction in the market to happen. These two opposite orders are equal; all you need to do is to agree on the price.

Then how do stocks move up and down?

If there is a buy order for every sell order how the stocks move up or down? And who decides this? These are all very legitimate questions that deserve an answer. The truth is that there are several key factors that cause stocks to move up and down and at the most very basic level the supply – demand imbalances drive stock prices.

The supply side is represented by the total shares that people want to sell, and the demand side is represented by the total shares that people want to buy. When the supply side equals the demand side we have what is called the equilibrium price.

  EUR/USD Trade Example – A case Study

Now, let’s have a look at a real example. Throughout this example, we’ll answer a very important question: How much money can you theoretically make by trading currencies? For this purpose, we’re going to look through a hypothetical trade example, which will shed some lights on how money is made by trading Forex currency pairs.

Let’s assume that you have $1,000 on your Forex trading account. The current exchange rate of the EUR/USD is 1.25. In other words, for 1 euro you get 1.25 US dollars. You forecast and anticipate that during the current day euro will rise against the US dollar. Based on your analysis you buy 800 euros for your $1000, your initial deposit.

Your forecast is correct!

    The EUR/USD exchange rate rises from 1.2500 to 1.2600 which is a 100 pips movement. Being in profit you decide to close the trade and exchange 800 euros back to $1,008. In effect, your profit on this trade is $8.

Not that much, right?

What if you could potentially increase your existing profits? In order to maximize your profits, you can simply use leverage. Usually, if something costs $10,000 you need to pay $10,000 for it, that’s common sense. However, in the currency market, you don’t have to have the whole price of what you’re buying; you only have to deposit enough money to cover possible losses.

The deposit you put up is called margin, the broker then lets you trade a certain multiple of that margin and this is called leverage. Basically, leverage is a loan that gives you the possibility to make bigger returns relative to the amount invested.

With higher leverage also means not only more profit potential but also much larger losses. In this regard, managing your risk is very important because there is a danger to lose more than your initial deposit. When using a leverage of 1:100 your purchasing power increases 100x time your account balance.

Coming back to our example, this means that with $1000 we can control $100,000 buying power. Under the same above scenario where we forecasted that the EUR/USD exchange rate will rise, if you decide to use the whole buying power available for trading you open the same long trade but with a position size equivalent to $100,000.

At the moment when you close the trade and return the loan to your broker, you are now left with a bigger net profit of $1000. An incredible result after just one trade you were able to double your initial investment.

  Summary

Trading the financial markets can be done not just through buying securities, but through selling securities as well. You can actually make money from both buying and selling, but the key to trading successfully is to buy low and sell higher.

Not all markets provide you with the same level of accessibility and in this regard, the Forex market can be a great start of your trading career, especially if your initial investment is not that much. Through the power of leverage and compounding making a lot of money trading can be achieved if you’re able to find an edge.

Thank you for reading!

[tradingsystemsforex]

How the Markets Work? is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/how-the-markets-work/

How the Markets Work?

You might be wondering why it’s important to know about how the markets really work. Well, it’s extremely important and we believe that the majority of traders end up losing their money because they don’t really know how markets work. They risk their money without the knowledge of these basics that govern the price movement of all markets.

One of the most popular fallacies about the markets is the statement which says that the price is going up because there are more buyers than sellers. This is completely false because for every buyer there is a seller and vice-versa. In the auction of financial markets, there is never such situation where there are more buyers or more sellers.

Then, what makes the price to move up and down?

To give an answer to this important question, let’s look at two different cases. On the top chart, we have the price of Gold going down and on the bottom chart, we have the USD/JPY exchange rate going up.

  What happens in each situation? What makes the price go up on USD/JPY and going down on Gold?

If your answer is that the price is going up because there are more buyers than seller and the prices go down because there are more sellers than buyers than that’s not entirely correct. The markets just don’t work like that. These are the most popular misconceptions about how the markets work.

If you think about it, it doesn’t actually make any sense. For example, you see the price going up and you want to buy because you believe that it will continue going higher so you can later sell with a profit. Now, if the statement about more buyers than sellers would be true, you could be in a situation when you couldn’t buy because there would be fewer sellers than buyers.

In other words, there will be nobody to buy from you just came too late as there are no sellers left to take the other side of your trade. The same holds true if you want to sell because there would be nobody to sell to.

Of course, the market doesn’t work like this, nowadays you can buy or sell anytime the market is open and you can do so at any price.

The reality of the markets and the process behind what drives the price up and down is as follows:

The price is going UP when buyers are more aggressive than sellers.

The price is going DOWN when sellers are more aggressive than buyers.

What do we mean by being more aggressive?

It’s simple, aggressive buyer or sellers use a market order to open trades which means that it consumes liquidity. There are two main types of orders in any financial market, it doesn’t matter if we’re talking about Forex, stocks or futures it works the same in any financial market. These two main order types are:

Market orders

Limit orders. A limit order will be the one who provides liquidity.

There are also some subtypes of these orders, but at the moment we do not need to know about them.

Supply and Demand Equation

    The total amount of an instrument which sellers want to sell represent the supply side of the market.

The total amount of an instrument which buyers want to buy represent the demand side of the market.

As we’ve previously established, the market moves in the direction where the market players are more aggressive. This is what causes the demand being higher than the supply side. If buyers are more aggressive than sellers the market will move up, and inversely, if sellers are more aggressive than buyers the market will move down. This is what causes the supply being greater than the demand side.

Contrary to the popular believe, the market will continue to move higher until there are no more willing buyers to drive the market up. In other words the market will go up until the demand side drys out.

Inversely, the market will continue to move lower until there are no more willing sellers to drive the market down. In other words the market will go down until the supply side drys out.

  How to Practically use Supply and Demand

By now you probably ask yourself: How can I use these market principles?

Well, you now know that the market is moved by supply/demand imbalance that is driven by aggressive traders using market orders. These aggressive traders need to clear all the limit orders to move the market. With this information, you can now understand what happens when the market makes a new low and reverse or what happens when the market makes a new high and then reverses.

You can also predict where it’s most likely to have supply/demand imbalances. In other words, as an order flow trader, you now should think along the following line: at what price you can expect a massive limit order to be placed which will stop aggressive buying/selling pressure.

Trading with an order flow mindset means that you now need to put together a puzzle where you put small pieces of information to build a bigger understanding of what drives the market.

Let’s look at an example.

In this example, we’re going to focus on the market scenario of what happens when the market makes a new low and then reverse. What happens in this situation from a supply and demand point of view?

In the chart below, the Gold price is going down. You should now understand what needs to happen in order for the market to stop and reverse. What needs to happen between the supply side – the aggressive traders in this case – and the demand side, which is represented by passive traders?

Let’s first analyze the Gold chart; the price is going down after it created a double top pattern. The sell-off is now visible to all market participants. Now, many aggressive sellers will be selling because the price is going down very quickly and they believe it will continue trading down.

Let’s continue.

Other indicators based traders will join the sell off later because of the lagging nature of these indicators will trigger a trade well after a move is put in motion. This confirms that there will likely be more aggressive traders pushing the market down.

But are these aggressive sellers?

Most likely not, because these aggressive sellers are most likely small retail traders which are wrong almost all the time. We have learned that for every sell order must be a buy order, most likely the counterparty of these sellers are the smart money or the big money institutions, which uses limit orders to get in the market and which absorb the liquidity.

For example, let’s say that after we broke below previous low 500 buy limit contract show up while the aggressive traders will sell 200 contracts being able to clear 200 buy limits, but 300 more are yet to be paired. Since there are no more aggressive traders to open new positions, it means they are not able to absorb all the buy limit orders.

The price stops because sellers are exhausted as everyone who wanted to sell already sold and there is no one left to continue to drive the price lower, the supply side is drying out. Meanwhile, aggressive buyers are now stepping into the market which drives the price higher and subsequently this move will attract more buyers to buy increasing the demand side.

The buyers are now in control of the market as the demand side is more aggressive. Now, everyone who previously sold expecting lower prices has now his position in jeopardy. Many of the previous sellers have their stop loss placed above the double top pattern because that’s what technical analysis text book says. All the collective stop loss above the market is now considered to be a pool of liquidity, and since we’ve learned that for every sell order there must be matching buy orders, these pools of liquidity will attract those buyers to unload their position.

Going further, once these stop orders get triggered they will become market orders which have the potential to trigger a price cascade that will self-reinforce the price movement.

These are the basics of how the supply and demand work in the financial market and is the reason behind any price movement.

  Summary

The interaction between market orders and limit orders is what moves the price of any market. The price moves in relation to the number of market orders versus the available limit orders. This may sound really boring and maybe even confusing, but be patient because the more you’ll work to think as on order flow trader the better you’ll understand the markets. Market price moves because of the supply and demand imbalances… supply and demand imbalances change because of the buyers/sellers aggressiveness.

Put it in simple terms, the price of any market moves because of the supply/demand imbalances and because of the buyers/sellers aggressiveness.

Thank you for reading!

[tradingsystemsforex]

The Game of Trading is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/the-game-of-trading/

The Game of Trading

The game of trading is really a mindset where you analyze the price movement based on what other market participants are doing and are thinking. The main goal is to understand how the other market participants make their trading decisions and how they execute their trades. Focus on analyzing the market context because this is the most crucial thing if you want to step up your trading game plan.

Statistics have shown time and time again that the majority of traders lose money so if you can learn how this particular group of traders think and trade you can develop an exploitable trading edge.

Why is the Game of Trading Important?

Why it’s important for being a successful trader to view the market through the lens of other market participants? If you can’t think objectively of the market forces (supply/demand forces) that drive prices up and down you’ll never understand how the market really works. And if you can’t grasp how the markets work, how could you even trade something you don’t understand?

The game of trading goes beyond the price action; it’s an effort to understand the other market players. We have learned that buy and sell orders or the supply and demand are what moves price and since orders are executed by traders it’s important to view the market in terms of what other market participants are thinking and in terms of their worst fears and greed.

Let’s put the order flow mindset to the test.

When you buy any security, in order to make a profit you need other market participants to buy after your entry point. If there are enough aggressive buyers to consume the supply side the price will move up. The conclusion is that you need other traders to form a bullish bias and more they need to go long for the market to move in your direction.

Inversely, the same is true, when you sell any security, in order to make a profit you need other market participants to sell after your entry point. If there are enough aggressive sellers to consume the demand side the price will move down. The conclusion is that you need other traders to form a bearish bias and more they need to go short for the market to move in your direction.

  The Order Flow Mindset at Work

To trade effectively your analysis should focus on what other market players are thinking. You need to know why and how the other market participants based their trade decisions on. Identify price areas on a chart where the other market players are most likely to buy and sell and a new horizon of trading opportunities will emerge.

In other words, you simply need to do the following things:

Identify price zones where other market participants, especially retail traders, will buy after you.

Identify price zones where other market participants, especially retail traders, will sell after you.

Identify price zones where other traders will place their stop loss.

The price is a representation of human behavior; therefore it’s based on the sentiment of the majority of market participants. Because it’s based on human psychology and emotions like fear and greed the price is not a true representation of the fair value.

The way the game of trading works with an order flow mindset is related to the human behavior.

What do we mean by this?

Well, as a general untold truth, all markets will continue to move in the direction where it can cause the maximum amount of pain to the majority of the traders.

So, in what situation traders feel the greatest amount of pain?

First, when their trades are in negative and they suffer a draw down. At some point they are going to reach a maximum pain threshold when they will need to accept they are wrong and liquidate their position.

Secondly, when their trades are in profits, but the market moves against them. At some point they are going to reach a maximum pain threshold when they are forced to accept their trade is no longer valid and liquidate their position before they lose more from their position.

Knowing this valuable information, you can now act upon this pain factor and aim to target those prices that will cause the maximum amount of pain. When the maximum amount of pain is reached, this will release order flow or in other words, liquidity that many big players seek to target.

Let’s take a look at a practical example.

The figure below is an example of how you should judge the price action from an order flow perspective. Short term the price is moving in a downtrend and forms and intraday support. This down move for sure will attract some seller. At point A, price breaks below support which will trigger another wave of selling pressure as breakout traders enter the market.

GBP/USD 1-H Chart

  Down the road, indicators based traders will also get their short signal entry (point B) usually after the breakout due to the lagging nature of technical indicators. The later all these market players enter the market, the less profit margin they will have.

Price is heading into support at point C which most likely will attract bullish order flow and within the context of long-term bullish trend – not seen here current market supply can be consumed easily by the big buyers.

At this point, we can’t know for sure if the market is going to continue down or the demand side will overwhelm the supply side and the price will reverse. So, we let the price unfold and once the market turns we can now understand how these sellers will react once their maximum pain threshold will be reached.

  In the above figure, we can see the outcome as the buyers stepped into the market, we assert that as the price progresses upwards these sellers will start to feel the pain of the market going against them and once in a drawdown they will be forced to liquidate their position using buy order which will further reinforce the demand side and help the market push higher.

  Summary

The real game of trading is to view the market through the lens of other market participants and their trading decision will help you understand the market at a more comprehensive level. With an order flow mindset from now one, you’ll base your own trading decision on other market participants’ decisions and how they trade. Sometimes those traders are triggered because of some technical or fundamental factors.

To put it simply, trading in this new reality of the market is to trade based on what other traders and more precise losing traders make their trading decision and how they trade the market. The game of trading is all about creating and narrating a story behind the price action and the more you practice the better you’ll become an astute trader.

Thank you for reading!

[tradingsystemsforex]

The Reality of All Markets is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/the-reality-of-all-markets/

The Reality of All Markets

There is a strong reason why 95% of traders lose money. So, what can you do to avoid being part of that statistic? Hopefully, this piece of article will put you on the right path of becoming part of the small 5% group of traders who are successful in this business. The harsh truth is that the majority of market participants fail at trading because of two important things:

  A lack of understanding how the market really operates.

A lack of understanding of what happens behind the scene – behind the price action.

  There is a reality of the market behind of what is visible to us. We tend to focus our attention too much on the price action or on technical indicators forgetting the things that really matters. The things happening behind the scene – we call the scene the price because that’s what it’s visible to us –  more important than the price action. Understanding the reality behind the price, which ultimately means understanding how the markets operates, should be your main goal if you want to really succeed in the financial world.

In this new reality of how the markets really operate, we can discern the fact that not technicals or fundamentals drive the price up and down but there is something much deeper going behind the scene.

This brings us to an important topic: a price chart is not everything there is about the nature of the market. There is another hidden order beyond the price chart that actually drives the market up and down.

  Look beyond the Price Chart

“A picture (a chart) speaks a thousand words” is an old aphorism that speaks a lot of truth but unfortunately not the whole truth. To really understand what makes a price pattern to work, we really need to understand the market forces behind the price chart.

What are the forces behind a price chart?

In simple terms, the interaction between traders placing buy and sell orders is the real force that drives the price. In other words, this is what we call the order flow. Understanding the order flow will give you a better understanding on how the market really works.   

Sometimes the obvious doesn’t seem so obvious, so we feel the need to emphasize the fact that the price action is the effect and the order flow is the cause that makes price move. Unfortunately, the center of attention of the majority of traders is on the price (the Effect) and not on the order flow (the Cause).

Understanding the cause behind any price movement will help you better anticipate and forecast future trade setups. Not just that, but having an order flow mindset will help you enter a trade earlier than most traders. Knowing the real reason behind why price moves will give you more confidence in executing your trades which means that you’re no longer going to be at the mercy of the markets.

Trading purely on the price action (the Effect) it means that you’ll be late to the party because the forces (the Cause) that put in motion the price action has already occurred. It also means that you’ll be buying and selling long after the price was put in motion and you’ll depend on other traders to join the party and push the market in your direction.

Let’s move forward, and disseminate the Head and Shoulder reversal pattern and see how different types of traders would trade this pattern, in comparison with a trader that has an order flow mindset.  

  Head and Shoulder Pattern – A Case Study

  In the figure below, we have a typical example of a Head and Shoulder pattern. After analyzing the price pattern we can discern several possible trade scenarios that are related to different trading styles and to different level of experience.

The breakout traders alongside price action traders would have entered a short position at point number 2, where a range breakout happens and the Head and Shoulder neckline is broken at the same time.  

If we speak about more conservative traders, they would probably enter in the vicinity of number 3 after the breakout is confirmed by the candlestick closing below it. The indicator based traders would have entered at an even worse price due to the indicators’ lagging behavior. The longer you delay your entry point, your profit margin decreases substantially, making it hard to profit from the move.

  Alternatively, if you would have adopted the order flow mindset and would have based your entry on the “Cause” behind the price movement you could have entered in the vicinity of number 1 and possibly ride the entire down move until near number 4.   

Did you ever wonder what makes a Head and Shoulder pattern, or for that matter any kind of price pattern?

The answer to this question is traders executing orders, which at the end of the day is what drives any market up and down. It’s the interaction between the buy orders and sell orders.

Reading and interpreting what other market participants are doing is not an easy job and it requires a lot of experience and practice. You should never enter a trade unless your reading of the Cause behind the price is clear.

  Summary

The reality of all markets is behind the scene and it’s not something visual that can be seen on the price chart, it’s more a mindset. If it’s something that can’t be seen, and you don’t know about it, then you won’t search for it, and you will be trading for the rest of your live only based on the Effect aka the price action. It’s what you’re not able to see – the Cause – what makes all the difference between success and failure.

The interaction between buy and sell orders, or in other words the supply and demand imbalances is the reality behind the scene and it’s the reality that matters the most. Once you understand the game behind the price action a new reality will be accessible to you.

  Thank you for reading!

[tradingsystemsforex]

What is Trading? -The main keys for a successful trader is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/what-is-trading-the-main-keys-for-a-successful-trader/

What is Trading? -The main keys for a successful trader

What is Trading?

In today’s modern society almost everybody of us has been involved in trading in one way or the other without even knowing that we have done so. In reality, every process of exchanging money for the goods and services you want is essentially called “trading.” Trading the financial market is more or less the same thing.

Take for example the process of exchanging one currency to another. You might not be looking to speculate on the Forex exchange fluctuation but you might need to buy some euros for your Paris trip. In essence, you’ll need to sell your US dollars in exchange for euros. If you have foreign cash left, respectively euros, at the end of your Paris trip you might want to exchange them back into US dollar.

By the time your Paris trip ends, the EUR/USD exchange rate has been increasing considerably, which means that your euros can buy more US dollars than it was possible at the beginning of your Paris trip. This is good news as you have not just enjoyed a wonderful vacation, but at the same time, you have also profited from the Forex exchange rate fluctuation.

In essence, this is what Forex trading is all about, buying and selling currencies in the hope to make a profit from these exchange rate fluctuations.

When you buy shares of a company you’re engaging in another type of trading activity. Basically, you buy a part of that company and if the company’s stock price rise the shares you bought will become more valuable. If you decide to sell the share you bought, now that the company’s stock price has risen substantially, you can make a nice profit from this transaction.

By now, it’s quite obvious that the main incentive for any type of trading activity is primarily to make a profit. The majority of the trading activity that goes in all markets is purely speculative because the opportunity to make big money draws millions of people into trading the financial markets.

What Financial Instruments You Can Trade?

There is a variety of different financial instruments and asset classes that one can trade. You can trade anything from shares, bonds, Forex currencies, commodities and much more derivative instruments. This means that there are a lot of trading opportunities by buying and selling these financial instruments. With an average daily volume of more than $5 trillion, the Forex currency market is becoming one of the most popular forms of trading.

Whatever the financial instrument you want to trade, the main idea is always the same: to benefit from movements in price. If you buy low and sell high, you profit. However, if you sell lower than where you bought you will incur a loss. Conversely, if you sell high you need to buy lower in order to make a profit.

This might sound simple enough, but there are millions of private individuals, hedge funds, and different institutions all trying to profit at the same time. This means you’ll be trading against a fierce competition and against the brightest minds which is one of the reasons why trading is such a hard business.

What is online trading?

Thanks to the modern technology everybody can now have access to the financial market at one’s fingertips. It has never been that easy to have access to the financial markets and anyone who has a computer and enough money to open a trading account can access the markets through online trading platforms.

It’s true that the markets have become more accessible but there is a high risk involved with any type of financial instruments. If you don’t have a good ability to read the markets or a proven backtested strategy, at least in the Forex market, there is a danger of losing more than just your initial deposit.

These online trading platforms are offered to you by a Brokerage trading firm. A Broker is simply a firm that conducts transactions on behalf of their clients and in exchange for their service they are paid a small amount of fee or the spread in case of some of the Forex brokers.

Different Types of Trading Styles

There are different types of trading styles. Some traders only stick to a particular instrument or asset class, while others have a more diverse portfolio. Trading the news and financial reports is another form of trading style adopted by many traders.

Other traders based their decision based on statistical trends. Some take lots of trading positions, opening and closing trades in a matter of hours and even minutes, this is called day trading and scalping. There are also people who take a more long-term view, and hold assets for months and years, which is more of a form of investing.

No matter of what trading style you adopt you want to make sure your trading style suits your personality. If you’re impatient that seeks instant gratification adopting a short-term style will probably work best for you. However, if you’re a slow thinker probably a swing trading approach will work better for you as it will give you enough time to plan your trades.

Advantages of Trading the Financial Markets

The main advantage of trading the financial markets is accessibility. Depending on the financial market you want to trade there can be no minimum amount required to open a trading account like it is the case with many of the Forex brokers who offer leverage and trading on margin, or you can open a stock trading account with as low as $5000.

You can reinvest all your profits in an attempt to make even more profits. In the financial world, this process is called compounding. So, generating profits from previous profits refers to compounding.

Trading has the potential to make you very rich, but the hard reality is that only a few people will ever achieve financial freedom through trading. However, if you believe in yourself and you’re able to discover an edge in the market, the sky is the limit. Trading requires a lot of hard work and dedication and last but not least a unique way to tackle the market.

Markets like the Forex exchange market offers even greater advantages. Just to name a few you have leverage which gives you the power to control bigger positions; the FX market is open around the clock 24 hours per day, five days per week; high liquidity and lower transaction cost.

Conclusion

The process of buying and selling different financial instruments, it’s what we simply call Trading. AS a trader you’re trying to profit from the buying and selling of the different financial instruments. In trading you’re dealing with probabilities, never certainties. This means that when you’re trading there is always the possibility of a loss and there is no such thing as 100% winning in trading.

Ultimately, trading is a skill that can be acquired by anyone who puts in the time and practice. You’ll get better at trading by trading more; constantly improving; doing more of what works and doing less of what doesn’t work.

Thank you for reading!

[tradingsystemsforex]

Professional Forex Trader - 3 must haves before you begin is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/professional-forex-trader/

Professional Forex Trader - 3 must haves before you begin

I started as a professional forex trader to make money, and I didn’t have a plan. Can you guess what happened? Yes that’s right I blew my account rather fast, it is a good thing it was a micro account with only $100.00,  but it would have been better if it were a demo trading account. The way that I started to trade forex is the way that many of us start our trading careers. By acting on impulse and without a plan on how we are going to achieve success. Unfortunately, that is not how it should be done. There is a right way to begin your trading career that maybe just maybe you can avoid two or 3 margin calls before you get warmed up.

Before I talk about the right steps to take I want to ask all of you out there a question. Do you Love what you do? I remember working at my job and while I was on the job I was miserable all day long and I hated my work. I finally found something that I don’t just like I love. Did you ever have dreams when you were young about that special career that just never seemed to happen? I think to be truly fulfilled in life you should attempt to find something that you love to do. In my case, it was trading forex and running this site. I hope that you are able to find something that is truly what you have been dreaming of doing. So now for the sake of this site which is all about Forex Trading, that you have decided that you want to trade forex as your new career.

  So you want to Trade Forex???

That is a great goal and I admire anyone that attempts to make that happen but please don’t jump in without taking the necessary steps to ensure success and learning how to become a professional forex trader. Here are 3 steps that you must take in order to trade forex for a living-  I am listing these in order of importance.

1. Have your financial house in order – If you are trying to start to trade forex to get yourself out of a financial jam or to make money quick because you need cash. Then stop right now and don’t do that because that is a recipe for disaster. If you don’t have the money to trade then don’t trade plain and simple. I am not trying to dash your dreams but if you begin trading with money that you can’t afford to lose then the psychological pressure will be too high and you will lose everything.

2. Find the Forex Right System – Having a system and a strategy that works is crucial to trading success. This must be figured out before going on to trade forex for a living. Take the time to find the best forex platform.

3. Turn a profit! — I know people that have quit their jobs to trade and they were still losing money. Please provide for yourself a winning track record that has proven profitable over a period of time.

I hope that you have benefited from the tips on how to trade Forex for a living. I am always referring to Winners Edge Trading as a Forex Company that truly cares and desires to help. So I have decided to add financial and career coaching as a service available to Forex Traders. The truth is you don’t have your financial life in order you will struggle and I want for each of you to be able to focus 100% on trading and not have money matters on the back of your mind.

[tradingsystemsforex]

Forex Tax Basics- Treatment of Forex Transactions is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/forex-tax-basics-section-998-vs-section-1256-treatment-of-forex-transactions/

Forex Tax Basics- Treatment of Forex Transactions

Photo Credit: FreeDigitalPhotos.net

By Jason Van Steenwyk

Section 998 vs Section 1256

The taxation of forex contracts is complex, but at least it gives you options. No pun intended. Among the key decisions any forex trader must make, though, is deciding on the tax regime that will govern his or her trades. How do you want your profits or losses to be treated under the tax code? Uncle Sam gives you two options: Do you want to treat them as an ordinary gain or loss, as described by Section 998 of the Internal Revenue Code? Or do you want to take advantage of lower long-term capital gains rates?

What’s that, you say? All your forex trades were concluded well within a 1-year period and you have no long-term capital gains? Au contraire, mon frer!  An often-overlooked quirk of the tax code, under IRC Section 1256, actually allows you to treat 60 percent of your capital gains from currency trading at the lower long-term capital gains rate – even though all your trades were short-term!

Section 1256 generally applies to foreign currency futures traded on U.S. exchanges, while other forex contracts fall by default under Section 998 – unless you opt out. More on that in a bit.

Under Section 1256, the IRS deems all long positions “sold” at the end of the year – whether or not they actually are – and marks profits or losses accordingly for tax purposes. The IRS uses the fair market value of the contracts as of the year-end to make the calculation.

Note: Per IRS Notice 2007-71, forex OTC options aren’t eligible for Section 1256 treatment. Section 1256 specifically refers to futures contracts, rather than options.

It’s up to you, however, to make the election. If you are trading in retail spot contracts or anything other than foreign currency futures contracts. the IRS will channel your trading into the Section 998 system. This is good if your trades were a net money loser: Treating your losses as ordinary losses, rather than capital losses, allows you to deduct your losses against any type of income. Caps on capital losses are removed, as long as you have other income to deduct them against.

Foreign currency gain or loss, defined.

For the purposes of Section 998, The term “foreign currency gain” means any gain from a section 988 transaction to the extent such gain does not exceed gain realized by reason of changes in exchange rates on or after the booking date and before the payment date.

The term “foreign currency loss” means any loss from a section 988 transaction to the extent such loss does not exceed the loss realized by reason of changes in exchange rates on or after the booking date and before the payment date.

That’s straight out of the IRC, Ch. 26, Section 988, which you can read here.

Opting Out

If you want to opt out of Section 998, and take your chances with Section 1256 instead, you must commence a written record that you intend to opt out. You don’t have to file anything in advance with the IRS, strangely enough. You just have to create this written documentation before you start entering trades.

Now, there’s an opportunity to cut a corner here: Some traders might prepare an opt-out document at the beginning of the year, and then ‘disappear it’ if they have net losses, taking advantage of the higher loss deductions under Section 988. Thus far, the IRS has been strangely tolerant of this practice. We don’t expect that to continue indefinitely. As forex traders become a bigger and bigger piece of the investment world, and as forex traders increasingly become a ‘deep pocket for the IRS to pick, that particular opt-out provision is likely to come under increased scrutiny in the future.

When Should You Opt Out?

When you believe your trading will be profitable, of course! By electing to have the IRS assess taxes based on Section 1256, you will benefit from a 60/40 allocation of long-term and short-term capital gains. That is, 60 percent of your gains will be taxed as long-term capital gains, while 40 percent of your trade will be taxed as short-term capital gains.

This is strongly preferable to treating profitable trading under Section 998, since if you are an active trader, all or nearly all your trades are likely to fall under the higher short-term capital gains tax.

To Take the 1256 Treatment

To take the 1256 treatment, you would file an IRS Form 6781 – Gains and Losses from Section 1256 Contracts and Straddles, in conjunction with the opt-out election document described above.

Your Form 1099

If you trade futures contracts, your forex broker should send you a Form 1099 already, detailing your trading gains and losses for the tax year. Look on Line 9 for your total gain or loss. However, If you’re out there surfing the interbank markets directly, you won’t get a 1099.

Have you learned forex tax basics of section 998 vs section 1256, treatment of forex transactions?

Note: WinnersEdgeTrading.com does not provide individualized tax advice. This article is for informational purposes only and should not be construed to represent specific tax advice. You should always make your decisions based on the advice of a qualified tax professional, experienced in forex trading matters, licensed in your jurisdiction.

[tradingsystemsforex]

Forex Trading Master Train to Be Great is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/how-to-become-a-trading-master/

Forex Trading Master Train to Be Great

Do you want to become a trading master or be like everyone else and just try to make some money trading? Find a strategy or technique in fact why not just follow a trader taking live trades. Get rich trading the markets; I love the sound of that.

However, that is not how life works.

This article is going explain exactly why that doesn’t work and what you have to do to get rich trading.

If you are reading this article looking to become rich trading, then you need to get some things straight if you want to make it successfully.

Most people that I talk to have the completely wrong mindset when it comes to trading successfully. They believe if they get the right strategy and get access to a trading pro, it will be easy street from there.

That is wrong thinking and if you think like that you need to change your thinking right now to get on the right track so that you can become successful in trading.  I am not writing this to insult anyone, but I wonder how people begin to think like this in the first place because it is so off base.

You Cannot Become a Master Trader by following an expert strategy.

Let me give you an example.

There is not some forex master strategy that will change everything like so many traders are searching for or a forex strategies pdf that will make you great. Baseball is a great sport and millions of high school baseball players every year dream of being the next baseball star players like Pittsburgh pirate all-star Andrew McCutchen

So what do those young people do? They see his stance, and they imitate it. They follow his mannerisms on the field and copy him. They buy the same brand of shoes, bat, and glove. They watch all his films and read all his books. After they do all of those things when they step on the field will they become the next McCutchen?

The answer is no of course not!

Then they step onto the field they would be terrible. They would get kicked out of the big leagues.

You know why?

Because he is a ball player, it is who he is. They have not gone through the journey he has gone through to become great.

He is a ballplayer because of all the hours of extra practice that no one sees. What he does when no one is looking. The years of training, the years of failure, the years of perseverance and practice to become great. What people see is the result of his baseball disciplines.

He is who is not just because of the time he spent practice.

It is how he practiced.

He practiced his stance, his form. He practices discipline to keep measurements to make sure he is hitting his objectives.

He disciplines what he eats so that his body stays fit so he can perform on the field. He talks to coaches and gets feedback and works with them to become successful. He reads books and works on his mind because he knows that baseball is as much about the mind as it is the body.

To summarize he is a student of the game and has dedicated his entire life to be great at what he does. His greatness is not a particular technique he uses; it is a visible outflow of who he is and what he has become. His lifestyle and discipline and dedication is what got him here.

Becoming great is impossible to duplicate unless you are willing to do down the same path. That is why there are few professional baseball players and fewer still who are great professional baseball players.

That is what it will take to be great no matter what you do.

Whether you’re a teacher, doctor, lawyer, etc.

Trading is the same and to be a great trader; you must become a great trader through the process that is required.

Just because you download a strategy guide doesn’t mean you will be a great trader. You may have a great mind and great natural talent, but that isn’t enough to be great because there will be people that are smarter than you and will work harder than and people that are willing to go through the disciplines that you are not prepared to go through.

What can You do to become a trading master?

It is simple, all you have to do is devote yourself to the trading lifestyle. Which means you must become what it is that you wish to do.

You don’t just trade, but you become a master trader by creating a lifestyle that will transform you into a Master trader. There is no course to take, it just becomes a part of you, and you will know when it happens.

There are no shortcuts here is what must be done to become a master trader.

Here are some steps you can take to become a master trader.

Love Trading and the process of trading:

Have you ever heard a famous athlete say they love the game and they would do it for nothing? That is an odd thing to say, but it is hard to master something you do not love, learn to love trading. Everything about trading makes you happy. The process, the markets, the setups the challenge. Becoming a master trader will require more effort than just a desire to get rich quick, it must run much deeper than that. I love trading; I love writing about trading, I love talking about trading, I love spending time with traders, it is something I enjoy. If I didn’t enjoy it, I would do something different. If this is a chore to you, it won’t work, go and find something you love and do that. You only live once, why spend your time doing something you don’t?

Become a student and learn to master the market:

Trading is so much more than a strategy or taking trades. It is developing an understanding of the market, an understanding of what makes the market function the way that it does. How news impacts markets, how individual traders think and trade, what makes people buy and sell what is happening in thier minds are they feeling fear are they feeling greed, are they master traders who are calm and dedicated following their trading plan?

There is so much that goes into this game of trading that you can never learn all there is to know but the more you know, the better trader you become.

Develop a Winning Mindset:

The battle is in your mind, and if you cannot control how you think you will not become a master trader. You must learn to think healthily and develop a secure relationship style with the markets and with your trading.

Read trading psychology books but go much deeper than that, read books about your emotions, understand what triggers your feelings?

What causes the fear that you feel when you are trading? Was it a lack of something as a child and now you fear that same thing when you take a trade, and that fear causes you to make bad decisions. If you are reading this and you dismiss trading psychology and trading mindset as nonsense, then you are exactly the person that needs to work hard to develop a trading mindset.

If you require going to counseling to find some of these issues, then do it. How are you relationships at work and home? If you do not have healthy relationships than you, will more than likely have things pop up that will cause negative consequences in your trading. Remember you are going to become a master trader that means you will be willing to do whatever is necessary to become what you want to do.

Develop Master Trading Discipline:

There is much more to discipline than just following your trading plan and following the rules of the strategy. Developing discipline is about developing the skills to do anything that needs to be done to become a successful trader. Such as doing research on how to eat healthy because you will trade better if you have a healthy body. Things like finding out the optimal sleep needed for you, everyone needs a different amount to function properly. Make sure you develop a sleep pattern that is healthy for your trading. Then there is the discipline to create a trading plan, to write out your daily trading process. Also the discipline of systematically reviewing your trades analyzing your decision making then determining if you can make improvements. Not just to your trading but any area of your life that impacts your trading. Everything you in your life could affect your trading results, and you must understand that and keep measuring your results versus changes in your personal life. You may ask me or someone else if you can make money fast or quickly become a master trader and I will point you to this article, no you can’t  avoid the process, how long it takes depends on you and no one can determine how long that will be.

Yes, you can have success, but you must want it.

I am encouraging you to go after becoming a master trader because if you accomplish the task, it will be rewarding and worth it, not just because you will have made a lot of money but because you have become great at something you determined to be great at it.

[tradingsystemsforex]

Trading a Small Account with Patience is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/trading-a-small-account-with-patience/

Trading a Small Account with Patience

Trading a Small Account

As a new trader, I had enough money socked away to make a decent-sized trading account. But as my newness, and ignorance took control, I quickly had a small account. I had blown out all my money learning. At that point, I knew how not to lose, but I didn’t have any money to continue.I spent several years of my trading learning experience taking small amounts of cash from my day job and trading with that. Consequently, I got pretty good at trading a small account. Trading a small account takes different skills than trading a large account. Most of those skills involve risk management. We’ll take a look at those in this class.

What is a Small Account?

Let’s start by defining a small account. A small account has different definitions depending upon your trading instrument. I’m going to draw a line in the sand here and say that a small account is one that is less than 10,000 times the smallest per pip (tick) increment of the instrument you’re trading. I’ll go into a bit more detail regarding that in a moment, but a small account is one in which you cannot properly use all the money management tools in your toolbox because you don’t have enough margin in your account to handle it.

To calculate my definition of a small account. Let’s look at the EUR/USD for a moment. In general, on the MT4 platform, the minimum trade size is 0.01 standard lots – a microlot – or 100th of a standard lot, 1000 Euros. The value per pip in USD (I know not everyone enumerates their account in USD. I will however use USD for all of the examples in this class) is $0.10. So, roughly multiply that by 10,000 (=$1000) to get an idea of what I consider large enough to easily maintain your risk parameters (for EUR/USD trading.) Anything smaller than that, I would consider a small account. I know that a $1000 is still a pretty small account, but you should be able to use proper risk management in an account of that size.

Of course, if you’re trading, for example, Mini-Dow Futures (YM), the smallest tick is $5 per contract, so, multiplied by 10,000, you will need $50000 minimum to maintain your risk properly. For the YM, I would consider anything less than that to be a small account.

Another example might be the eMini S&P (ES), with a $10 per contract minimum. So, you should have at least $100,000 to consider this a large account.

And, of course, you are stuck with a minimum of $25,000 in the US for stock day trading minimum capital.

Risk Management is what makes it tough trading small account

That’s not to say that you can’t trade these instruments with smaller accounts. I think you can probably easily trade the futures with accounts as small as $10,000. But to do so, you will have to have strategies that allow for the fact that you can’t have 1/10th size increments for building and reducing positions and so on.

For the purposes of this class we will only be discussing forex.

Patience is the important factor when trading a small account

PATIENCE! Since you cannot size your account down as much (relatively) with a small account, you have to be sure you can get the best entries possible. Getting the best entries requires patience, patience and more patience. That is how to grow a small trading account.

If you have a larger account, you can enter experimental positions with, say, 1/10th of your normal size to see how it does. Your profit will be smaller, but so will your loss. With a small account, you don’t have that option (unless you have a broker that will allow it. More on that later.)

Small Account Strategies

Develop your strategies such that you maximize your entries and reduce your risk and help in growing a small forex account. For example, holding out until the very last second on a reversal trade serves two purposes:

You will get a better price before the reversal occurs.

You will reduce your loss if the price doesn’t reverse.

As you know, I use the bullet strategy on reversal trades. Since, for the purposes of example, I’m trading a small account, I have limited options for sizing the trade. I can only go in half size (my normal position size is 0.02 lots), then if I want to increase my subsequent bullet size, my only option is to double the size, which approaches gambling (doubling down.) The result of doubling increases the risk dramatically and can cause relatively huge losses if price action doesn’t reverse in due time.

The rules I use for our Momentum trade are designed for a small account. With a larger account, I would enter a position using a market order right when we get our momentum signal and all criteria are met (the Momentum Strategy Checklist.) I would use a smaller size (½-¾). If the price never pulled back to the 20 SMA, we would have some profit from the trade and we would have capitalized on the impulsive move. If it did pull back to the 20 SMA, I would add a larger size (say 20-25% increase over “normal” size) and let the trade run using whatever loss exit and take profit plans worked well. That way, we get profit if it doesn’t pull back and we get more profit if it does pull back. The sizing of the positions would ensure that we minimize our loss in the case that it never goes our way.

Since our account size doesn’t allow us to manipulate the trade sizes that way (remember our minimum size is 0.01 lots), we have to use the best possible scenario – the pullback to the 20 SMA – even if it means we will miss some trades because the price never pulled back to there.

Missed Trades is the penalty for Patience

So, the penalty for patience is missed trades. Yes we will miss a few trades, but the ones we get into will have greater possibility for reward and smaller risk if price goes against us.

The reversal rules are also optimized for small accounts. Our “Reversal Min” number ensures price has moved sufficiently for a reversal. My interpretation of the H4 move is also designed to ensure an imminent reversal. And lastly, the experimental 15 min RSI(8) divergence is also designed so we can be sure to get our reversal without adding additional positions.

Learn to Read Price Action

In addition to our trade rules, you should be particularly conscious of the price action. Watch for stalling and reversal signals to get in or out of trades at the right time. Recognizing these price action signals requires time and experience. Plus, if you’re going to trade using price action signals, be sure you know yourself. Don’t allow yourself to be scared out of positions just because price might be going against you. Be sure that you are seeing real price action signals (pin bars, rejection wicks, price movement as it approaches support and resistance zones, etc.)

Trading a large account is MUCH easier than trading a small account. That may seem obvious, but it’s not really for the obvious reasons. When you trade a large account, your trade size is larger and can be more easily split incrementally. For example, if your normal trade size is 0.02 lots, you can split it in half and that’s it. But if your normal trade size is 0.20 lots, you can split that 20 ways. You can enter a trade ½ size and add 10% for each additional position. Or you can enter ¼ size and add 20% for each additional position. In either of these cases, you will not be up to your full size for many positions. If you want to be able to do that and you don’t have enough trading money, you can open a small account with the broker Oanda (there may be others of which I’m unaware.) Oanda will allow you to trade in increments of one unit of currency. That’s 1000th of a microlot.

Some Brokers Allow Smaller Trade Increments

The downside to trading with Oanda is limited leverage. US accounts will only get 50-1 leverage (I have 1000-1 with Trader’s Way). Non-US accounts get 100-1 leverage. 100-1 is better, but still tough to put on many positions. BUT, if you use my arbitrary 10,000 multiplier, you will find that you only need $1.00 to have a “large” account with Oanda (1 unit of EUR/USD is $0.0001 per pip.) While I was floundering in my trading, I was able to trade with Oanda and gauge my learning using $100 trading accounts. Of course, making $0.02 on a trade seemed counterproductive, but it was more real than trading a demo account. I was, however, very happy that I could do forex trading with 100 dollars.

If you want to use MT4 with Oanda, you’re still relegated to a minimum of 1 micro lot. But Oanda now includes TradingView charting, so you can trade directly from very nice charts and still use single unit trade sizes.

These are just a few things to remember when you are trading a small account. The most important thing to remember is patience is the order of the day when trading forex.

[tradingsystemsforex]

Strong Risk/Reward Setup Unfolding in AUD/JPY is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/strong-riskreward-setup-unfolding-in-audjpy/

Strong Risk/Reward Setup Unfolding in AUD/JPY

Strong Risk/Reward Setup Unfolding in AUD/JPY

  Recent moves in the EUR/USD have caught most of the forex market’s attention but this has left trading opportunities available in some of the more peripheral pairs.  One pair that should always be on the radar for any forex trader is the AUD/JPY, which is typically associated with the carry trade section of the market.  As a commodity currency, the Australian Dollar (AUD) is generally associated with high interest rate levels.  This presents a marked contrast with what is seen in Japan, where low interest rates have been a factor in the economy for several decades.

  Forex Chart: AUD/JPY Daily Price Action

  Since October 2016, we have seen steady rallies in the JPY and significant bear trends in the AUD/JPY.  The sequence of declines followed by moderate corrective rallies suggests that there is validity in the move but price action since then seems to suggest that these events have run their course.  Traders with experience in Elliott Wave analysis will notice the textbook purity in the recent moves.  But the recent rallies through the 50% Fib retracement of the entire move suggests that a new trend is now in its early stages.

  Market Context

  In terms of news events that are likely to influence the pair, it will be important for traders to watch for potential turmoil in the Bank of Japan’s recent decisions to end monetary stimulus programs.  On balance, this is something that should be bullish for the JPY — but the opposite will almost certainly be true if we start to see deterioration in trade balance numbers and broad GDP figures.  Japan is an export economy and the BoJ is notorious for its efforts to take a proactive stance in currency markets.  So if we see any weakness in the above mentioned data points, there is a strong chance we will see some backpedaling on the policy stances promoted by the Japanese finance ministry.

  At the same time, there is mounting evidence that the Reserve Bank of Australia will be forced to raise rates from historically low levels (currently at 1.5%).  Better housing data and retail sales figures suggest that the RBA will have more room to normalize rates in line with historically appropriate levels.  If both of these trends are seen, it will improve the carry value that is seen in carry trade pairs like the AUD/JPY.

  Short-Term Perspectives

  When we are looking at the long-term perspective, there is relatively clear evidence that the broad downtrend has run its course.  This means that it will be important to look at the shorter-term views to find advantageous trade entry points that might benefit from potential rallies.

  To this end, we will look to use resistance-turned-support at 81.60, which has already held on the first test.  The uptrend beginning in July gives us the latest higher lows that suggest long trades in AUD/JPY can be taken at current levels near 83.00.  With a 160 point stop loss, forex traders should be looking for potential profits of at least 480 pips.  Looking at the current price charts, important resistance lies almost exactly 500 pips away, and there is even scope for an extension another 200 pips higher.  This makes the setup excellent as far as risk to reward requirements are concerned.

  Key Resistance Levels

  In defining these price targets, we must define the key resistance levels that could eventually stall rallies.  The first level to watch comes in at the highs from the middle of February, which came in at roughly 88.10.  This is only resistance when looking at things from the historical basis, so this is something that can be viewed as an initial price target that is suitable for taking partial profits once it is reached.  

  From here, stop losses should be trailed higher (to the breakeven point at 83).  The next profit target can then be seen at 90.60, which is also historical resistance (from December 2015).  But what makes this level even stronger is the fact that is marks the 61.8% Fib retracement of the major decline that marked JPY strength.  

  The combination of these two factors (after the AUD/JPY has already broken resistance at the 50% Fib retracement) makes this level the true price target.  Structurally, this trade falls into the ‘superior’ category given the fact that we are leaving 160 pips risk on the table in exchange for the potential to capture 500 or 700 pips in profit (depending on when the trade is closed).

  Indicator Readings

  Since we have evidence supporting the trade in the price action itself, it is a good idea to look to the indicator readings in order to get a more objective analysis of the historical activity.  Currently, the balance of the evidence on the indicator readings falls largely in line with the broader perspective.  Prices are bouncing from the bottom 2-standard deviation Bollinger Band and the Commodity Channel Index (CCI) is turning back upward into its mid-levels.  

  This ultimately suggests that the indicators suggest prices have plenty of room to extend higher from current levels.  It is also something that suggests that there is a low probability prices will be able to extend to the downside.  Any time we are looking to enter into long trades, it is important to remember that we are looking for scenarios where upside potential exceeds the probability for downside declines.  When we combine these factors, we are able to reduce risk and position trades for maximum profits.

  Closing the Trade

  Now that we have all of the rationale for the trade itself, we need to start looking for situations where it will make sense to close the trade.  This must be done both from the positive side and the negative side — before the trade is even initiated.  Positive in this case refers to profitable trades and negative refers to situations where the stop loss should be triggered.  To the topside, we will have to monitor market activity as prices are moving toward the historical resistance level at 88.10.  This area actually worked as a small head and shoulders pattern on the very short-term timeframes, so any additional failures here would be enough evidence to close out the trade.  In this scenario, we would see gains of 500 pips.  

  If we do not see a forceful in this area, it makes sense to take partial profits and move stop losses to break even.  This is the only way to unlock the true risk/reward potential that exists in the current setup.  The true target here is the 61.8% Fib retracement move of the broader decline in the AUD/JPY and this is based on the fact that the initial percentage retracements have already been removed.  Total positions should be closed if we approach these levels, as most instances in the market see problems overcoming this key resistance mark.   To the downside, forex traders will need to watch for breaks in the logic supporting the burgeoning uptrend.  Remember, this is something of a contrarian trade which means that it is on the onus of the trader to justify whether or not the underlying reasons make sense when getting long.  If we see prices fall through the uptrend line from June of last year, it makes sense to close out positions and start reassessing.  This means that stop losses should be triggered if the AUD/JPY falls below 81.60.

[tradingsystemsforex]

EUR/USD Staging Major Breakout is a great article or trade setup posted on Winners Edge Trading

New Post has been published on http://winnersedgetrading.com/eurusd-staging-major-breakout/

EUR/USD Staging Major Breakout

EUR/USD Staging Major Breakout

  As is often  the case, the EUR/USD is being viewed as one of the leading forex pairs in terms of the ways it is defining the broader trends that are seen elsewhere in the market.  But what has caught many traders by surprise is the fact that it is the EUR that is leading the way and taking the greenback along for a turbulent ride in the process.  The EUR/USD is currently staging a major breakout that is likely to catch many forex traders long or short at the wrong levels for anyone that is trying to chase the moves.  This means it is important to exercise patience and conduct the required technical analysis in order to identify profitable positions and avoid being stopped out at a loss.

  Daily Chart: EUR/USD

    Zooming into the daily charts in the EUR/USD we can see that several critical technical levels have been broken in the current moves.  The medium-term downtrend that has been in place since May 2016 has now been largely violated as the series of lower highs no longer paints an accurate picture of the trend.  These types of moves are very forceful and lead to volatility in both directions once traders start to take profits and exit long positions.

  Risk Protection

  From an indicator perspective, we can see that the latest rallies in the EUR/USD have forced both the Commodity Channel Index (CCI) and the Stochastic RSI out of their mid-ranges and into the areas which suggest overbought market activity.  To be sure, these are clearly bullish moves but what this ultimately suggests is that long positions should be taken with caution.  It is also absolutely critical to employ protective stop losses in these types of situations so that you are able to avoid large losses if the market begins to whipsaw.  These types of scenarios can make or break a trading account, so avoid jumping into reckless positions (chasing the market) at any and all costs.

  Now that we have covered the underlying trend break in the medium-term downtrend, it is important to confirm the validity of these moves using other structural price events.  From a support and resistance perspective, prices are currently grinding through the failure zone from last November, which defined a clear resistance point just above 1.1140.

  Keep in mind that this was another volatile price area that made it somewhat complicated when defining critical resistance points.  Following the activity in November, we saw a violent price spike into the 1.13 region but this was also followed by quick losses.  This ultimately means that these levels were not sustainable, and it is more than likely that a large portion of the forex market was stopped out on the expectation that a major trend change was occurring.

  Defining the Underlying Trend in EUR/USD

  This, of course, is another reason forex traders should approach these moves with caution.  But there are also reasons to believe that this current move is different and that we are in store for much higher values in the Euro.

  Any time we see trend changes of this magnitude, it is always important to have an understanding of the fundamental drivers that are fueling the move.  Currently, we see support for the Euro on several fronts.  The passage of recent elections suggests that a major event risk has passed and that a large element of uncertainty has now been removed from the market.  This should ultimately mean that large fund names will be less reluctant to hold large positions in Euro-related assets.

  In addition this, we are seeing arguments from influential policymakers in the region which suggest that the current direction in monetary policy is due for a change.  Specifically, the broad disconnect between what has been outlined by the Federal Reserve and the ECB is another important factor that is likely to reverse course as quantitative easing stimulus programs are less necessary.  The German deputy Finance Minister made recent comments that the ECB should exit these programs sooner rather than later — and this is something that should prove to be bullish for the Euro.  Going forward, forex traders will need to remain cognizant of these events in order to confirm or deny the validity of the latest price moves in the EUR/USD.

  Trend Retracements 

On their own, major breakouts in trendlines and support and resistance zones are useful.  But trading strategies have an even higher probability of success when combined with alternate analysis strategies.  We have an example that meets these criteria in the current analysis with the 61.8% Fibonacci break of the move that dominated the prior trend (decline from 1.1616 to 1.0340).  This is arguably the most commonly watched Fibonacci price level, so the resistance break here ultimately suggests a move to at least 1.1350 (which is the 78.6% retracement of the aforementioned move).

  This would ultimately equate to a rally of roughly 200 pips.  Using a 3:1 risk-to-reward ratio, this means traders should employ a stop loss of no more than 70 pips when structuring a trade.

  Avoiding Risk Factors

  Long trades here in the EUR/USD look solid from both a technical and fundamental perspective but there are risk factors that should be considered.  The massive spike has created overbought indicator readings that will need to unwind before taking any significant positions.  We also have price activity piercing through the upper levels in a 2-deviation Bollinger Band, and this is generally something that is unsustainable.

  Here, trading strategies can be conducted in one of two ways:

  We can start getting long at current levels using smaller position sizes

We can wait for price retracements back toward resistance-turned-support levels (allowing indicator readings to unwind)

  The first strategy above is preferable for traders with a more aggressive trading stance.  The second strategy is preferable for traders with a more conservative trading stance.  If you are looking to operate using the second strategy, watch for a price retracement back toward 1.1060 for buy entries.  This type of strategy would allow for larger stop loss levels, given the fact that the upside target would then be nearly 300 pips higher.  This suggests a stop loss of 1.0960, which is also attractive given the fact that we would than be well below the 1.1000 psychological figure.

  The first strategy is a bit more complicated and involves more active management.  The advantage, however, is the fact that you are guaranteed a trade entry at 1.1155. Since we are entering at higher levels, there is more potential risk for decline so we will look to open a ⅓ position size with a stop loss below 1.0980.  We are able to use this larger stop loss because we are looking to average out to an average position size that is roughly 70 pips from the stop loss.

  Essentially, this strategy requires us to set additional buy orders at 1.1080 and 1.1020.  All position entries are of equal size, so you will be looking to establish ⅓ of your position in each trade entry.  In the charts above, we can see that the psychological 1.10 level worked as resistance previously and this is why we will now expect it to act as support going forward.  The bullish trading bias will be reversed if we see a price decline through the 1.10, and so this is why we will not hold long positions if the EUR/USD falls through this area.