Look for flags

One can trade profitably only by trading with the trend. For this one has to identify the trend in its initial stage. But it is very difficult job to pick the tops and bottoms. So if you miss the bus, you can always catch it later and lock in some pips. You can use continuation pattern as a tool to confirm the trend and trade with the trend. You are not required to possess the complex analysis to identify these patterns and trade them. A visual identification of these patterns will allow you to enter into a trade at an advantageous level even if you fail to identify the tops and bottoms.

Flags as Continuation

One such continuation pattern is the flag. Flags are the short term consolidation patterns which move in the direction of the previous trend. Trend doesn’t move in one direction continuously. They move then take a pause and again move in the particular direction. When a trend takes a pause you enter hoping for a breakout in the direction of the trend.

Construction of Flags

Flags are considered one of the most reliable patterns in trading. A sharp move in a direction is usually followed by flag. Once the price moves out of the flag, it moves in the direction of the trend. Volume is usually thin during the formation of the flag.

Bullish Flag

There are two types of flags- bearish and bullish flag. Bullish flags are characterized by lower tops and bottoms. Flag slants against the trend. The original trend is up while the bullish flag slants downwards. If you draw the trend lines, they appear parallel to each other. The flag along with the trend lines looks like a flag hoisted on a mast. The flag derives its name from analogy. One can buy the currency once the price breaks out of this flag on a closing basis. The example is explained for better understanding.

Bearish Flag

Other type of flag is called bearish flag. It is exactly opposite of bullish flag. It is characterized by higher tops and higher bottoms. Bearish flag slants upwards against the prevalent down trend. The trend lines are parallel to each other. There is a difference between the pennants and flags. In pennants, the trend lines are converging while in flags, price moves in a channel with parallel trend lines.

Live Example

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Here is an example of bullish flag which occurred recently in the USD/CHF pair. The original trend is up. Then a bullish flag is formed with decrease in volume. The trend lines drawn can be seen as parallel. The red line on the chart is 20 day EMA. Once the price breaks out of the bullish flag you should place a buy order. There is a confluence occurring here. 20 day EMA is acting as a support for the price. Once the price breaks out of this range, notice the increase in volume shown by the trend line. One can easily make 100 pips from this trade in 2-3 days with so little knowledge. At this one can stay in the trade with a profit target around 0.9333 which is a high of previous wave. But one should place a stop at breakeven.

Summary

It is very easy to spot flags and trade them. They occur frequently enough to make decent profits. Go back over the charts and find them.

Keep checking market movement won't make it move according to your will. Go out there and get a life!

The secret to the successful forex trading lies in the simplicity of your approach to trading. If you look at the successful traders, they often employ the simplest approach to trading. When you listen to them, you can’t help but wonder is it really that simple? Actually it is one of the best lessons you can ever learn in your trading journey.

Emotional Attachment

One of the main reasons for failing at trading is your emotional attachment to trading. It is not just emotional attachment after you enter a trade but also emotional attachment before you enter a trade which is important. If you are emotionally attached to trading, you are obsessed with it. Once you are obsessed with trading, you become more and more depedent on it for your well being.

Signs of Obsession

There are few signs which show that you are too much dependent on trading and in fact making it even more complex. Have you ever wondered how much time of the day you think of trading? If you are thinking of trading most of the time, you are too dependent on it. You will do just fine if you are winning. But when you start losing, you will lose even more probably blow up your account because of this.

When you are in a trade, you often lose your cool if trade moves against you by a few pips or you get excited if the trade goes in your favor by a few pips. You check the charts often. You can’t sleep at night and can’t resist to check the markets again. These are few signs. There are many more. You should look for them and find ways to address them.

Reduce Dependence on Trading

If you really want to be successful in trading, you can do that easily if you reduce or eliminate your dependence on trading. If you have only trading as the only source of income, it results in the increased dependence. Increased dependence on trading means immense urge to trade often. You soon find ways to trade which might not be the genuine trdes. It results in overtrading and you know what overtrading results in.

Don’t Quit Job Early

Here is how you can reduce dependence on trading. Most of us often see towards trading as a means to get away from our jobs and retire early. There is nothing wrong with this approach. But it gives too much pressure on you as a trader. Don’t quit your day time job. Instead trade along side your jobs. There are some trading strategies which allow you to do this. One such way is to trade on daily timeframe with price action. Once you have successfully traded over a period of time, you can think of quitting job and trading full time for a living.

Keep Yourself Occupied

If you have already quit, you can minimize dependence on trading by looking at other things in life. Find ways to keep yourself occupied like writing, reading. Find happiness in other things in life. It might seem off the topic but it is an important aspect of trading psychology.

Don’t get obsessed with trading in life. It will make you trading and your life easy. It’s not how many pips but blessings you collect that counts.

One of the simplest ways to trade is price action. The beauty of price action lies in the fact that it is free from any technical indicator. It is a method which does not invlove any kind of complex technical indicators. It works on the principle that price on the chart is enough to know what is going on in the markets.

Use Indicator to Filter

But it is a good habit to use the technical indicators in conjunction with the price action for better trading results. Let me be clear here. One should use the indicators to confirm the price action and not the vice versa. Here is the logic to support the use of technical indicators as complementory tool. Like any method, trading with price action involves some losers. There is no perfect trading system devised as yet. Your job as a trader is to stick with your trading method and try to filter out losers from your trading with different methods. As a result, you will still have losers but far fewer.

Trade with Divergence

One popular method of trading is to trade the divergences. In this method, price moves in a direction of a trend while the indicator is moving in the other direction giving rise to divergence between the price and momentum. There are two types of divergence- positive and negative divergences. Positive divergence occurs when the price is moving down but the technical indicator is showing the uptrend. Negative divergence occurs when the price moves up but the technical indictor is showing the downtrend.

Momentum Indicators

You can not use every indicator while trading divergences. Only momentum indicators are used as these indicators are known as leading indicators which move ahead of price and have predictive qualities. Though these momentum indicators have predictive quality, using them in isolation is almost sucidal. Some of the popular momentum indicators are RSI, stochastic and MACD.

Theory Behind Divergence

So what happens when divergence occurs? Say price is going up but it is not possible for the price to keep going up infinitely. Somewhere it has to stop and reverse. Now the reversal doesn’t happen overnight. Does the car stop immediately from 90 MPH to 0? No it continues to move ahead albeit slowly. Same phenomenon happens in divergence. Price continues to go in the direction of the trend but the underlying momentum is lacking. You should safely infer, the trend will reverse any time soon and should look to trade in the opposite direction of the trend.

Don’t Ignore Volumes

Another important factor to look for trading divergence is to keep an eye on the volume. During the divergence, there is low volume activity indicating the lower market participation in the direction of the trend.

Example of Trading Divergence

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Here is a trade with divergence. During the month of October last year, Euro moved up against the US dollar as shown by the trend line. But the Stochastic indicator in the lower pane of the chart, is moving downwards. This is negative divergence. To confirm the divergence, there is low volume activity. You could have entered on the bearish bar marked with an arrow. This move could have easily resulted in a 1000 pip downward move.

Summary: The key to trade divergence is to wait paitently. Divergences do not occur often. But when they happen, it usually results in a large move. You should confirm it with as many tools as possible.

Ability to look at and analyse chart pattern will be your basic skill to survive in forex trading

There are many ways of trading. Ellioit waves, price action, chart patterns etc are some of the commonly used methods. One has to understand them and use them properly in order to trade successfully. There are few basic principles behind each of these methods.

Mover of the Market

In short term, markets move because of human emotions. Greed and fear are two of the foremost emotions which are reflected in the market in terms of the prices of financial securities. Your job as a trader is to identify these emotions and trade accordingly.

Chart Patterns Depict Emotions of Traders

Chart pattern is one way to identify these emotions and are often used as a trading system. These patterns reveal the hidden story in the markets. Prices are moved by supply and demand for that particular currency. The chart patterns do a great job of consolidating the supply and demand on a single page. You can make better trading decisions by identifying and trading the chart patterns.

Types of Chart Pattern

Chart patterns are broadly divided into both continuation patterns and reversal patterns. Continuation patterns are those which are expected to move in the direction of current trend. On the other hand reversal patterns show the weakness in the current trend and signal a possible reversal.

1. Head and Shoulder

The most popular chart pattern is head and shoulder. It derives its name from its similarity with the human head and shoulder. The left shoulder is formed first then the head of the pattern is formed with higher high. The right shoulder is then formed on the other side of the head with the height smaller than the head. On the break of trend line drawn from the bottom of the left shoulder to that of the head one can go in the opposite direction of the trend. If the right shoulder does not break the trendline then it is called a failed head and shoulder which indicates a further push in the direction of the trend.

2. Triangles

Other famous play of the traders is triangle. There are many varients of triangle. Commonly used triangle patterns are symmetrical, ascending, descending triangles. As the name suggests, symmetrical triangles are symmetrical and can be traded as both continuation and reversal pattern. The decision to go short or long depends on the side of the triangle broken. Ascending triangle is a right angle triangle and is often used in the uptrend to trade in the direction of the trend. Descending triangle is exactly opposite of ascending triangle and is traded in a downtrend.

3. Flags

Flags are also often used for trading decisions. There are two types of flags- bullish flag and the bearish flag. Bullish flag actually slopes downwards but it actually tells you that the price will move up. Bearish flag slopes upwards signalling the opposite direction of the price in near future.

Things to Look Before You Trade

The catch while trading chart patterns is that you have to take into consideration other things before making a trading decisions. One has to carefully confirm that it is indeed a valid chart pattern. One way of doing this is to look at the volume. Usually volume declines during the formation of the chart pattern. It indicates that there is not much participation in the direction of the trend in the pattern itself. So price can move in the direction or opposite to the direction of a larer trend. The break of the pattern should be followed by the spurt in the volume. Also the chart pattern should be preceded by sharp up move or down move.

Chart patterns are nothing but a resting point before the price moves in the direction or in the opposite direction of the trend. Successful traders keep many trading strategies on hand so that they get enough trades. Trading chart patterns will require some time to develop an eye to identify them. But once you are apt at it, making money will be much easier.

Stick with your trading system to avoid under trading or over trading

There are many trading styles prevalent in the financial markets. Many traders keep making money by following these trading styles every day. The skills required for each of these styles are different. Scalping may require you to sit in front of the screen for more time than say someone who takes fewer trades and focuses on high probability set ups. A scalper may typically take 100 trades a day while a price action trader may take only 10 trades a month.

Under Trading Is Losing Money

Be it any trading style, one has to introspect about his trading journey with respect to number of trades one takes over a certain period of time. This analysis will help you to determine if you are doing enough as a trader.  It’s not just about over trading but also about under trading. Yes you might be under trading which means taking fewer trades than the trading plan you follow. Under trading is as much crime as over trading. You are wasting your capability as a trader if you are not trading as per your trading plan. You are giving up some of the money back to the markets by not trading enough.

Signs of Under Trading

There are various signs of under trading. When you look back on the day, if you think that you should have gotten into a particular trade as per your plan, you probably are under trading. If you feel that you are not getting into enough trades as you did with a demo account, you probably are under trading.

Lack of Confidence

There are various reasons why you might be under trading. The foremost reason could be the lack of confidence. It is natural if you see a potential trade and not take it because of lack of confidence. A solution to this is you should lower your expectation for a time being. If you perform as per the lowered expectations for one or two months, you will grow in confidence. Soon you will trade sufficiently as per your trading plan.

Lack of Practice

The other reason could be the lack of knowledge of a trading strategy. If it is a trade as per your strategy, you should take it. If you see the things after the trade hits its target, may be you should go back to the demo account and start practicing. If you are staying out of a trade for a reason, it is a different issue. But staying out of it without much basis is a sign of lack of homework.

Under Trading Leads to Over Trading

Why should you care about under trading anyway? For the simple reason that it might lead to over trading. As you may know it, over trading is a guaranteed path to self-destruction. If you are under trading, pretty soon you will get impatient and feel itchy for trading. You will do this to achieve your profit targets for a day or a month and start taking trades, which you would not have taken otherwise.

Successful trading is a long process. One has to analyze the performance periodically to stay focused on making money the right way. Under trading is as bad as over trading and one should not overlook this aspect of trading.

A pre-defined exit plan will prevent you from making a foolish decision driven by your emotion

A lot of emphasis is given on the entry of a trade. There are variety of methods and types of analysis to enter a trade. But when it comes to exiting a trade, there are not many methods explained. It is one corner of a forex trading which is visited very rarely. Not surprisingly, many of you must have felt the pain of letting the winner turn into a loser. I have done that also. But with a proper well thought exit plan, you can take emotions away from exiting a trade as you would entering a trade.

Necessity of Exit Plan

First let’s understand why we have a problem in exiting a trade. When our trade turns into a profit, we as humans have a tendency to pocket every single pip from the market. This is virtually impossible. No matter when you exit, you will have to give up some pips because you cannot tell for sure that this is the top or bottom. Once it starts to reverse we fret with pain about the lost pips and start to pray that it will again turn back in your direction. You still cling to the trade till it falls below the entry price and hit your stop loss on the way down. Emotions play an important role here. In case of losing trade, we stay with the hope of reversal till it hits your stop. Remember good set ups come with momentum. Your job as a trader is to enter only high probability trades.

Ideal Exit Plan

To overcome this, first you need to understand that it is equally important to exit trade logically as it is to enter a trade. You have to have a pre defined exit plan. Once you are in a trade you reassess the situation from time to time and see how it fits your exit plan. Stick to your exit plan. It is a good practice to move your stop to breakeven once your position makes some profit. This way you may not make money on some trades but you ensure that you will not lose often.

Fixed Exit

Many beginners decide to exit at a pre determined profit target say 100 pips. It is good strategy to follow as you may not be able to reassess the situation as a beginner. In this case it is better to take 100 pips profit and close the trade happily. Now the profit target may change depending upon the timeframe you trade. For daily, it can be 100 pips. For lower timeframes, lower profits should be locked in.

Different Strategies

Once you start winning, you can exit based on different strategies available. You can do this once you gain confidence. One strategy is to look for bearish signals on lower timeframes if you are long and vice versa. You can also look for potential trouble areas. These are the areas of support and resistance. There is a chance that market may reverse from these levels. You can lock in some profits and move the stop to breakeven on remaining position. You can also bring in the risk reward ratio for profit targets. Risk rewards of 1:2 or 1:3 are commonly used in forex trading.

Exiting a trade is very important. You should not allow emotions to decide when to exit. The decision to exit should solely be taken objectively. Plan your exit in advance and enjoy your profits.

Lose trades is part of the process and you'll always have one of these, so don't freak out

Trading psychology is an important aspect of successful trading. If you want to be a successful trader, there is no other way but to work on it. There are two instances where the psychology comes into picture. The first is to control your emotions and over trading. It requires a lot of patience. This can be worked upon through practice. Other important scenario is when you lose a trade. This is where your emotion of fear cripples in. A sound mental ground needs to be prepared if you have to address this problem.

Losing Trade Results in Emotional Decisions

Fear and greed are the two biggest enemies of any trader. The time after you lose a trade is of extremely important as far as your journey towards becoming a successful trader is concerned. How you hold yourself during this time is very important. This is a time when you become emotionally vulnerable and are likely to give in to the emotions. Once you give in to the emotions, you spiral into its aftermath. Here are some tips to control your fear after a losing trade.

Sometimes You Will Lose

First of all you have to keep in mind that you are not going to win every time. Not a single trader on the planet wins every time he trades. The successful traders have worked their mind to accept this fact. They make it a part of their trading psychology. What does this mean in the practical terms? When you lose a trade, you forget about it right away. You have not done anything stupid as far as the bigger picture is concerned. You move on to the next trade. When you analyze the next possible trade, you judge it by its own merit. If you have a lost trade back of your mind, you will either take a low probability trade as a part of revenge trading or pass an excellent trade due to fear. So accepting the losing trade is a wise move.

Take a Break from Market

Taking a break is also a good option. Of course you should not take a break after every losing trade. But when you have few losing trades in a row, wiping your account by 6-8%, a break from the market is must. You just go away from the market and reorganize yourself. Work on the trading plan and enter into the markets with renewed vigor. A break will ensure that your mind is free from any perception and emotions.

Reduce Risk on Every Trade

Once you have taken a break and then reentered the market, reducing the risk is an excellent approach. I assume that you take 2% risk on each trade. When you have a series of losers, you are short of confidence. Successful trading is all about the confidence. When you are low on confidence, you are likely to make an emotional decision. So it is best for you to reduce the risk on a trade to say 1%. This will ensure that you don’t lose a lot. Once you have 3-4 winning trades, you can resume with your normal risk.

A losing trade not only takes money away from you but also robs you of your confidence. Taking one step back during such time will ensure that you stay in the game for a long time. Revenge or fear has not resulted in making money. Control your emotions when you lose a trade. Remember, the one who stays in the game for a long haul has more chances of winning this game.

There are times to ignore fundamentals and focus solely on charts

The last week was important for the markets. Many important events have happened. Europe is facing one of the worst times in recent years. During the last few days, the economy in United States was showing the signs of recovery. But by large, the last week was the week of dollar weakness.

All Is Not Well in America

The economic data released by different countries reveal the state of the economy of that country. In the last one or two months, encouraging data came out from US especially the unemployment rate. Unemployment has shown a decrease in the last few releases. It means that more jobs are created which is a sign of increased economic activity. Many experts including the market cheered the fact with the dollar strength. Euro fell below 1.3000 levels from 1.4500 in August. Of course the Europe has its own problems contributing.

Problems in Europe

In Europe, all was not well though. Many countries are facing the problems. The magnitude of the crisis could be catastrophic. Unlike the housing sector crisis, the crisis in Europe involves many countries like Greece, Italy, Spain, Portugal, Ireland to name a few. If appropriate decisions are not taken by the political establishment in Europe, the whole existence of European Union will be in trouble.

Events during the Week

The last week started with the hope of important Greek deal going through. Markets cheered the proceedings with Euro rising above an important psychological level of 1.3000 and even going above 1.3100. Suddenly on Wednesday, the finance ministers of European countries dismissed the private creditor’s demand of getting 4% interest on coupons. The fear of deal going awry crippled through market and market responded by going below 1.3100 levels.

Factors Moving Market

On Thursday the entire focus was on US dollar. Lot of important data release was due during the US session. Most notable was Fed’s meeting. Fed chief, Ben Barnake announced that there will be a delay in the interest rate hike. He also hinted at the possible quantitative easing. It means that there are still issues with the US economy. It was confirmed on Friday with less than expected unemployment data. Markets factored in the information with Euro ending above 1.3200 against the US dollar. US dollar lost against all the currencies.

Lesson for You

There is a lesson for traders here. The problems in Europe are worse than those in US. There is no certainty on the important deal of Greek debt. Even Fitch downgraded many countries on Friday. But the entire week saw the Euro gaining moves. You can trade ignoring which country is going to default tomorrow. You can look at the charts and trade with price action.

The price action allows you to trade just by looking at the charts. You don’t need to analyze the big fundamental factors. There was a signal to buy Euro on charts. If you completely ignored what is happening around and just look at the charts, you would have had a great winner. The icing on the cake is it is without the stress. Just keep your emotions at bay and trade with the charts. You will do better than most traders.

Being glued to your screen all day doesn't make you a better trader

Trading is really great game. Once you know the nuances of the game, you can print the money at your will. This is the reason why most people are initially attracted towards trading. But of course it is not as easy as it sounds. One of the reasons for failure of most traders is over trading. By now you probably must have understood the fact that you are not required to trade everyday to achieve the stellar results.

Trade Like a Sniper

If you trade like a sniper as opposed to a machine gunner, you are most likely to be included in the 5% of people who are successful at this game. But what does exactly mean by trading like a sniper? How many trades are enough to make double your money every year? The article tries to answer these questions. Of course you will have to follow stricter money management strategies and better risk management.

Math Behind 4 Trades a Month Strategy

It is possible for you to double your trading account by taking only one trade a week. That is right. Take just one trade a week. Let me go through the math here first and show you that it is feasible. Say you have a $ 10,000 account and risk you take per trade is 2% which comes out to be $ 200. Let’s say you trade with a risk reward ratio of 1:2. So your profit per trade will be $ 400. For 52 weeks in a year you will make $ 20,800. Wait. You are not going to win 100% of the time. Say your win rate is 60%. With such rate, you will make up $ 12,480 a year. Real trading is not perfectly mathematical as explained above. So discount it by 10% which still comes out to be $ 11,232. This is still a better figure.

Overcome the Hurdles

Of course there are few hurdles which you have to overcome. The foremost is your psychological setup. Wire you frame of mind such that you will be comfortable with taking just one trade a week. It is the most difficult aspect of this strategy. If you in a job elsewhere it is somewhat easy than if you are a full time trader. But once you get into the habit of one trade a week strategy, you can make more than your job by working 1 or 2 hours a week. A practical approach would be to trade with an account of $ 50,000 than an account of $ 2,000. At 100% return, 50,000 account will fetch you $ 50,000 a year while $ 2,000 will fetch you only $ 2,000. With $ 2,000 you will need to have extreme level of patience and discipline or else you will take inferior trades. Of course you should trade with demo account before you put in your real money.

Logic behind the Strategy

The logic behind this strategy is to take only high probability setups. Learn the price action trading strategy which offers A+ setups. If you take only such trades with only 4-5 trades a month you will make more than most people out there. This strategy is free from all the stress. Incorporate better risk and money management techniques such as moving your stops to breakeven as soon as trade makes 50-60 pips profit. This way you ensure that you will not lose money. If you do this for few months then you can increase financial instruments in your watch list by adding stocks from all over the world. With few hundred stocks in your watch list, you can take at least 10 high probability trades. And all of this without a hint of any stress. So remember you do not try to trade everyday. But every time you trade, you try to win.