Forex signal trading has emerged as an important support service for forex traders. This service is run either by forex brokers or by independent analysts who monitor and analyze the forex market. These analysts identify forex trends using several indicators. Based on this analysis, they suggest profitable entry and exit points to forex traders for a fee.
Most analysts offer signals for only the most popular currency pairs, such as EUR/USD, USD/JPY, GBP/USD and USD/CHF. However, there are some specialty services also that offer signals for the lesser-traded pairs.
The charges for these services vary from analyst to analyst, and depend upon the range of services bought by the trader. For instance, a basic subscription service offers email alerts of entry/exit opportunities to traders while a more comprehensive service provides this information through SMS, cell phone or pager alerts also.
Some signal trading services also provide live charts for the traders to make their judgment. Irrespective of the level of service, a trader should be prepared to pay a minimum subscription fee of $100 a month.
However, the success of a forex signal service should not be measured in isolation or over a relatively short period of time. The traders should use these signal services only as an extra indicator, as one more tool in their trading toolbox. A good way to judge the analytical skills of signal trading service is to ask for historical data. This can expose the claims of trading signal service.
The biggest benefit of signal trading services is that they save the traders the bother of analyzing or crunching data. However, this does not mean that the traders should depend upon them exclusively to maximize their profits or minimize their losses. This should happen only when the traders develop sufficient trust in certain signal trading services. Otherwise, the traders should use their own judgment and market grapevine to decide the trades.
While Forex signal trading gives the trader’s one more analytical tool, each trader must use his or her best judgment before making the trade. Forex signal trading software is a great tool, but should never be used solely to base the trade decision upon. You would be better off relying on your past experience and gut instinct when analyzing signal trading data. You will also want to rely on your basic fundamental analysis. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.
Monday, November 2, 2009
Forex Fundamental Analysis
The two primary approaches of analyzing Forex markets are technical analysis and fundamental analysis. Fundamental analysis comprises the examination of economic indicators, asset markets and political considerations when evaluating a nation’s currency in terms of another. The focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide forex fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment.
Here we look at some of the major Forex fundamental factors that play a role in the movement of a currency:
Economic Indicators
Economic indicators are reports released by the government or a private organization that detail a country’s economic performance. These economic indicators can be released on a weekly basis, but the more common report is monthly. Indicators are based around a number of economical situations, of which the two primary factors are that of International trade and Interest. Subsidiary factors also include Consumer Price Index (CPI), Purchasing Managers Index (PMI), Durable goods orders, retail sales and Producer Price Index (PPI).
Currency’s Interest Rates
One of the major indicator factors, Interest rates, are a key economic function of any nation. Generally, when a country raises its interest rates, the country’s currency will strengthen in relation to other currencies as assets are shifted to gain a higher return. Interest rates hikes, however, are usually not good news for stock markets. This is due to the fact that many investors will withdraw money from a country’s stock market when there is a hike of interest rates.
International Trade
The trade balance portrays the net difference (over a period of time) between the imports and exports of a nation. A trade deficit can be an economic disaster for a government and a currency. A deficit may appear when a country is importing more than it is exporting, meaning that more money is leaving and less is coming in. In some ways, however, a trade deficit in and of itself is not necessarily a bad thing. A deficit is only negative if the deficit is greater than market expectations and therefore will trigger a negative price movement
Here we look at some of the major Forex fundamental factors that play a role in the movement of a currency:
Economic Indicators
Economic indicators are reports released by the government or a private organization that detail a country’s economic performance. These economic indicators can be released on a weekly basis, but the more common report is monthly. Indicators are based around a number of economical situations, of which the two primary factors are that of International trade and Interest. Subsidiary factors also include Consumer Price Index (CPI), Purchasing Managers Index (PMI), Durable goods orders, retail sales and Producer Price Index (PPI).
Currency’s Interest Rates
One of the major indicator factors, Interest rates, are a key economic function of any nation. Generally, when a country raises its interest rates, the country’s currency will strengthen in relation to other currencies as assets are shifted to gain a higher return. Interest rates hikes, however, are usually not good news for stock markets. This is due to the fact that many investors will withdraw money from a country’s stock market when there is a hike of interest rates.
International Trade
The trade balance portrays the net difference (over a period of time) between the imports and exports of a nation. A trade deficit can be an economic disaster for a government and a currency. A deficit may appear when a country is importing more than it is exporting, meaning that more money is leaving and less is coming in. In some ways, however, a trade deficit in and of itself is not necessarily a bad thing. A deficit is only negative if the deficit is greater than market expectations and therefore will trigger a negative price movement
Fibonacci Trading Techniques
Introduction to Fibonacci trading techniques.
First, a few words about Fibonacci himself…
Leonardo Pisano (nickname Fibonacci) was a mathematician, born in 1170, in Pisa (now Italy). His father was Guilielmo, of the Bonacci family. His father was a diplomat, as a result Fibonacci was educated in North Africa, where he learned "accounting" and "mathematics".
Fibonacci also contributed to the science of numbers, and introduced the "Fibonacci sequence"
The Fibonacci sequence is the sequence 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, introduced in his work "Liber abaci" in a problem involving the growth of a population of rabbits.
Aside from this sequence of number where every next number is the sum of the proceeding two, 0, 1 (0+1), 2 (1+1), 3 (2+1), 5 (3+2), 8 (5+3), 13 (8+5), etc.
There are the "Fibonacci ratios".. By comparing the relationship between each number, and each alternate number, and even each number to the one four places to the right, we arrive at some fairly consistent ratios.. The important ones are .236, 50, .382, .618, .764, 1.382, 1.618, 2.618, 4.236, and for good measure we include 1.00 ..
It turns out that the ratios are mathematical principles prevalent in nature around us, and is also in man-made objects. There are many interesting, entertaining, and poetic observations about Fibonacci numbers and ratios in the universe (see the reference section below). Fibonacci numbers appear in ancient buildings, in plants, planets, molecules, the dimensions of human bodies, and of course snails… But of what use is all that to the lowly trader?
What really interests you, the application of Fibonacci techniques in the trading environment..
Traders usually study charts! Fibonacci ratios may be applied to the Price scale, and also to the time scale of charts. I study the price scale. My focus here will be on the price scale for now, perhaps in the future I’ll add some time-scale studies.
Prices never move in a straight line. Look at any chart, you will see many wiggles, as price advances and retraces.. Stocks, Futures, Forex, all instruments which are liquid, will often retrace in Fibonacci proportions, and advance in Fibonacci proportions. Not always, and not precisely to the penny. But very often, and reasonably close! This happens often enough that profitable trades can result. I will show you some examples below.
I used Fibonacci ratios with a few simple indicators to help determine probable price turning points, optimum entry, exit and stop-loss levels. My complete techniques are available in on-line video seminars, in-person seminars, and via my real-time on-line chat facility. For more details, see the this web page
The application of Fibonacci to trading can be very complex, and take much time and experience to perfect. Many traders enjoy making the process as difficult and as complex as they can tolerate.. I do the opposite, I try to simplify, try to bring clarity.
Fibonacci example - Microsoft Weekly chart.
This lesson demonstrates a very basic way to use Fibonacci levels. You just read about Fibonacci ratios. We will use just one of those ratios for now, the .382 Fibonacci ratio. In this chart MSFT made a high of (approximately) $59.97 in December of 1999. After that, it moved down to make a low of $30.19 in May of 2000.
First, a few words about Fibonacci himself…
Leonardo Pisano (nickname Fibonacci) was a mathematician, born in 1170, in Pisa (now Italy). His father was Guilielmo, of the Bonacci family. His father was a diplomat, as a result Fibonacci was educated in North Africa, where he learned "accounting" and "mathematics".
Fibonacci also contributed to the science of numbers, and introduced the "Fibonacci sequence"
The Fibonacci sequence is the sequence 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, introduced in his work "Liber abaci" in a problem involving the growth of a population of rabbits.
Aside from this sequence of number where every next number is the sum of the proceeding two, 0, 1 (0+1), 2 (1+1), 3 (2+1), 5 (3+2), 8 (5+3), 13 (8+5), etc.
There are the "Fibonacci ratios".. By comparing the relationship between each number, and each alternate number, and even each number to the one four places to the right, we arrive at some fairly consistent ratios.. The important ones are .236, 50, .382, .618, .764, 1.382, 1.618, 2.618, 4.236, and for good measure we include 1.00 ..
It turns out that the ratios are mathematical principles prevalent in nature around us, and is also in man-made objects. There are many interesting, entertaining, and poetic observations about Fibonacci numbers and ratios in the universe (see the reference section below). Fibonacci numbers appear in ancient buildings, in plants, planets, molecules, the dimensions of human bodies, and of course snails… But of what use is all that to the lowly trader?
What really interests you, the application of Fibonacci techniques in the trading environment..
Traders usually study charts! Fibonacci ratios may be applied to the Price scale, and also to the time scale of charts. I study the price scale. My focus here will be on the price scale for now, perhaps in the future I’ll add some time-scale studies.
Prices never move in a straight line. Look at any chart, you will see many wiggles, as price advances and retraces.. Stocks, Futures, Forex, all instruments which are liquid, will often retrace in Fibonacci proportions, and advance in Fibonacci proportions. Not always, and not precisely to the penny. But very often, and reasonably close! This happens often enough that profitable trades can result. I will show you some examples below.
I used Fibonacci ratios with a few simple indicators to help determine probable price turning points, optimum entry, exit and stop-loss levels. My complete techniques are available in on-line video seminars, in-person seminars, and via my real-time on-line chat facility. For more details, see the this web page
The application of Fibonacci to trading can be very complex, and take much time and experience to perfect. Many traders enjoy making the process as difficult and as complex as they can tolerate.. I do the opposite, I try to simplify, try to bring clarity.
Fibonacci example - Microsoft Weekly chart.
This lesson demonstrates a very basic way to use Fibonacci levels. You just read about Fibonacci ratios. We will use just one of those ratios for now, the .382 Fibonacci ratio. In this chart MSFT made a high of (approximately) $59.97 in December of 1999. After that, it moved down to make a low of $30.19 in May of 2000.
Emini - Why does technical analysis work?
Technical analysis describes different ways of predicting the future of the stock/futures market based on its history. Unfortunately, technical analysis is not an exact science. Many prominent scientists label it as "voodoo science". They claim that due to market efficiency, if you use TA to find your entry positions, you’re no better off than someone who chooses those positions randomly. Market efficiency means that all the available information is already calculated in the stock prices, and that you can only guess how the price will behave in the future.
The "voodoo science" theory would make sense if it wasn’t for the fact that there is a significant number of traders who are able to consistently make profits in the stock/futures market. These traders use technical analysis as their main tool. Since any trader has or can have access to the same TA tools we have to ask how can a small group of traders consistently win and the other larger group, more or less consistently lose in the stock market game. What is it that winning traders know about technical analysis that gives them the upper hand?
The answer is simple: Technical Analysis works but not necessarily for the reason most people believe. Many successful traders don’t want to share this secret. TA works because many people use it, and successful traders are able to predict how other people will react on the different TA indicators and signals. In other words, while the losing traders are using TA to determine their trades, the winning traders are winning because they know how the losers are going to react based on this data. For example, when a price goes below one of the key moving averages, (MA’s) many investors sell that instrument to protect themselves against additional losses. By doing so, they will drive the price of that instrument lower and that will prompt some traders to start short selling that instrument in anticipation of further decline. Prices continue the downward trend, forcing traders who were long on that stock to sell their positions because it is going below their stop limits. This creates a domino effect as the price continues to decline. However, at this point, successful traders realize that most of the current price action was created artificially. They start to enter positions on the buy side and more often than not price starts to reverse. The losing traders have already sold their contracts based on the TA tools. The winning traders buy the contract because they understand that the fluctuation was temporary, and they seize the opportunity based on the losing trader’s reactions.
No TA tool by itself will give you reliable buy or sell signals. There is no Holy Grail or magic black box that will give you the perfect, accurate signal. However, the combining of the right group of TA indicators with discipline and adequate trading capital has been the road to fortune for many traders. There is no reason why you cannot emulate their success. Let’s take a look at an example.
Understanding Pivot Points
Pivot Points are those price levels that are most likely to act as levels of support and resistance on any given trading day. As we already know, Technical Analysis works because many people use it. For the same reason, the most influential pivot points are those that are used by majority of traders. The most widely used formula for calculating pivot points is as follows:
H = previous day’s high
L = previous day’s low
C = previous day’s close
Pivot Point = (H + L + C)/3
Resistance = 2*PP - L
Support = 2*PP - H
Previous day’s last two hour high = L2HrHigh
Previous day’s last two hour low = L2HrLow
When the price moves through the known pivot point on increased volume it is most likely to continue current trend, and if the price hits the known pivot point but is unable to move through it is most likely to reverse the current trend.
The "voodoo science" theory would make sense if it wasn’t for the fact that there is a significant number of traders who are able to consistently make profits in the stock/futures market. These traders use technical analysis as their main tool. Since any trader has or can have access to the same TA tools we have to ask how can a small group of traders consistently win and the other larger group, more or less consistently lose in the stock market game. What is it that winning traders know about technical analysis that gives them the upper hand?
The answer is simple: Technical Analysis works but not necessarily for the reason most people believe. Many successful traders don’t want to share this secret. TA works because many people use it, and successful traders are able to predict how other people will react on the different TA indicators and signals. In other words, while the losing traders are using TA to determine their trades, the winning traders are winning because they know how the losers are going to react based on this data. For example, when a price goes below one of the key moving averages, (MA’s) many investors sell that instrument to protect themselves against additional losses. By doing so, they will drive the price of that instrument lower and that will prompt some traders to start short selling that instrument in anticipation of further decline. Prices continue the downward trend, forcing traders who were long on that stock to sell their positions because it is going below their stop limits. This creates a domino effect as the price continues to decline. However, at this point, successful traders realize that most of the current price action was created artificially. They start to enter positions on the buy side and more often than not price starts to reverse. The losing traders have already sold their contracts based on the TA tools. The winning traders buy the contract because they understand that the fluctuation was temporary, and they seize the opportunity based on the losing trader’s reactions.
No TA tool by itself will give you reliable buy or sell signals. There is no Holy Grail or magic black box that will give you the perfect, accurate signal. However, the combining of the right group of TA indicators with discipline and adequate trading capital has been the road to fortune for many traders. There is no reason why you cannot emulate their success. Let’s take a look at an example.
Understanding Pivot Points
Pivot Points are those price levels that are most likely to act as levels of support and resistance on any given trading day. As we already know, Technical Analysis works because many people use it. For the same reason, the most influential pivot points are those that are used by majority of traders. The most widely used formula for calculating pivot points is as follows:
H = previous day’s high
L = previous day’s low
C = previous day’s close
Pivot Point = (H + L + C)/3
Resistance = 2*PP - L
Support = 2*PP - H
Previous day’s last two hour high = L2HrHigh
Previous day’s last two hour low = L2HrLow
When the price moves through the known pivot point on increased volume it is most likely to continue current trend, and if the price hits the known pivot point but is unable to move through it is most likely to reverse the current trend.
Differences between Spread Betting and Share Trading
Good Differences - Spread Betting Versus Trading
No taxes
Right now, there are no taxes on spread betting profits. No stamp duty, and no capital gains tax if you are fortunate enough to have a gain. This situation could change. The authorities in a number of jurisdictions are studying spread betting with a view to bringing it under the auspices of the same agencies that regulate mainstream investments. When this happens it is reasonable to expect that there will be some political pressure to impose taxes as well.
Going short is the same as going long
Short selling is when a trader takes the view that the market, or a particular stock, is in a downward trend, or the price is about to collapse for some reason. There are a number of mechanisms to allow this belief to be exploited. The most common are short selling of the share, and the purchase of PUT options. Of course, if you already owned the share it is open to you to simply sell it, or if you wanted to retain the stock you could sell covered CALL options.
Where short selling or the purchase of PUT options is contemplated, the trader will immediately come up against a number of obstacles. In order to sell short, the broker must be able to borrow the required number of shares to sell, until such time as the trader decides to close his or her short position and buy them back. This could prove to be difficult. In addition, certain shares will not be eligible for short selling at all. These will be securities that are already at a low price to begin with. In Europe, in particular, many brokers will not allow anyone to sell short.
As far as options are concerned, things are not always equal with regard to PUTs and CALLs. Very often, the most liquid market exists on the CALL side and, while you will not normally have great difficulty in purchasing your PUTs, there could be a problem in finding a market when you want to sell them. You could, of course, keep them to maturity, but this increases the risk.
In spread betting, all other things being equal, there is no difference between playing the long side and the short side, except that in one case you want the price to go up, while in the other you want it to go down.
Bad differences - Spread Betting Versus Trading
Transaction charges
It is often claimed that one of the advantages of spread betting is that there are no transaction charges like there would be if you were to deal with a normal stockbroker. This is true, but in many cases you would actually be better off financially to pay the broker.s charges, because spread betting effectively disguises the charge within the spread. We deal with the whole idea of the spread below.
Finite lifetime of the contract
This is a difficulty that also exists in regard to options, of course. Both spread betting contracts and option contracts will expire on a certain date. With options you get to choose the date, but for a price (of course). You can buy options with expiry dates that are more than a year away (these are known as LEAPs), or for certain months in between. The more liquid options can be purchased for expiry on almost any month of the year, while the less traded will have expiries in about three month cycles.
With spread betting there is normally only one expiry month available at any one time but, one way or another, the fact that a time will arrive, and in the near future, when your whole position could expire worthless, is something to bear very much in mind.
Limited securities where spread betting can be used
Financial spread betting companies are more interested in taking bets on the various stock market and other indexes than in the value of the shares of individual stocks. This limits the scope for their customers. One of the advantages of trading individual company stocks is that the trader can make quite informed judgments about the potential of the company.s share price performance based on its assets, cash and cash flow position, the markets it sells into and so on. Where indexes are converned, the only meaningful criteria are broad based economic indicators, such as interest rates and consumer sentiment. The individual investor.s potential for standing out from the crowd, so important for success in investing, is largely not present.
The spread betting companies make the rules
If you buy shares with the purpose of holding them for a relatively short period of time and then selling them, you will be engaging in the activity known as trading. The trader is set apart from the type of person who buys shares with the intention of holding them for a long period, perhaps forever, with the expectation of benefiting over a long period by having an income from dividends with a large capital gain in many years time.
As a trader, you will only have to worry about what the market does. There are very clear definitions of what you can expect to get when you decide to open or close your position. True, you will have a spread to contend with (the price at which you can buy from the market maker will not be the same at a given instant in time as the price at which he will buy from you) but this will be, to a large extent, transparent to the normal trader in a market with normal liquidity.
You will, in effect, be pitted against, and find yourself interacting with, the great body of other traders who are interested in the same securities as yourself. The market will dictate the outcome, for better or worse.
When you start dealing in equity or index options, the position changes. The spread then becomes a significant item, and you will be up against option contract expiry dates, as well as the market as a whole, but at least you are still dealing in a real market, unlike in spread betting.
No taxes
Right now, there are no taxes on spread betting profits. No stamp duty, and no capital gains tax if you are fortunate enough to have a gain. This situation could change. The authorities in a number of jurisdictions are studying spread betting with a view to bringing it under the auspices of the same agencies that regulate mainstream investments. When this happens it is reasonable to expect that there will be some political pressure to impose taxes as well.
Going short is the same as going long
Short selling is when a trader takes the view that the market, or a particular stock, is in a downward trend, or the price is about to collapse for some reason. There are a number of mechanisms to allow this belief to be exploited. The most common are short selling of the share, and the purchase of PUT options. Of course, if you already owned the share it is open to you to simply sell it, or if you wanted to retain the stock you could sell covered CALL options.
Where short selling or the purchase of PUT options is contemplated, the trader will immediately come up against a number of obstacles. In order to sell short, the broker must be able to borrow the required number of shares to sell, until such time as the trader decides to close his or her short position and buy them back. This could prove to be difficult. In addition, certain shares will not be eligible for short selling at all. These will be securities that are already at a low price to begin with. In Europe, in particular, many brokers will not allow anyone to sell short.
As far as options are concerned, things are not always equal with regard to PUTs and CALLs. Very often, the most liquid market exists on the CALL side and, while you will not normally have great difficulty in purchasing your PUTs, there could be a problem in finding a market when you want to sell them. You could, of course, keep them to maturity, but this increases the risk.
In spread betting, all other things being equal, there is no difference between playing the long side and the short side, except that in one case you want the price to go up, while in the other you want it to go down.
Bad differences - Spread Betting Versus Trading
Transaction charges
It is often claimed that one of the advantages of spread betting is that there are no transaction charges like there would be if you were to deal with a normal stockbroker. This is true, but in many cases you would actually be better off financially to pay the broker.s charges, because spread betting effectively disguises the charge within the spread. We deal with the whole idea of the spread below.
Finite lifetime of the contract
This is a difficulty that also exists in regard to options, of course. Both spread betting contracts and option contracts will expire on a certain date. With options you get to choose the date, but for a price (of course). You can buy options with expiry dates that are more than a year away (these are known as LEAPs), or for certain months in between. The more liquid options can be purchased for expiry on almost any month of the year, while the less traded will have expiries in about three month cycles.
With spread betting there is normally only one expiry month available at any one time but, one way or another, the fact that a time will arrive, and in the near future, when your whole position could expire worthless, is something to bear very much in mind.
Limited securities where spread betting can be used
Financial spread betting companies are more interested in taking bets on the various stock market and other indexes than in the value of the shares of individual stocks. This limits the scope for their customers. One of the advantages of trading individual company stocks is that the trader can make quite informed judgments about the potential of the company.s share price performance based on its assets, cash and cash flow position, the markets it sells into and so on. Where indexes are converned, the only meaningful criteria are broad based economic indicators, such as interest rates and consumer sentiment. The individual investor.s potential for standing out from the crowd, so important for success in investing, is largely not present.
The spread betting companies make the rules
If you buy shares with the purpose of holding them for a relatively short period of time and then selling them, you will be engaging in the activity known as trading. The trader is set apart from the type of person who buys shares with the intention of holding them for a long period, perhaps forever, with the expectation of benefiting over a long period by having an income from dividends with a large capital gain in many years time.
As a trader, you will only have to worry about what the market does. There are very clear definitions of what you can expect to get when you decide to open or close your position. True, you will have a spread to contend with (the price at which you can buy from the market maker will not be the same at a given instant in time as the price at which he will buy from you) but this will be, to a large extent, transparent to the normal trader in a market with normal liquidity.
You will, in effect, be pitted against, and find yourself interacting with, the great body of other traders who are interested in the same securities as yourself. The market will dictate the outcome, for better or worse.
When you start dealing in equity or index options, the position changes. The spread then becomes a significant item, and you will be up against option contract expiry dates, as well as the market as a whole, but at least you are still dealing in a real market, unlike in spread betting.
Day Trading Indicators and Indicator Trading
Did You Begin Day Trading As An Indicator Only Trader?
Did you start day trading after buying a book on technical analysis, and getting a charting program - probably a free one that you found online - in order to save money? While reading your book you learned about trading indicators which could ’predict’ price movement, and what do you know, the ’best’ indicators were actually included in your free charting program - let the games begin.
Now that you have all the day trading tools that are necessary, the book for education AND the free charting program with those ’best’ day trading indicators, you now need a day trading plan so you can decide which ones of those ’magic’ day trading indicators you are supposed to use. This really is a great book, besides telling you how to day trade using indicators to ’predict’ price - it also said that you need a trading plan to day trade.
So what should this plan be? The book told you about trend following using an indicator called macd, and it also told you how it was possible to pick the top or bottoms using an indicator called stochastic; my guess is that you picked the stochastic indicator to start your day trading - this must be the ’best of the best’ since this indicator was going to ensure you of entering your trades with the ’best’ price. Amazing, simply amazing how easy this day trading stuff really is. In fact, why even bother taking the trades, each time your indicators give a signal - just call up your broker and tell him to stick $100 in your account.
My book was Technical Analysis of the Futures Markets. My charting program was TradeStation with an eSignal fm receiver; that was the one that if you hung the antennae wires just right, and you put enough foil on the tips, you might even get quotes. I had sold a business before I started trading so I did have some capital - isn’t that how everyone gets into trading, you either sell a business or you lose your job? My indicator was the macd as I had decided that I was going to be a ’trend follower’ instead of a ’top-bottom picker’. I also decided that I was going to be ’extra’ clever, if one indicator was good than two indicators must be better, so I added a 20 period moving average. My first trade was a winner, then after many months of extensive therapy, I was finally able to forget the next twelve months - ahhh the memories ƒ؛
Learning To Day Trading - The Learning Progression
Beginning to day trade, or learning to day trade, as an indicator trader is very typical. This is also logical when you consider - HOW are you supposed to initially learn how to trade? Trading indicators are available to anyone who has a charting program, and simply using line crosses, or histogram color changes, provide ’easy’ signals to understand. If you will also take the time to learn the arithmetic behind your indicators, as well as learning what each indicator is specifically intended to do, not only is this a logical way to begin, it is also a good ’step’ in your learning progression - understanding the WHAT you are doing, instead of attempting to create ’canned’ indicator only trading systems, without any regard as to WHY you are trading this way.
This does become one of the ’sticking’ points in your learning progression, as you come to find out that you are unable to profitably trade indicators as signals only - now what? Now what - you ’can’t’ develop your own indicators, so you start doing google searches for day trading indicators and start buying your ’collection’ - they don’t ’work’ either. Now what - you buy a mechanical trading system - what does hypothetical results may not be indicative of real trading or future results mean? Now what - you start subscribing to signal services OR you start joining the ’latest and greatest’ chat room - am I really the only person using the signals who isn’t profitable?
Now what - you never learn how to trade.
I began trading as an indicator trader, and I did try to learn everything that I could about the various indicators, as well as trying to combine indicators that were consistent with how I wanted to trade - I just could never develop a mechanical day trading system from what was available to me. I read a couple more books that didn’t really help me, so I then started looking for someone who could teach me. From what I now know about gurus -vs- teachers, I am very lucky that I got involved with a money manager-trader who taught me a tremendous amount, but I still couldn’t get profitable, in part because there was also ’pressure’ to learn how to trade using real money. As well, any discussions or thoughts about trading psychology and the issues involved, especially to beginning traders, was non-existent.
Now what - learning but losing - I stopped trading. Learning to trading using real money, and ’scoffing’ at trading psychology as simply individual weakness, really was something that I now regard as misinformation. I always mention this as I now feel that this cost me as much as a year of time, and was very close to costing me my trading future, as stopped trading was VERY close to quitting trading. How can’t trading psychology be real to a beginner, when you consider that you are risking losing money at a very fast pace as a day trader, and when you further consider that you are also doing this when you really don’t know what you are doing - this is NOT by definition being weak. And if trading psychology is real, how are you going to learn to make ’good’ trading habits with real money while you are fighting the implications?
Now what - not trading and not ready [quite] to quit - still studying and searching.
Probably the single most important ’thing’ that got me to a next step in learning how to trade, was the concept of a trading setup, and that a setup and a signal were not the same. This was extremely meaningful to me, as it also led to an understanding of how to better use trading indicators for the information that they can provide, but not to use them as trading signals - in essence I began learning about trading method where discretion could be consistently applied -vs- trading system that was mechanical and arithmetic rules.
Traders who are indicator only traders, are also what I refer to right side only traders, that is they are always looking at the right side of their charts for an indicator signal. BUT what about the left side of the chart, what about price and patterns, what about market conditions - WHAT about the relevant ’things’ that are ’moving’ price, instead of indicators only as an arithmetic derivative of price, and thus, one that is dependant on the time frame that you have chosen to trade from? These ’thoughts’, along with the concept of trade setup, became instrumental in the development of a trading method, and how I came to turning my trading around.
When I think about the steps in my learning progression - I would list them as follows:
2/95 - 6/96 indicators only teaching service that included signals learning to trading with real money and trading psychology issues stop trading
6/96 - 3/97 understanding of trading psychology issues learning about trading setups concept trading method -vs- trading system trade setup - trade trigger are not the same method development understand the importance of the left side of the chart and what is happening ’across’ the chart related trading setups and how/when they triggered indicators + pattern indicators + pattern + price indicators + pattern + price + market conditions
3/97 - 11/97 able to paper trade profitably able to real money trade profitably able to trade for a living
Indicator Only Day Trader - Setup Including Indicators Method Day Trader
I have attempted to discuss the way I started day trading, and the way I think many-most traders typically begin. Along with this, I have pointed various issues and problems that I had - those regarding how to learn to trade, and then progressing into a profitable trader. My experiences have been both personal, as well as those of many traders that I have worked with over the last 8-9 years through Tactical Trading - that a very large number of these problems are due to day trading only with indicators, the specific indicators used, along with trying to turn these indicators into a mechanical trading system. This is not to say that this can’t be done - I simply couldn’t do it. However, I would strongly suggest that anyone who is in the early stages of day trading, or struggling with their day trading, consider these things that have been discussed.
Did you start day trading after buying a book on technical analysis, and getting a charting program - probably a free one that you found online - in order to save money? While reading your book you learned about trading indicators which could ’predict’ price movement, and what do you know, the ’best’ indicators were actually included in your free charting program - let the games begin.
Now that you have all the day trading tools that are necessary, the book for education AND the free charting program with those ’best’ day trading indicators, you now need a day trading plan so you can decide which ones of those ’magic’ day trading indicators you are supposed to use. This really is a great book, besides telling you how to day trade using indicators to ’predict’ price - it also said that you need a trading plan to day trade.
So what should this plan be? The book told you about trend following using an indicator called macd, and it also told you how it was possible to pick the top or bottoms using an indicator called stochastic; my guess is that you picked the stochastic indicator to start your day trading - this must be the ’best of the best’ since this indicator was going to ensure you of entering your trades with the ’best’ price. Amazing, simply amazing how easy this day trading stuff really is. In fact, why even bother taking the trades, each time your indicators give a signal - just call up your broker and tell him to stick $100 in your account.
My book was Technical Analysis of the Futures Markets. My charting program was TradeStation with an eSignal fm receiver; that was the one that if you hung the antennae wires just right, and you put enough foil on the tips, you might even get quotes. I had sold a business before I started trading so I did have some capital - isn’t that how everyone gets into trading, you either sell a business or you lose your job? My indicator was the macd as I had decided that I was going to be a ’trend follower’ instead of a ’top-bottom picker’. I also decided that I was going to be ’extra’ clever, if one indicator was good than two indicators must be better, so I added a 20 period moving average. My first trade was a winner, then after many months of extensive therapy, I was finally able to forget the next twelve months - ahhh the memories ƒ؛
Learning To Day Trading - The Learning Progression
Beginning to day trade, or learning to day trade, as an indicator trader is very typical. This is also logical when you consider - HOW are you supposed to initially learn how to trade? Trading indicators are available to anyone who has a charting program, and simply using line crosses, or histogram color changes, provide ’easy’ signals to understand. If you will also take the time to learn the arithmetic behind your indicators, as well as learning what each indicator is specifically intended to do, not only is this a logical way to begin, it is also a good ’step’ in your learning progression - understanding the WHAT you are doing, instead of attempting to create ’canned’ indicator only trading systems, without any regard as to WHY you are trading this way.
This does become one of the ’sticking’ points in your learning progression, as you come to find out that you are unable to profitably trade indicators as signals only - now what? Now what - you ’can’t’ develop your own indicators, so you start doing google searches for day trading indicators and start buying your ’collection’ - they don’t ’work’ either. Now what - you buy a mechanical trading system - what does hypothetical results may not be indicative of real trading or future results mean? Now what - you start subscribing to signal services OR you start joining the ’latest and greatest’ chat room - am I really the only person using the signals who isn’t profitable?
Now what - you never learn how to trade.
I began trading as an indicator trader, and I did try to learn everything that I could about the various indicators, as well as trying to combine indicators that were consistent with how I wanted to trade - I just could never develop a mechanical day trading system from what was available to me. I read a couple more books that didn’t really help me, so I then started looking for someone who could teach me. From what I now know about gurus -vs- teachers, I am very lucky that I got involved with a money manager-trader who taught me a tremendous amount, but I still couldn’t get profitable, in part because there was also ’pressure’ to learn how to trade using real money. As well, any discussions or thoughts about trading psychology and the issues involved, especially to beginning traders, was non-existent.
Now what - learning but losing - I stopped trading. Learning to trading using real money, and ’scoffing’ at trading psychology as simply individual weakness, really was something that I now regard as misinformation. I always mention this as I now feel that this cost me as much as a year of time, and was very close to costing me my trading future, as stopped trading was VERY close to quitting trading. How can’t trading psychology be real to a beginner, when you consider that you are risking losing money at a very fast pace as a day trader, and when you further consider that you are also doing this when you really don’t know what you are doing - this is NOT by definition being weak. And if trading psychology is real, how are you going to learn to make ’good’ trading habits with real money while you are fighting the implications?
Now what - not trading and not ready [quite] to quit - still studying and searching.
Probably the single most important ’thing’ that got me to a next step in learning how to trade, was the concept of a trading setup, and that a setup and a signal were not the same. This was extremely meaningful to me, as it also led to an understanding of how to better use trading indicators for the information that they can provide, but not to use them as trading signals - in essence I began learning about trading method where discretion could be consistently applied -vs- trading system that was mechanical and arithmetic rules.
Traders who are indicator only traders, are also what I refer to right side only traders, that is they are always looking at the right side of their charts for an indicator signal. BUT what about the left side of the chart, what about price and patterns, what about market conditions - WHAT about the relevant ’things’ that are ’moving’ price, instead of indicators only as an arithmetic derivative of price, and thus, one that is dependant on the time frame that you have chosen to trade from? These ’thoughts’, along with the concept of trade setup, became instrumental in the development of a trading method, and how I came to turning my trading around.
When I think about the steps in my learning progression - I would list them as follows:
2/95 - 6/96 indicators only teaching service that included signals learning to trading with real money and trading psychology issues stop trading
6/96 - 3/97 understanding of trading psychology issues learning about trading setups concept trading method -vs- trading system trade setup - trade trigger are not the same method development understand the importance of the left side of the chart and what is happening ’across’ the chart related trading setups and how/when they triggered indicators + pattern indicators + pattern + price indicators + pattern + price + market conditions
3/97 - 11/97 able to paper trade profitably able to real money trade profitably able to trade for a living
Indicator Only Day Trader - Setup Including Indicators Method Day Trader
I have attempted to discuss the way I started day trading, and the way I think many-most traders typically begin. Along with this, I have pointed various issues and problems that I had - those regarding how to learn to trade, and then progressing into a profitable trader. My experiences have been both personal, as well as those of many traders that I have worked with over the last 8-9 years through Tactical Trading - that a very large number of these problems are due to day trading only with indicators, the specific indicators used, along with trying to turn these indicators into a mechanical trading system. This is not to say that this can’t be done - I simply couldn’t do it. However, I would strongly suggest that anyone who is in the early stages of day trading, or struggling with their day trading, consider these things that have been discussed.
Day Trading Indicators and Indicator Trading
Did you start day trading after buying a book on technical analysis, and getting a charting program - probably a free one that you found online - in order to save money? While reading your book you learned about trading indicators which could ’predict’ price movement, and what do you know, the ’best’ indicators were actually included in your free charting program - let the games begin.
Now that you have all the day trading tools that are necessary, the book for education AND the free charting program with those ’best’ day trading indicators, you now need a day trading plan so you can decide which ones of those ’magic’ day trading indicators you are supposed to use. This really is a great book, besides telling you how to day trade using indicators to ’predict’ price - it also said that you need a trading plan to day trade.
So what should this plan be? The book told you about trend following using an indicator called macd, and it also told you how it was possible to pick the top or bottoms using an indicator called stochastic; my guess is that you picked the stochastic indicator to start your day trading - this must be the ’best of the best’ since this indicator was going to ensure you of entering your trades with the ’best’ price. Amazing, simply amazing how easy this day trading stuff really is. In fact, why even bother taking the trades, each time your indicators give a signal - just call up your broker and tell him to stick $100 in your account.
My book was Technical Analysis of the Futures Markets. My charting program was TradeStation with an eSignal fm receiver; that was the one that if you hung the antennae wires just right, and you put enough foil on the tips, you might even get quotes. I had sold a business before I started trading so I did have some capital - isn’t that how everyone gets into trading, you either sell a business or you lose your job? My indicator was the macd as I had decided that I was going to be a ’trend follower’ instead of a ’top-bottom picker’. I also decided that I was going to be ’extra’ clever, if one indicator was good than two indicators must be better, so I added a 20 period moving average. My first trade was a winner, then after many months of extensive therapy, I was finally able to forget the next twelve months - ahhh the memories ƒ؛
Learning To Day Trading - The Learning Progression
Beginning to day trade, or learning to day trade, as an indicator trader is very typical. This is also logical when you consider - HOW are you supposed to initially learn how to trade? Trading indicators are available to anyone who has a charting program, and simply using line crosses, or histogram color changes, provide ’easy’ signals to understand. If you will also take the time to learn the arithmetic behind your indicators, as well as learning what each indicator is specifically intended to do, not only is this a logical way to begin, it is also a good ’step’ in your learning progression - understanding the WHAT you are doing, instead of attempting to create ’canned’ indicator only trading systems, without any regard as to WHY you are trading this way.
This does become one of the ’sticking’ points in your learning progression, as you come to find out that you are unable to profitably trade indicators as signals only - now what? Now what - you ’can’t’ develop your own indicators, so you start doing google searches for day trading indicators and start buying your ’collection’ - they don’t ’work’ either. Now what - you buy a mechanical trading system - what does hypothetical results may not be indicative of real trading or future results mean? Now what - you start subscribing to signal services OR you start joining the ’latest and greatest’ chat room - am I really the only person using the signals who isn’t profitable?
Now what - you never learn how to trade.
I began trading as an indicator trader, and I did try to learn everything that I could about the various indicators, as well as trying to combine indicators that were consistent with how I wanted to trade - I just could never develop a mechanical day trading system from what was available to me. I read a couple more books that didn’t really help me, so I then started looking for someone who could teach me. From what I now know about gurus -vs- teachers, I am very lucky that I got involved with a money manager-trader who taught me a tremendous amount, but I still couldn’t get profitable, in part because there was also ’pressure’ to learn how to trade using real money. As well, any discussions or thoughts about trading psychology and the issues involved, especially to beginning traders, was non-existent.
Now what - learning but losing - I stopped trading. Learning to trading using real money, and ’scoffing’ at trading psychology as simply individual weakness, really was something that I now regard as misinformation. I always mention this as I now feel that this cost me as much as a year of time, and was very close to costing me my trading future, as stopped trading was VERY close to quitting trading. How can’t trading psychology be real to a beginner, when you consider that you are risking losing money at a very fast pace as a day trader, and when you further consider that you are also doing this when you really don’t know what you are doing - this is NOT by definition being weak. And if trading psychology is real, how are you going to learn to make ’good’ trading habits with real money while you are fighting the implications?
Now what - not trading and not ready [quite] to quit - still studying and searching.
Probably the single most important ’thing’ that got me to a next step in learning how to trade, was the concept of a trading setup, and that a setup and a signal were not the same. This was extremely meaningful to me, as it also led to an understanding of how to better use trading indicators for the information that they can provide, but not to use them as trading signals - in essence I began learning about trading method where discretion could be consistently applied -vs- trading system that was mechanical and arithmetic rules.
Traders who are indicator only traders, are also what I refer to right side only traders, that is they are always looking at the right side of their charts for an indicator signal. BUT what about the left side of the chart, what about price and patterns, what about market conditions - WHAT about the relevant ’things’ that are ’moving’ price, instead of indicators only as an arithmetic derivative of price, and thus, one that is dependant on the time frame that you have chosen to trade from? These ’thoughts’, along with the concept of trade setup, became instrumental in the development of a trading method, and how I came to turning my trading around.
When I think about the steps in my learning progression - I would list them as follows:
2/95 - 6/96 indicators only teaching service that included signals learning to trading with real money and trading psychology issues stop trading
6/96 - 3/97 understanding of trading psychology issues learning about trading setups concept trading method -vs- trading system trade setup - trade trigger are not the same method development understand the importance of the left side of the chart and what is happening ’across’ the chart related trading setups and how/when they triggered indicators + pattern indicators + pattern + price indicators + pattern + price + market conditions
3/97 - 11/97 able to paper trade profitably able to real money trade profitably able to trade for a living
Indicator Only Day Trader - Setup Including Indicators Method Day Trader
I have attempted to discuss the way I started day trading, and the way I think many-most traders typically begin. Along with this, I have pointed various issues and problems that I had - those regarding how to learn to trade, and then progressing into a profitable trader. My experiences have been both personal, as well as those of many traders that I have worked with over the last 8-9 years through Tactical Trading - that a very large number of these problems are due to day trading only with indicators, the specific indicators used, along with trying to turn these indicators into a mechanical trading system. This is not to say that this can’t be done - I simply couldn’t do it. However, I would strongly suggest that anyone who is in the early stages of day trading, or struggling with their day trading, consider these things that have been discussed.
Now that you have all the day trading tools that are necessary, the book for education AND the free charting program with those ’best’ day trading indicators, you now need a day trading plan so you can decide which ones of those ’magic’ day trading indicators you are supposed to use. This really is a great book, besides telling you how to day trade using indicators to ’predict’ price - it also said that you need a trading plan to day trade.
So what should this plan be? The book told you about trend following using an indicator called macd, and it also told you how it was possible to pick the top or bottoms using an indicator called stochastic; my guess is that you picked the stochastic indicator to start your day trading - this must be the ’best of the best’ since this indicator was going to ensure you of entering your trades with the ’best’ price. Amazing, simply amazing how easy this day trading stuff really is. In fact, why even bother taking the trades, each time your indicators give a signal - just call up your broker and tell him to stick $100 in your account.
My book was Technical Analysis of the Futures Markets. My charting program was TradeStation with an eSignal fm receiver; that was the one that if you hung the antennae wires just right, and you put enough foil on the tips, you might even get quotes. I had sold a business before I started trading so I did have some capital - isn’t that how everyone gets into trading, you either sell a business or you lose your job? My indicator was the macd as I had decided that I was going to be a ’trend follower’ instead of a ’top-bottom picker’. I also decided that I was going to be ’extra’ clever, if one indicator was good than two indicators must be better, so I added a 20 period moving average. My first trade was a winner, then after many months of extensive therapy, I was finally able to forget the next twelve months - ahhh the memories ƒ؛
Learning To Day Trading - The Learning Progression
Beginning to day trade, or learning to day trade, as an indicator trader is very typical. This is also logical when you consider - HOW are you supposed to initially learn how to trade? Trading indicators are available to anyone who has a charting program, and simply using line crosses, or histogram color changes, provide ’easy’ signals to understand. If you will also take the time to learn the arithmetic behind your indicators, as well as learning what each indicator is specifically intended to do, not only is this a logical way to begin, it is also a good ’step’ in your learning progression - understanding the WHAT you are doing, instead of attempting to create ’canned’ indicator only trading systems, without any regard as to WHY you are trading this way.
This does become one of the ’sticking’ points in your learning progression, as you come to find out that you are unable to profitably trade indicators as signals only - now what? Now what - you ’can’t’ develop your own indicators, so you start doing google searches for day trading indicators and start buying your ’collection’ - they don’t ’work’ either. Now what - you buy a mechanical trading system - what does hypothetical results may not be indicative of real trading or future results mean? Now what - you start subscribing to signal services OR you start joining the ’latest and greatest’ chat room - am I really the only person using the signals who isn’t profitable?
Now what - you never learn how to trade.
I began trading as an indicator trader, and I did try to learn everything that I could about the various indicators, as well as trying to combine indicators that were consistent with how I wanted to trade - I just could never develop a mechanical day trading system from what was available to me. I read a couple more books that didn’t really help me, so I then started looking for someone who could teach me. From what I now know about gurus -vs- teachers, I am very lucky that I got involved with a money manager-trader who taught me a tremendous amount, but I still couldn’t get profitable, in part because there was also ’pressure’ to learn how to trade using real money. As well, any discussions or thoughts about trading psychology and the issues involved, especially to beginning traders, was non-existent.
Now what - learning but losing - I stopped trading. Learning to trading using real money, and ’scoffing’ at trading psychology as simply individual weakness, really was something that I now regard as misinformation. I always mention this as I now feel that this cost me as much as a year of time, and was very close to costing me my trading future, as stopped trading was VERY close to quitting trading. How can’t trading psychology be real to a beginner, when you consider that you are risking losing money at a very fast pace as a day trader, and when you further consider that you are also doing this when you really don’t know what you are doing - this is NOT by definition being weak. And if trading psychology is real, how are you going to learn to make ’good’ trading habits with real money while you are fighting the implications?
Now what - not trading and not ready [quite] to quit - still studying and searching.
Probably the single most important ’thing’ that got me to a next step in learning how to trade, was the concept of a trading setup, and that a setup and a signal were not the same. This was extremely meaningful to me, as it also led to an understanding of how to better use trading indicators for the information that they can provide, but not to use them as trading signals - in essence I began learning about trading method where discretion could be consistently applied -vs- trading system that was mechanical and arithmetic rules.
Traders who are indicator only traders, are also what I refer to right side only traders, that is they are always looking at the right side of their charts for an indicator signal. BUT what about the left side of the chart, what about price and patterns, what about market conditions - WHAT about the relevant ’things’ that are ’moving’ price, instead of indicators only as an arithmetic derivative of price, and thus, one that is dependant on the time frame that you have chosen to trade from? These ’thoughts’, along with the concept of trade setup, became instrumental in the development of a trading method, and how I came to turning my trading around.
When I think about the steps in my learning progression - I would list them as follows:
2/95 - 6/96 indicators only teaching service that included signals learning to trading with real money and trading psychology issues stop trading
6/96 - 3/97 understanding of trading psychology issues learning about trading setups concept trading method -vs- trading system trade setup - trade trigger are not the same method development understand the importance of the left side of the chart and what is happening ’across’ the chart related trading setups and how/when they triggered indicators + pattern indicators + pattern + price indicators + pattern + price + market conditions
3/97 - 11/97 able to paper trade profitably able to real money trade profitably able to trade for a living
Indicator Only Day Trader - Setup Including Indicators Method Day Trader
I have attempted to discuss the way I started day trading, and the way I think many-most traders typically begin. Along with this, I have pointed various issues and problems that I had - those regarding how to learn to trade, and then progressing into a profitable trader. My experiences have been both personal, as well as those of many traders that I have worked with over the last 8-9 years through Tactical Trading - that a very large number of these problems are due to day trading only with indicators, the specific indicators used, along with trying to turn these indicators into a mechanical trading system. This is not to say that this can’t be done - I simply couldn’t do it. However, I would strongly suggest that anyone who is in the early stages of day trading, or struggling with their day trading, consider these things that have been discussed.
What makes a good Trading Strategy?
Ask most NEW traders, and they will tell you about some moving average or combination of indicators or a chart pattern that they use. This is, as the more experienced trader knows, an entry point and not a strategy.
Any trader who is more experienced will say a strategy should also include money management, risk control, perhaps stop losses and of course, an exit point. They might also say that you must let your profits run and cut your losses short. A well-read trader will also tell you that your strategy should fit with your trading personality.
BUT there is one other vital ingredient that many traders forget - and that is to fully understand the "personality" of what you trade. Some traders specialise in say, gold or Brent crude or currencies or they might specialise in a particular index such as the FTSE 100 or the Dow but many traders choose to trade shares. Indeed some traders dabble in a bit of everything. I think this is the area that causes many traders to fail or at least not reach their full potential.
In my view: You absolutely MUST specialise.
I am sure that on the surface most people would say that sounds sensible but here is why it is a MUST!
Superficially, many charts look the same. I bet if you had not seen the charts for some time and someone where to show you a chart of Brent Crude over 6 months and then a chart of Barclays PLC over the same 6 months you would be hard pushed to say which was which purely on the look of the chart.
However, I bet that if you found a trader who trades ONLY Barclays day in and day out and also found someone who trades ONLY Brent Crude day in and day out, both of them would easily identify which was which. WHY?
Because every share, index or commodity has it’s own "personality".
Some will be volatile intra-day, some will follow their sector or the main index (market followers), some will do their own thing, some will spike up and down regularly, some will stop at key moving averages and some will just plough through. Some will move by 5% on average before they retrace and some by 2%. Some will gap up or down regularly, some will not. You get the idea!
Therefore, no matter how good you are at analysing indicators, moving averages, trends and patterns, the same strategy WILL NOT work for everything. I would go so far as to say that a strategy that works well for Bovis Homes, for example, is likely NOT to work for BT Group - they have very different "personalities".
So let’s return to our question: What makes a good trading strategy? Let me answer with a series of ten questions that you need to find answers to, in order to build a REALLY GOOD strategy.
What do you want to trade (share, index, commodity, currency, etc)? If your answer is shares (plural) I would urge you to pick one typical share at this stage to really specialise. You can add more later.
What "personality" does that share, index etc have?
What entry system is the most reliable for that share?
What stop loss system is the most effective for that share?
What average risk will a typical trade carry?
What exit system works well for that share?
What is your trading personality (attitude to risk, losses, discipline, how much do you worry etc) and can you trade that strategy without overriding it?
What timescale do you want to trade? (Using intra-day or end of day data)
How much data do you keep on past trades to help identify strategy weaknesses?
How does all this fit with your trading objectives?
Once you have an answer to each question you need to do one final thing. Make sure all those things fit together and complement each other. For example, if the ideal stop loss position represents a big average risk and conflicts with your own attitude to risk, you need to start again. If you will override your exit point because greed makes you hang in for more, you need to think again. Perhaps you shouldn’t trade that stock in the first place - look for one with a different "personality" which will lead to a strategy you can trade comfortably.
It is a long and sometimes painful iterative journey. You might need to go round and round in ever decreasing circles over a long time. Testing and refining, testing and refining before you can truly have a reliable and repeatable strategy that REALLY WORKS for you.
THEN, you can look for other things to trade that have the same "personality" as your specialist stock, index, commodity or currency.
Any trader who is more experienced will say a strategy should also include money management, risk control, perhaps stop losses and of course, an exit point. They might also say that you must let your profits run and cut your losses short. A well-read trader will also tell you that your strategy should fit with your trading personality.
BUT there is one other vital ingredient that many traders forget - and that is to fully understand the "personality" of what you trade. Some traders specialise in say, gold or Brent crude or currencies or they might specialise in a particular index such as the FTSE 100 or the Dow but many traders choose to trade shares. Indeed some traders dabble in a bit of everything. I think this is the area that causes many traders to fail or at least not reach their full potential.
In my view: You absolutely MUST specialise.
I am sure that on the surface most people would say that sounds sensible but here is why it is a MUST!
Superficially, many charts look the same. I bet if you had not seen the charts for some time and someone where to show you a chart of Brent Crude over 6 months and then a chart of Barclays PLC over the same 6 months you would be hard pushed to say which was which purely on the look of the chart.
However, I bet that if you found a trader who trades ONLY Barclays day in and day out and also found someone who trades ONLY Brent Crude day in and day out, both of them would easily identify which was which. WHY?
Because every share, index or commodity has it’s own "personality".
Some will be volatile intra-day, some will follow their sector or the main index (market followers), some will do their own thing, some will spike up and down regularly, some will stop at key moving averages and some will just plough through. Some will move by 5% on average before they retrace and some by 2%. Some will gap up or down regularly, some will not. You get the idea!
Therefore, no matter how good you are at analysing indicators, moving averages, trends and patterns, the same strategy WILL NOT work for everything. I would go so far as to say that a strategy that works well for Bovis Homes, for example, is likely NOT to work for BT Group - they have very different "personalities".
So let’s return to our question: What makes a good trading strategy? Let me answer with a series of ten questions that you need to find answers to, in order to build a REALLY GOOD strategy.
What do you want to trade (share, index, commodity, currency, etc)? If your answer is shares (plural) I would urge you to pick one typical share at this stage to really specialise. You can add more later.
What "personality" does that share, index etc have?
What entry system is the most reliable for that share?
What stop loss system is the most effective for that share?
What average risk will a typical trade carry?
What exit system works well for that share?
What is your trading personality (attitude to risk, losses, discipline, how much do you worry etc) and can you trade that strategy without overriding it?
What timescale do you want to trade? (Using intra-day or end of day data)
How much data do you keep on past trades to help identify strategy weaknesses?
How does all this fit with your trading objectives?
Once you have an answer to each question you need to do one final thing. Make sure all those things fit together and complement each other. For example, if the ideal stop loss position represents a big average risk and conflicts with your own attitude to risk, you need to start again. If you will override your exit point because greed makes you hang in for more, you need to think again. Perhaps you shouldn’t trade that stock in the first place - look for one with a different "personality" which will lead to a strategy you can trade comfortably.
It is a long and sometimes painful iterative journey. You might need to go round and round in ever decreasing circles over a long time. Testing and refining, testing and refining before you can truly have a reliable and repeatable strategy that REALLY WORKS for you.
THEN, you can look for other things to trade that have the same "personality" as your specialist stock, index, commodity or currency.
Saturday, January 31, 2009
Build Your Investments With Global Forex TradingBy:
Global forex trading (forex, of course, meaning the foreign exchange market) has become more and more popular in the last few decades, mostly due to the advent of the global economy. Never before has our economy been so intertwined with every other country. It is perfectly common now for people to convert large amounts of money into various foreign currencies, then back again. The forex market is the largest market in the world, and includes everything from banks to governments to independent speculators. The daily volume of the global forex trading market exceeded four trillion dollars on average last year, making it a very attractive market to get involved in.Several things separate global forex trading from other markets. Its trading volumes, the large number and variety of traders, the global dispersion, the variety of factors affecting exchange rates, low profit margins (but profits are often very high because of large volume trading), all contribute to make the global forex trading market the closest thing to the perfect competition. Foreign exchange has more than doubled since 2001.Another way that global forex trading is separated from other markets, for example the stock market, is that it is divided into different levels of access. In the stock market, all competitors and investors have access to the same prices. In the global forex market, however, the inter-bank market is at the top. As the access level drops, the spread (that is the difference between the bid and ask price) widens, though it is still possible for a low-access individual to make large amounts of money. While there is not a central market for forex traders, there is next to no cross-border regulation. Global forex trading is often referred to as OTC (over-the-counter), which makes for a large number of intertwined marketplaces. Therefore there is not so much a single exchange as a number of separate rates or prices, depending on which bank is doing the trading, and where it is. Differences in exchange rates are usually caused by changes in GDP (gross domestic product), inflation, interest rates, budget and trade deficits or surpluses, and other large-scale economic transactions and events.Global forex trading is something not many people consider for investment (who would think that so much money lies in money), but worldwide forex trading continues to flourish for a reason. Individuals all over the globe are investing in the forex market and making thousands of dollars every day.
Introduction of Automated Forex Trading SystemsBy
There are many companies that create forex trading software, trading systems, signals and alert services. Money management strategies and potent trading systems that skyrocket your profits. How do these forex trading systems work?Ever since the introduction of automated trading systems, there has been a surge in interest in this type of trading. Today this market is attracting small and medium investors so banks and other financial establishments are no longer the only players. At this market currencies are traded from various countries of the world. Because trillions of dollars are traded 24/7, it makes this one of the largest and most active financial markets.Now that there is internet and advanced computer technology in place, any one with an internet connection, a trading account and good brokering knowledge can trade in forex. Close and constant monitoring is required if you want to keep your position as the global market never sleeps. Automated systems allow you to pick up a currency and record the asking and selling price. All that's required is a small seed amount and a broker because your buy and sell orders would be executed instantly.You can profit from forex trading without becoming an expert as these automated systems can make this happen. The trading program acts like a human expert and manages the trading for you. You save a great deal of time with these auto systems since you do not have to carryout the trading yourself. When you monitor the market well, the auto trading system can help you trade multiple accounts simultaneously; this was never fully possible ever with manual trading. These systems have the advantage of trading with multiple systems in more than one market.You can use automatic forex trading systems any time you like and it does not require your presence. There is no chance of missing any profitable opportunity even if you are not present in front of your computer. You can then take full advantage of several strategies and varied systems. You can plan your investment and spread your risk when you know that each system is built to be triggered by specific trade indicators.There is no place for human emotions which adversely affect decisions; something that is not possible with these automatic forex trading systems. You can now have the capacity to manage several currencies and monitor and trade them too.You can not expect consistent and sustainable profits if you do not pay attention to learning the basics of trading because no automated trading system can help you with these. Several factors and variables influence the forex market so just using an automated system can not guarantee you long term success in this venture. The automated forex trading system allows you the flexibility of customizing it to suit you.
Forex Trading Systems: The Key to Forex ProfitsBy
While there are many different opinions between various Forex traders about which methods and strategies are best, there is one singular point that every Forex trader will agree on: you absolutely must have a great trading system to profit consistently. A great Forex trading system is the difference between profiting consistently from Forex trading and from finding yourself busted. There isn't a lot of middle ground, either. The right system will make you a lot of money. The wrong one will strip you of your entire investment.A great Forex trading system is one that first off will be successful at trading the market. If it doesn't make money, it's not any good. That part is obvious, but another part of that equation is how often the Forex trading system can actually be applied to the real and constantly moving currency market.Is it only when the market is trending? Counter-trending? Breakout? Is the system a combination of two of these, or some combination of all of these? How often the trading system can be used and how restricted the system is by market conditions. The market does not breakout often, but the best opportunities to get massive profits are during the breakout market. So a Forex trading system that is designed to be able to trade effectively no matter what state the market was in is obviously going to be far superior to any system that only trades with one market movement or in any other limited situation.Every successful Forex trader has a solid, tested, and proven Forex trading system. The same is true with any actual company that can consistently make money trading the Forex. This point can't be emphasized enough. Any company or individual trader that can consistently make money trading the Forex, and teach others how to do so as well, must be using a time proven Forex trading system. If you are only going to take one piece of advice from this article, then make sure it's this one: find a successful and time tested Forex trading system.Find a Forex trading system that has been used and tested for at least a couple of years, if not longer. The longer a company has been profiting from the Forex, and the longer that system has been tested, the better the chances of you coming out of trading the Forex grinning ear to ear about your new fortune.
An Examination of Forex AccountsBy
With the rise of the global forex (foreign exchange) market, many investors have been looking into forex accounts. But just what are they? A foreign exchange account is the account a trader opens with a retail forex broker. The first type of account is often called a demo account. Once a new trader has tried demo accounts with several traders, he or she will usually move on to a funded account. These are split into three categories, mini accounts, full accounts, and managed accounts. Full accounts trade currency in batches of one hundred thousand, whereas mini accounts do so in groups of ten thousand. A managed account is where a money manager does the trading (for a fee) on the clients behalf.Due to the various qualities of forex trading, forex accounts have been widely successful worldwide. Since the trade volume, large number of traders, dispersion, variable exchange rates, and high profits (with low margins and high volume trading) all contribute to make the foreign exchange one of the most powerful markets in the world. Anyone who considers themselves a global investor absolutely must at least take a look at the various opportunities available in the forex market.It is important for the new forex investor to decide what type of forex accounts they're looking for in order to suit their needs. A small-scale retail investor, for example, will probably want a demo or mini account in order to learn how to exploit a profitable market and become accustomed to the various banking methods involved. Some traders who have the extra resources to have someone manage the forex account for them may be more interested in a managed account.A mini forex account is different from the regular accounts because it uses a greater amount of leverage than the regular account. This account offers up to 200:1 leverage, this means that just a $50 margin deposit will allow you to trade lots worth roughly $10,000. One will trade in lots that are just 1/10 the size of a regular account, which will greatly reduces the risk you take in your trades. For a new person to start forex trading it is a very good idea to start trading with demo forex accounts. This demo account does not require any cash, but it does train a person in how to approach trading. Many brokers offer a demo accounts that will allow you to test the market without risks. Managed forex trading has become more popular in the investment marketplace. Brokers are now offering individuals the ability to opt for a managed fund, beginners are benefiting by putting their money with an experienced broker so that he or she can make the most of what they haveThe possibilities for profit in the foreign exchange market are virtually endless. The market is constantly changing, yet arguably the most durable market possible because of the fairness of the competition. Anyone looking to invest in a forex accounts have lots of options available to them, and can choose one suited most to their taste. There are plenty of ways to diversify one's portfolio as a trader, or one can simply sit back and let a money manager do the work for them. There is no worry of market crashes, as the global economy always tends to stabalize itself. Forex trading is quickly becoming one of the most profitable markets worldwide.
Speaking Like a Forex Pro: Learn Forex JargonBy
One aspect of trading the Forex, or even talking to Forex traders, that can be really intimidating is that the Forex market has an awful lot of jargon. For those of us who have been trading for years, this jargon comes as second nature and we don't even think about it anymore. If you're just getting started, however, you might not know a kiwi from an Aussie, a major currency from a minor, or the base from the cross in a currency pair. When you take all this into consideration, it's easy to see how intimidating that can be.This article will set out to help you get started. There is a lot of Forex lingo, but at least now you'll be able to jump into the game a little bit more after knowing these common Forex terms:"The major currencies." There are eight major currencies, which are: the U.S. Dollar, Canadian Dollar, Australian Dollar, New Zealand Dollar, the Euro, Japanese Yen, the British Pound, and the Swiss Franc."Minor currencies." This is any currency that does not belong to the major eight. So even currencies of large economies like Brazil, Mexico, Russia, China, and India are all still considered minor currencies."Base currency." This is the first currency listed in a currency quote, and is always measured in a unit of 1."Cross currency." The second currency listed in a currency quote."The Aussie." A slang term for the Australian Dollar."The Kiwi." A slang term for the New Zealand Dollar."The Bid." Refers to the bid price, which is the price the market will currently purchase a specific currency pair for. The bid price will always be higher than the ask price."The Ask." Refers to the ask price, which is what you will sell a currency for. The ask price is the one used when selling."The Spread." The difference in value between the ask price and the bid price. This miniscule difference is how some brokers make their money off Forex traders instead of charging a commission."Bull Market." A market distinguished by an overall rise in price."Bear Market." A market distinguished by an overall fall in price.This is hardly the end all, be all, of Forex lingo, but this article should at least give you a good informed start into getting comfortable with the slang you'll hear around the Forex markets. Knowing what these slang terms mean will make the transition into currency trading that much easier.
Striking Out Alone With Your Trading CareerBy
If you are going to survive in day trading, you need be one tough individual. You need to be self reliant and maintain enough promise to your own welfare to know the ins and outs of how to be individualistic enough to succeed. Often you need to be developing your own compass, charting your own territory and developing your own leads. If you need the chronic approval of other people, you aren't likely to make it in the world of financial trading.People often make decisions based on the opinions and actions of others. Traveling in packs is natural, almost every wild animal forms some form of pack to help ensure its safety and survival in a rough world. Humans do the same, learning from the rest of the crowd was has been deemed "safe" and what has not. Thus when we make decisions in our lives as traders, we tend to feel safer when we follow the crowd and hang with the pack. This is not however, generally considered the most profitable approach. Many investors handle their lives in mediocrity. There is a safe and pretty assured return in many of the trades that are done with the blessings of our peers. Yet the profitable trades are the ones that ask us to move beyond our comfort zone and stretch out into the world without the protection of the rest of the pack. We have always been taught to go with the crowd, be part of the "in" crowd, follow the group, don't stand out, and by God by all means you must be normal. Striking out on our own and making decisions that are completely different from our safety pack can make us feel different enough to be ill. Fortunately, it doesn't need to be that way. You can develop the skills and self confidence to strike out on your own, trade with the big kids, and not worry about the impression that someone else has about our decision. It takes a little time and a dedicated effort, but it can be done. When it is done, and done well, often the results are absolutely mind blowing.When you develop a sense of self esteem as related to your trading decisions, you can strike out with confidence. Of course, not every decision you make against the grain is going to be a huge winner, but those that you succeed with are going to help you make your mark. One of the biggest drawbacks of going with the crowd is that you lose your ability to decide for yourself whether the trades you are making are definitely in your best interest. What might be in someone else's best interest may not be in yours. And that's okay. Neither one of you have to be wrong, just different. When we follow the crowd we lose our own sense of judgment, we even start to think like others when perhaps originally we came to the game with an entirely different thought process. Is it important to listen to others and learn from their mistakes and their experiences? Absolutely. Does that mean you should follow them blindly no matter what our instincts tell us? Of course not. We are growing individuals with different plans, goals, strategies, and desires. Unless you are making choices for yourself you start to become a victim of the trading industry and it won't be long before you find that you are becoming disgruntled.Going with the crowd often means that you are a little bit behind. Unless you become your own trend setter, you have to wait for the trend to develop. By then, the trend has nearly passed you by. Leaving enough time to wait for the majority to hurry up and act so that you know what to do leaves the doors open for a missed opportunity. When you decide for yourself and make decisions based on the information you have and the best interest of your account balance, you get to become the trend setter. And that is almost always much more profitable.
Forex Trading Systems: The Key to Forex ProfitsBy:
While there are many different opinions between various Forex traders about which methods and strategies are best, there is one singular point that every Forex trader will agree on: you absolutely must have a great trading system to profit consistently. A great Forex trading system is the difference between profiting consistently from Forex trading and from finding yourself busted. There isn't a lot of middle ground, either. The right system will make you a lot of money. The wrong one will strip you of your entire investment.A great Forex trading system is one that first off will be successful at trading the market. If it doesn't make money, it's not any good. That part is obvious, but another part of that equation is how often the Forex trading system can actually be applied to the real and constantly moving currency market.Is it only when the market is trending? Counter-trending? Breakout? Is the system a combination of two of these, or some combination of all of these? How often the trading system can be used and how restricted the system is by market conditions. The market does not breakout often, but the best opportunities to get massive profits are during the breakout market. So a Forex trading system that is designed to be able to trade effectively no matter what state the market was in is obviously going to be far superior to any system that only trades with one market movement or in any other limited situation.Every successful Forex trader has a solid, tested, and proven Forex trading system. The same is true with any actual company that can consistently make money trading the Forex. This point can't be emphasized enough. Any company or individual trader that can consistently make money trading the Forex, and teach others how to do so as well, must be using a time proven Forex trading system. If you are only going to take one piece of advice from this article, then make sure it's this one: find a successful and time tested Forex trading system.Find a Forex trading system that has been used and tested for at least a couple of years, if not longer. The longer a company has been profiting from the Forex, and the longer that system has been tested, the better the chances of you coming out of trading the Forex grinning ear to ear about your new fortune.
Article Source: http://www.tradeforex2000.info/forexarticledirectory
And now I would like to offer you free access to a Forex trading system that is 89.1% accurate, so you can literally start trading the Forex today. You can access it now by going to: www.foreximpact.com/reports/89percent/ From Jason Fielder: Founder, ForexImpact.com
Article Source: http://www.tradeforex2000.info/forexarticledirectory
And now I would like to offer you free access to a Forex trading system that is 89.1% accurate, so you can literally start trading the Forex today. You can access it now by going to: www.foreximpact.com/reports/89percent/ From Jason Fielder: Founder, ForexImpact.com
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