New mattress in forex

A man (MAN) calls his fx dealer (DEALER) all anxious and out of breath with this urgency in his voice. He says,
• MAN: Close all my positions, everything fast, right away.
The fx dealer tries to talk to the man but the man says,
• MAN: Let me tell you a secret. You know I've been married for 6 years now and I've been your client for 5 years.
• DEALER: Yes, go on, the FX dealer says.
• MAN: Well. My wife has this thing about the market. Her grandparents lost it all in the GBP crash and ever since then her family found investing in the market akin to original sin. When we got married I promised her that I would follow in her parents footsteps and never venture in the FX market and always leave all our money under the mattress.
• DEALER: Wow, I didn't know that. I guess you want the money because you are losing.
• MAN: No, I want the money because she ordered a new mattress and it is being delivered in two days.

Why Successful Traders Use Fibonacci Retracements

Support and resistance levels on bar charts are one of the major components in the study of technical analysis in Forex trading. Many traders make use of support and resistance levels to examine entry and exit points when trading markets. When establishing support and resistance levels on charts, a trader should not overlook Fibonacci percentage ‘retracement’ levels.

What is a retracement? A retracement is a pullback of the currency price before the price resumes the original direction of movement.

What is Fibonacci retracement? Fibonacci retracement is one of the many aspects of Forex market technical analysis. Fibonacci in the Forex market is a type of line study used to predict as well as calculate price pullback levels. It is placed directly on the price chart within the trading platform and this technical indicator will automatically calculate the pullback levels on the currency price chart.

Fibonacci Retracement is used to determine support and resistance levels in the market. Fibonacci Retracement is essentially based on the assumption that the market will follow a predictable pattern and at particular points it will retrace its steps before moving on with its original direction. This technical analysis utilizes ratios from numbers in a series; you can take 2 numbers in the series and divide them to form a ratio. The 2 Fibonacci technical % retracement levels that are most crucial in Forex market analysis are 38.2% and 62.8%. Most Forex market technicians will track a retracement of a price uptrend from the beginning to its most recent peak. Other important retracement %s are 75%, 50% and 33%. For instance, if a price trend starts at 0, peaks at 100, and thereafter declines to 50, then it would be a 50% retracement. The ratio of 0.0% is considered the start when the Forex market retraces itself while the ratio of 100% marks when the market entirely reverses its direction. These 2 points are referred to as the trough and the peak respectively. Once you identify these 2 points in the trading patterns, then it is time to start identifying possible support and resistance levels.

Why Use Fibonacci Retracement
The main purpose of using technical analysis in the Forex market is to identify trends and patterns that can be utilized to evaluate the optimal time to buy or sell currency on the market. There are many different strategies that traders employ for technical analysis and Fibonacci Retracements is one of the many strategies that can be used. Fibonacci Retracement is based on the belief that the Forex market will move in one particular direction and at specific points it will retrace its steps before moving forward in its original direction. This strategy attempts to identify these points on time so that you can make a successful trade.

The price of a Forex currency pair does not necessarily move up or down in a straight line. Usually it moves up or down in a zigzag pattern. Fibonacci Retracement Levels comes in handy as the tool that is used to calculate where the zigzag will stop. The Fibonacci levels are 38.2%, 50% and 62.8%, these points form the points at which price is likely to make a pullback.

Fibonacci Retracements are an effective technical analysis strategy that Forex traders can use to profit from strong trends when trading in the Forex market. The ratios created helps traders to determine when you should enter the market based on a set of numbers that naturally occur in nature. During the trend, the market will retrace by a certain % point and that pullback is essentially at one of the Fibonacci ratios. However, to fully profit from techniques such as Fibonacci retracements you need to understand other aspects of technical analysis as well.

The trend is your friend" - always identify the prevailing trend, and never trade against it, but rather wait for retracements and then enter trades in the direction of the trend.

 

InstaForex recognized as the best broker in Asia once again

According to the results of the 3rd China International Online Trading Expo (CIOT EXPO) held in May 2013, InstaForex has received another prestigious award – the Best Broker in Asia.

The top-notch products and services for customers and partners have enabled InstaForex to maintain its status of the best Forex company on the Asian market for five years already. To date, InstaForex has been awarded as the best broker in Asia 9 times and got a lot of other awards and prizes, including the Best Retail Forex Broker, Best Broker CIS, Best Retail FX Provider, and other nominations.

This award is further proof of our credibility. Thus, the number of our clients and partners has topped 1,000,000 now and keeps consistently increasing.

We would like to thank the administration of the exposition for the granted opportunity and vote of confidence. InstaForex has always strived to satisfy its customers’ needs, so we will keep sticking to the policy of ensuring most favourable conditions and innovative services that meet modern standards.

Forex tips for sucessfull trading

The placement of stop losses is arguably the most critical component of any trading strategy, as this is the only direct way of protecting your account balance from major shifts in market volatility. Many new traders make the mistake of focusing only on profits, but many experienced traders will actually contend that the reverse is true. Either way, the only way to build on your trading account is to shield your trades as much as possible, and using protective stop losses is the best way of doing this.

Major difficulties can be encountered, however, when traders determine where exactly those stop losses should be placed. If stops are placed to far away, excessive losses could be encountered (and, by extension, removing some of the benefits associated with using stop losses in the first place). Conversely, if stops are placed too close, a disproportionate number of trades will be closed at a loss. This can be especially disheartening when prices later reverse and create a scenario where your trades would have been profitable in your stop loss placement had been better positioned.

Finding a Broad Approach

For all of these reasons, stop loss placement is a delicate practice. To further complicate things, there is a large variety of very different ways to determine where trades should be closed in order to prevent further losses (your stop loss level). Stop losses can be either defined or methodical, but it is not necessary to use a single method for all market situations. The most successful traders are the ones that are able to assess the broader environment and adapt their trading plans accordingly.

The first element to consider is your initial position size. Many traders will scale into positions (rather than placing their entire trade amount at one level). Then, if prices work against you, it is possible to add to the trade size and improve on the average price paid for the trade. In these cases, stop losses will generally be farther out than if traders place the entire position size at once because the trader is already operating on the assumption prices might continue to move in an adverse direction.

Furthermore, short-term traders are usually better off exiting trades on impulsive moves, whereas long-term traders tend to look for signs that the underlying trend has reached completion. Most strategies recommend that traders never risk more than 5% of their account size at any one time, while others with a more conservative approach will take this number down to 2-3%. Here, we will look at some of the methods that can be used to set stop loss levels and protect your trading accounts in the process.

Hard Stops

Traders determine places for stop (defining an exit point) before any trades are actually place. This is helpful because it allows you to determine your parameters before you are emotionally invested (and potentially irrational) if prices start to work against you. The most basic approach to placing stops is the “Hard Stop,” for which the trader set an exact price level, and then exit the trade is markets reach that region.

The main idea here is that your trading strategy suggests there is little reason to believe prices will rise (for short trades) or fall (for long trades) to this area before your profit target is reached. Then, if it does turn out that prices hit the stop loss, either a major change is present in the market or your initial analysis was simply wrong. In both cases, it will be wise to close your trade at a loss and look for new opportunities.

There are many ways to determine how to place a Hard Stop. One method is to use the Average True Range (ATR), which calculates the average of past highs and lows to determine a projected range for your chosen time period. Assets with high volatility have a wider ATR, while assets with low volatility will have a smaller ATR. Since it is unlikely prices will travel outside this projected range, stop losses can be placed above the projected high (in short positions) or below the projected low (in long positions).

Trailing Stops

A more active approach is to use trailing stops. Here, traders will move the stop loss higher (for long positions) when prices move in a favorable direction. In short positions, stops would be moved lower once the trade turns profitable. For this reason, Trailing Stops are also called profit stops but this approach requires continuous monitoring of your position.

This approach can be conducted manually or automatically. Most trading stations will allow traders to automatically trail the stops. So, for example, if we start with a stop loss that is 50 points away from the price, we can set a 25 point stop loss interval, which will move the stop loss higher every time the market moves 25 points in our favor.

(Chart Example 1)

Manual stops require more analysis but can be better tailored to specific market conditions. In the first charted example, assume we take a long entry in the at the black line, with a stop loss below the most recent support (the first red line). As prices move higher, we continually move the stop loss higher (each successive red line). Prices reach a top, reverse and hit the profit stop slightly below. In this example, the trader would need to actively monitor price activity and move the stop loss higher as the trade works into profitability.

Parabolic SAR

A variation on the trailing stop can be found with the Parabolic SAR approach. This indicator works well when prices move quickly in the direction of your trade, and will quickly spot out a trade when prices reverse. On the negative side, since the Parabolic SAR reacts so quickly to price trend changes, there will be many instances where you are stopped out of a postion before the full trend has run its course. The second charted example shows how a trader could exit a position using the Parabolic SAR tool.

(Chart Example 2)

In the example short trade, the Parabolic SAR is above prices, indicating a bearish bias for the trade. Once this scenario changes, it is time to exit the position as market conditions are reversing.

Donchian Channels

Other methods to set stop loss levels can be seen with Donchian Channels and Pivot Points. Donchian Channels will give traders a price action envelope that can be used to determine bullish or bearish bias in a currency. The next charted example shows traders in long positions can set stop losses using this tool. Essentially, upward breaks of the upper band signal a bullish bias, while downside breaks of the lower channel signal a bearish bias. In this example, the long trade is initiated when prices break the upper band, stops will then be placed below the lower band.

Conclusion

The placing of stop losses is critical for traders looking to maintain positions until trends have run their course, while at the same time protecting a trading account against adverse market volatility. There are many different ways traders can set their stop loss levels but it must be remembered that no trade should be executed without an exit point in mind. The wide variety of stop loss approaches might seem daunting, as it makes it difficult which method to use regularly. But this should, in fact, be viewed as a positive, as it means there are many different methods that can be used for different types of trading environments.

5 Reasons Why America Will Continue To Dominate The Global Economy For Years

1: The U.S. dollar is king - It's the world's reserve currency. From the U.S. Trust report: "The greenback accounted for roughly 62% of global central bank reserves as of the fourth quarter of 2012, according to the IMF, a share down slightly from 2008 but relatively constant over the post-crisis years." It crushed the beleaguered Euro.

2: America is in the middle of an energy Renaissance - Much to the chagrin of some environmentalists, U.S. domestic oil production is in revival mode. It exceeded imports for the first time in 16 years, according to the report. Thanks to "fracking" that unlocked shale in North Dakota, Oklahoma, and Texas, the U.S. has seen a major surge in production, the report notes.

3: The U.S. has one of the most competitive economies - In the latest competitiveness survey from the World Economic Forum, the U.S. slipped to seventh place, down two spots, according to the report. Still, U.S. Trust guesses America will head north on the list in the future.

4:  America has the world's best colleges - American college kids fill their minds with kegs worth of knowledge at some of the world's best universities. Six out of the top 10 universities in the 2012 Quacquarelli Symonds World Rankings’ were American.

5:  The U.S. is the world leader in technology - People still flock to America to become tech innovators. The U.S. is home to the major social media players and beats out other countries in spending levels.

The TOP FAQ’s On The Forex Market

Forex trading has gained extensive popularity in the contemporary world especially with the advent of online trading. Trading in currencies has become one of the lucrative ways of making money. Most individuals especially novice traders usually have several question about the market and in this article we are going to expound on some of frequently asked questions.

What is the Forex Market?

Forex market is a market where currencies are traded. It is the market where traders are able to buy and/or sell, exchange as well as speculate on various currencies. Foreign exchange market is the largest and the most liquid financial market in the world and is made up of central banks, hedge funds, banks, commercial companies, investment management firms, retails Forex brokers as well as investors across the globe. The Forex market rates usually fluctuate from time to time based on existing as well as anticipated macroeconomic conditions.

Is Forex market different from other financial markets?

Most people usually confuse Forex market with stock market but the truth is that they are different. For example, the Forex market is not governed by any central body like is the case for the stocks, options and futures markets. In the Forex market there are also no clearing houses for verifying trades and as such you do not have a panel to refer to in the event of a dispute. All parties in the Forex market trade based on credit agreements. In addition, there is literally no uptick rule in the Forex market as there is in the stock market and there are no limits on the size of your position in the market.

How can I start trading in the market?

Starting to trade in the Forex market is simple but you need to prepare adequately for the same. It is advisable that you start with a demo account to have a grip of the Forex market before opening a real account. Using a Demo account you will be able to gain experience on trading in currencies without the risk of losing your hard-earned cash.

How do I make a choice in regard to the trading platforms?

You need to do a thorough research on various trading platforms to choose the one that works best for you. A good platform should be able to meet your needs as well as priorities. Trading platforms in the Forex market are basically provided by brokers and so you have to make a sound and well calculated decision when you are choosing your broker. The brokers should provide good customer support around the clock as well as a user friendly trading platform. In addition, the Forex brokerage firm should have in-built market analysis to help traders trading in their platform to make appropriate and informed decisions.

What is a pip?

A pip stands for Percentage in Point and is in essence the smallest increment of a trade in the Forex market. The prices are usually quoted to the 4th decimal point and a change in the 4th decimal point is what is typically called the pip. This applies to all major currencies save for Japanese Yen.

In conclusion, the Forex market is a very interesting yet challenging trading platform. It is such a large market such that there is no financial institution or group of investors that can misuse it because there is no single entity that can manage to gain significant control over trading in currencies. This means that the market provides the same opportunities for all investors irrespective of their social standing or background. It is indeed a free and fair market where individuals can making big money or lose in equal measures. It is a market that you have to trend carefully otherwise you may end up losing all your fortune within a short period of time.

Forex Trading tips

In part one of this article, we looked at key elements of the backtesting process and discussed some of the differences between “in-sample” and “out-of-sample” data. We also looked at some of the complexities and procedures involved when optimizing strategies so that traders can use these methods to settle on an approach to technical analysis that is likely to result in long-term profitability. It is important to read the first part of the article, as there are some basic steps in the process that must be first understood before moving on to the final steps. In the next sections, we will look at correlation as a critical component of the total process.

Defining Correlation

In this context, correlation refers to the performance similarities that can be found when comparing a technical analysis strategy that is applied to more than one data set. The results from correlation measurements will allow traders to spot broad trends and evaluate the performance of a given strategy over your chosen test period. When strong correlations can be found between results generated from all data sets (in-sample data and out-of-sample data), there is an enhanced probability the system will generate positive results when used in the following steps (forward testing and in live trading).

There will be cases where a system is found to be curve-fit to perform strongly with one of your data sets but these situations fail to meet the requirement threshold to make it to the next phase of the testing process. When these situations are seen, it is likely that the system is over-optimized and much less likely to generate long-term gains when applied to live trading conditions. High levels of correlation mean that the system is ready for the next step, which requires further out-of-sample data testing. This data will form the basis for the next part of the process, which is forward testing.

System Rules when Forward Testing

Forward testing might sound overly complicated for traders new to the process. But forward testing is simple paper trading (trades are placed with a demo account using “virtual” money). With an additional set of out-of-sample data, forward testing gives traders new information with which to test a strategy that has already performed well (and shown strong correlation) in historical back tests. Forward testing simulates the live trading environment and gives us a better idea of how a strategy will work when real trades are placed.

This is an important step of the process because there has been no optimization in the same way there was with historical price data. Optimization at this phase of the process would be impossible because there is no way to know where prices will travel next. This is also why it is important to place these trades with a demo account first, before moving on to live trading with real funds. The results (profits and losses) of each forward testing trade will be recorded, so it is vital that the rules of your system are rigorously followed. Any changes made (with respect to the rules of the system) will cloud the data and make it difficult to accurately assess the viability of the system in achieving consistent profitability.

Making Valid Assessments

When forward testing, it might become tempting to cherry-pick some trades that might look especially attractive and neglect others. There might be instances where your system send a trading signal but you look at the situation and avoid the trade because you believe it is unlikely you would actually take the position with a real account. But what is important to remember here is that you are not testing your skills as a trader, you are testing the viability of your proposed system. If the rules of your system send a signal to execute a trade, that is the trade that should be placed. This is the only way to properly evaluate your strategy.

So, while the term “forward testing” might seem as though we are attempting to predict the future, the fact is that we are really only backtesting with live data, rather than historical price data. Because of this, the same standard apply when we look to assess the performance of a proposed system. We are looking for trading results (profits vs. losses) to show consistent profitability through all phases of the testing. This includes in-sample data, out-of-sample data, and forward tested data (or live data). You will also need to see strong correlations in all phases of your testing. When this is found, you will know you have a trading system that holds up even in situations that were not optimized. This means you have found a system that is likely to perform well in active markets (with real funds).

Conclusion

Backtesting a strategy can give traders some highly valuable information when looking for new ways to approach the markets. Most of the latest trading platforms enable traders to conduct these tests, and here we looked at some of the key elements required when we evaluate regular trading programs. There are many critics of backtesting, as people will often argue that historical price data does little to tell us how markets will behave in the future. While there is some validity to these arguments, we do have ways of dividing up historical data to increase the probability that our assessments are accurate.

When we make our determinations using in-sample and out-of-sample data, traders have an efficient (and relatively easy) way of evaluating the potential success rate of a technical analysis strategy. These strategies can also be optimized (in the hope of improving on potential profit performance) but it is important to retest your approach on multiple data sets in order to prevent your trading profits from becoming a “self-fulfilling prophecy” that might not work under live trading conditions.

As a final step, traders should implement out-of-sample forward testing, as this puts your strategy up against a new set of price activity and provides another layer of protection against potential losses. Once these steps are completed, you are ready to start actively trading with real money. So, while the general process cannot guarantee your next trades will be profitable, it does increase your chances of success when compared to systems that have received no backtesting. Ideally, you will be looking for strong profit performance and high levels of correlation between all data samples, as this creates the best scenario for systems later used in live markets.

Doubling-Up with Indicators

One of the things that attracts newcomers to technical analysis is the wide variety of indicators that can be used to assess price data in a more objective way. What most people don’t know is that the logic behind many of the most commonly used indicators is relatively similar. This should not be a total surprise because, in some cases, collections of indicators have been created by the same person (J. Welles Wilder would be a primary example).

It is, however, possible to make small alterations to these indicators and change the number and type of signals that are received. To take this approach even further, it is possible to plot multiple readings of the same indicator and use the comparative results as a basis for trading decisions. When exiting a trade, market conditions will never be what they were when the trade was opened. At the same time, psychological factors will often cause to hold onto trades too long (usually when markets are working against a trade), or to exit too quickly (once small gains are finally seen).

Both of these scenarios have clear drawbacks and can quickly lead to substantial losses. Indicators can help traders avoid some of these situations because these tools arm you with information that describes when a trending move has reached completion and is ready to reverse. For these reasons, it is preferable to wait for technical signals to materialize before pulling the trigger to close a trade, rather than relying on emotional reactions to do the same.

Using the MACD to Measure Trends

One of the most common indicator tools used by traders is the Moving Average Convergence Divergence (MACD), as it helps to enhance the probabilities in determining the lengths of trending moves. But which parameters should be plotted on the charts? The default settings in trading stations will generally call for the following: The MACD Line subtracts a 12-day EMA from a 26-day EMA. The Signal Line is a 9-day EMA of the MACD Line itself, and acts as a “signal” for trades (identifies potential turning points). Finally, the MACD Histogram is plotted, and shows as either “positive” or “negative.” The Histogram is positive if the MACD rises above the Signal Line. The Histogram is negative if the MACD falls below the Signal Line. These elements can be seen in the charted example.

The job of the MACD indicator is to help traders establish trades and then hold those positions until the current move has run its course. This is important because traders will typically spend much more time on their trade entry decisions than they do with their trade exit decisions. While it is a good idea to spend time with your entries, it is ultimately your exits that will determine your level of profit or loss. Tools like the MACD are designed to maximize your strategic decisions and fine tune your exit levels within the larger trend.

Understanding the Signals

The MACD sends signals to traders in a few different ways. As the name suggests, the indicator focuses on the convergence and divergence seen between the two moving averages. Convergence is found when the moving averages move close together. Divergence is seen when the moving farther apart. The Signal Line is simply an average of the MACD Line.

Because of this, the Signal Line will lag behind the MACD Line. When the MACD Line crosses above the signal line, positive momentum is expected and buy positions should be initiated. When the MACD Line crosses below the signal line, negative momentum is expected and sell positions should be initiated. Illustrated examples can be seen in the second chart.

In addition to this, buy signals are generated when the MACD Line crosses above the histogram. When the MACD Line crosses back below the histogram, momentum is negative and this is a signal to sell an asset. These signals help traders to know whether or not a specific price move has enough momentum to warrant a new position. As always, multiple signals (such as a Signal Line crossover, combined with a Histogram crossover), add to the validity of any potential positions.

Doubling the Indicator for Exits

Once you have a firm understanding of how the indicator works, we can change some of the parameters to work off of the traditional way position exits are constructed. In most cases, traders will use the same logic for entering MACD positions as what was seen when the trade idea was initiated (for example, a Signal Line or Histogram crossover). Unfortunately, this will create many scenarios where the trader will exit a position before the entire move is complete. So, while the MACD is helpful in these areas, there are still ways to improve and capture a larger portion of each move.

This can be done by adding an additional plotted MACD. The reasoning here is that the faster MACD (which is more sensitive to price changes) can be used to generate signals for position entries (as this helps you spot developing or changing trends). The slower MACD (which is less sensitive to price changes) can then be added to your charts. To do this, you will need to change the parameters when making the addition (as it would make no sense to again use the default settings). The initial MACD would show the difference between the 12-day and 26-day moving averages.

For the slower MACD, we can raise this to show the difference between the 19-day and 39-day moving averages. The Signal Line can be kept constant as a 9-day average of the MACD. The signals generated by this additional MACD plot can be used for exiting positions. So, for example, if we are in a long position, and the second MACD plot shows a negative cross of the Signal Line and/or a cross below the Histogram, the position can be closed on the expectation that the initial bull trend is reaching its end. The parameters for second MACD can be entered fairly easily using the “properties” area in your trading station.

Once this is done, you will notice both MACD readings serve different ends. The faster MACD is useful in that it is key for allowing us to spot new trends in their early phases. This indicator is less useful for trade exits, however, because it will often lead many traders to exit their positions before most of the trending move has completed. When we add a slower MACD to our charts, fewer signals are generated. In addition to this, the slower MACD will give you an idea of the broader picture. So when counter trend signals are generated in the slower MACD plot (for example, a sell signal in an uptrend or a buy signal in a downtrend) if becomes a better idea to exit the position and capture your profits before they are given back.

Conclusion

Indicator tools are an excellent way of viewing price action in more objective ways. In many cases, however, these indicators can lead us to exit positions well before the full trend moves unfold, and this can lead to large reductions in profits. But when we double up on our indicators (and extend the time periods for their measurements), we can get a broader picture of when trends are actually coming to an end. For the MACD, its creator (Gerald Appel) actually recommended that traders use multiple plots of the indicator but this is rarely something that most traders today would even consider.

Invalidated Price Patterns

Forex trading with price patterns is perhaps more prevalent than what is seen in the trading of other financial asset classes (such as stocks or commodities). This is often explained by the fact that the fundamental picture for a currency (i.e. the economy of an entire country) is much more difficult to assess than the similar elements in an individual stock. Because of this, price patterns in the forex markets tend to have more force and accuracy because there is a larger percentage of the trading community that are aware of these patterns as they arise.

Pattern Parameters

From a trader’s perspective, price patterns are particularly useful because of the way these patterns define clear levels for position entries and exits. It is also relatively easy to see instances when the price pattern itself is valid or invalidated. One problem, however, is that these patterns are subjective. Some traders make the mistake of using pattern recognition software, and then use those signals as if they are accurate in all cases. The issue here is that input parameters for these patterns must be set in advance and are only as accurate as the human input that defined those parameters.

So, while it must be understood that any price pattern is a subjective construct, it is important to know how to set trades based on these formations so that you are well-prepared even in cases where those formations prove to be invalid. The main idea here is to take these formations from a risk-based perspective, as this area (failed structures) is one that is most often neglected. This is also the area that creates the largest number of destructive events in personal trading accounts. So, in order to build trading confidence, you will need to know the price elements that formed your trade in the first place. Then, you will need to work from your own version of those paramaters.

Price Targets and Invalidation Points

When dealing with patterns, price targets and invalidation points are some of the first parameters that must be set. Channel formations give relatively clear-cut levels here, as prices are expected to remain contained within the uptrend and downtrend lines that make up support and resistance. In the first charted example, we have a downtrend channel, which is often used to initiate short positions. Short trade entries are taken as prices reach the top of the pattern, while profit exits can be taken as prices approach the channel bottom. Stop losses can be places above prior resistance levels (as any activity above these areas would end the series of lower highs). Alternatively, the position can be exited if prices break above the downtrend line, as this invalidates the pattern.

Using Patterns to Mark Dynamic Support and Resistance

Perhaps the biggest advantage of price patterns is how they can make it easy to spot support and resistance levels. Since these are areas in which buyers and sellers start to emerge, these levels are highly valuable in determining trade entries. Further more, if these levels are invalidated, price momentum will often accelerate, as the market is now forced to re-position itself for the shifting paradigm. Pattern examples here include triangles, flags, rectangles and pennants.

Once these patterns are recognized, you will be able to use the defined parameters in the pattern to not only determine your directional bias (for long or short positions) but your exit and entry points as well. As with all price patterns, the most critical event that can be seen when basing trades here is to spot instances where those patterns have become invalidated. In the second charted example, we have a descending triangle, which reveals a bearish bias on the pair. Any trader that takes a position based on the assumption that the series of lower highs will generate new lows is forced to bail-out once the resistance line is broken and the overall pattern is invalidated.

In cases like this, the broken resistance line should have lit warning flares, prompting the trader to close any bearish positions. This is true for a few different reasons. As we can see in the example, prices rally and this could have created substantial losses for any trader in a bearish position. Of course, we have no way of knowing for sure that prices will rally this strongly. But once the resistance line is broken, it is clear that the paradigm has shifted and that the market will start viewing the currency pair’s momentum in a different way. At the same time, our original reason for entering the trade has been removed. Because of this, there is essentially no reason to remain invested to the downside, and the position should not remain open.

Recognizing Price Patterns

So while it is true that price patterns are highly subjective, over time it does become easier to recognize these formations quickly and efficiently. These structures give traders a sense of where the market is headed, even in cases where there is no clear trend or momentum direction in your chosen currency pair. But at the same time, you will need to determine the levels at which the structure (and your original analysis) is starting to break down, making positions vulnerable to excessive losses if kept open.

Even for successful trades, it is important to look at the parameters you have set for the pattern, as this will give you an indication for when a trending move is in its mature stages and unlikely to continue. There is almost nothing worse than seeing a successful trade turn into a loss, so failing to react once your pattern parameters have been tested is a largely unnecessary mistake.

Risk-to-Reward Ratios

The final element to consider when establishing a price pattern position is the risk-to-reward ratio that is seen. Of course, it makes no sense to put $10 at risk when there is only the possibility of making $5 if the trade proves profitable. This is a recipe for failure for any long-term approach. Common advice is to risk only $1 in downside for every potential $3 in upside. Any price patterns identified should be used not only to determine entry points and direction, but profit and loss ratios as well.

Let’s look again at the original downtrend channel example. Here, we have a downside bias, based on a series of lower highs. The width of the channel is about 210 pips, which means this is the targeted profit. This also means stop losses should be no more than 70 from the entry. This works well in terms of the charted example, because if prices were to travel 70 pips in the positive direction after the trade is triggered, the channel would no longer be valid and there would be no reason to hold onto the trade. In other cases, these risk to reward levels do not match up. In these cases, the trade idea should be forfeited and we should look for better opportunities elsewhere.

Conclusion: Invalidated Patterns Remove Rationale Behind Positions

From these examples, we can see that price patterns are great tools for arriving at a position bias in cases where there is not even a clear trend in place. But once these patterns are invalidated, the trader must reassess the market’s activity and consider positions in another area of the market. Two traders looking at the same chart might see entirely different formations, and place trades that while well thought-out might be in complete disagreement. But at the same time, it is important to hold true to your original analysis and reconsider your position once an invalidated pattern suggests that your initial ideas are unlikely to play-out.

Steve's Simple System 2

Here's another very simple idea that traders might find useful as a starting point for building a systematic approach to trading the S&P Futures

The basic idea is to limit oneself to using longer time frame charts and trading tests of the previous range (RTH) open high & close or well established areas of support/resistance.

The rule set is also very simple as follows

1. Starting with the Weekly, Daily and 130 minute charts, ask yourself whether price is trending or range bound
2. If the answer is "Trending" the next challenge is to identify "preferred" trade direction. In other words, the trader will determine in advance whether to "prefer" long or short entries
3. If the answer is "range bound" then the trader's next job is to identify Support and/or Resistance

The attached charts are the basis for the system and they include the weekly, daily, 130 min and 30 min

 

 I'll talk more about it as time permits. Still testing it, but so far it seems promising...its simple in design and straightforward to implement, and because the trader works from longer time frame charts, they will tend to be taking trades at the extremes, which places the trader in better alignment with commercials and speculators who have the money to move markets, thus increasing the odds of success.

Appropriate Leverage Levels for Forex Trading

One of the characteristics that separates new traders from experienced traders is the way each uses leverage. One reason for this is that since many starting traders recklessly abuse leverage, they lose their entire trading accounts and are not able to stay in the game long enough to actually become experienced traders. The ones that are able to use leverage responsibly are the ones that are able to construct workable trading plans that can be successfully repeated over time.

In fact, you can almost guess how a trader will use leverage based on the amount of money that is in a trading account. Newer traders tend to have smaller amounts of capital when starting and accounts with less than $5,000 tend to approach position sizes in aggressive ways. Since these accounts are much smaller, it becomes very easy for a few trades to go wrong and wipe out the account entirely. Traders with larger account sizes tend to be in less of a rush to make money and the result of that leverage tends to be approached in more conservative ways.

Protective Position Sizes

Many experienced traders advise newbies to apply leverage ratios of 10:1 or less (which means that at least $1 is deposited for every $10 in a position size). More experienced traders (and those with larger account sizes) tend to have successful trades in larger percentages. While this might seem to be something of a tautology.

 overly emotional, as though trading is impossible or even that your broker is running a scam operation. These factors can snowball and create a dangerous cycle that can lead new traders discouraged and unwilling to continue.

Leverage as Part of Your Strategy

Another key point to remember is that recklessly using leverage can even destroy what would otherwise be a solid and successful strategy. So, using leverage effectively can have a significant and direct impact on your overall profits and losses. Since no trading strategy can prepare you for changing market conditions 100% of the time, so it must always be understood that losses can be taken on at any time. The surest way of protecting against these potential changes is to always use stop losses and to keep trading sizes at conservative levels.

When constructing your trading strategy it is always a good idea to keep this simple equation in mind, based on the equity in your account:

Total Account Equity * Preferred Leverage Ratio = Maximum Trade Position Size (for all open positions combined)

So, if you are trading at the upper end of the acceptable leverage range (10:1), an account with $1,000 in total equity will never allow open positions to pass $10,000. Your preferred leverage ratio however, will vary. More conservative traders will be able to use ratios of 2 or 3 to 1, or, perhaps, no leverage at all (a ratio of 1:1). More aggressive traders can still sustain their accounts with slightly higher levels.

Of course, leverage can be managed either by adding to your account equity or by decreasing the size of your trades. Most successful traders tend to place their focus on the amount of money that is being put at risk, rather than the potential gains of a trade. Leverage is a powerful tool that can cause one losing trade to completely erase a strong of successful trades. Keeping leverage at conservative levels can help to slow losses when they do occur and can help to protect against losing streaks. Successful traders have confidence in their methods while being sensible in their profit expectations. Successful strategies generally require a sufficient amount of trading capital of sufficient capital (trading accounts worth at least $5,000) and conservative approaches to leverage (with ratios not exceeding 10 to 1).