LESSON-08

Moving Averages.

Forex traders have been using moving averages for decades now and they are still one of the best ways to identify changes in trends. They can even be used for reversion strategies, by taking the opposite direction when a crossover occurs. 

However, moving averages have one inherent flaw which is that they will always be lagging indicators. In other words, by using past data they will only identify a trend once it has already occurred. The problem is speeding up a moving average leads to overshooting the market and more whipsaws. Designing a moving average then, is a trade off between lag and curve smoothness. And what some traders may not know is that there are several types of moving averages out there that aim to solve this issue.

Moving averages smooth the price data to form a trend following indicator. They do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices. Despite this lag, moving averages help smooth price action and filter out the noise. They also form the building blocks for many other technical indicators and overlays, such as Bollinger Bands, MACD and the McClellan Oscillator. The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). These moving averages can be used to identify the direction of the trend or define potential support and resistance levels.

The Basics of the Moving Average

At its root, a moving average is simply the last X period’s price divided by the number of periods. This gives us the ‘average’ price over the last x periods. And this will be expressed on the chart, much like price itself.

Looking at price movements expressed as an average can present quite a few clear benefits; primary of which is that the wide variations from candlestick to candlestick are modulated by looking at the average price of the last X periods.

Traders often have the question of whether or not price is too high, or too low – but by simply looking at the average price for this candlestick (in consideration of the prices over the last X periods), the trader gets the benefit of automatically seeing the bigger picture.

Many traders will take the indicator’s usage much further; hypothesizing that when price intersects with a moving average, some thing or the other might happen. Or perhaps traders will imagine that if two moving averages crossover, some special event may take place. We’ll discuss this below, but for now – just know that the most basic usage of a moving average is to modulate price; attempting to eradicate questions that may pop up from the erratic price swings that can take place from candle to candle.

Commonly Used Moving Averages

There are quite a few different flavors and flairs of moving averages. Some came about out of trader necessity; others came about from traders simply trying to ‘build a better wheel.’

The most basic moving average is the Simple Moving Average, which we explained the calculation of above. Traders will use quite a few different input periods for moving average for a number of different reasons.

The most common moving average is the 200 period MA, and many traders like to apply this to the daily chart. It is of the belief that most trading institutions; banks, hedge funds, Forex dealers, etc. watch this indicator. Whether it is true or not can, unfortunately, not be substantiated as most of these institutions keep their trading systems and practices proprietary.

But one look at this indicator on any of the major currency pairings can seemingly prove its worth. The chart below will highlight some of the interesting price action that can take place with the 200 period moving average applied to a daily chart:

Many traders also like to watch the 50 period’s moving average. This is thought to be a faster moving average since fewer input periods are used, and the primary effect is that this moving average will be more responsive to more near term price movements. The picture below will show how the 50 periods moving average stacks up to the 200:

Other commonly used input periods are 10, 20, and 100 settings.

Exponential Moving Averages

Out of trader necessity to more closely follow near term price movements, as many traders feel recent price changes to be more relevant than older price variations, the Exponential Moving Average will place higher importance on price values registered more recently.

Since more recent prices are weighed more heavily than older price swings, the indicator becomes more adaptive to the current price environment. In the picture below, we’ll compare the 200 period moving averages as Simple and Exponential MA’s.

A comparison of Simple (in red) and Exponential (in green) 200 period moving averages

Identifying Trends with Moving Averages

Since moving averages provide the luxury of showing us price in consideration of the last X periods, we have the luxury of being able to observe tendencies which we may be able to take advantage of.

Nowhere is this more prevalent than when using this indicator to define trends, which is often the most common application of the moving average.

If price action is consistently residing above its moving average, with the moving average inevitably pulling higher to reflect these increasing prices – traders can consider the chart to be showing an uptrend.

And the exact opposite is true for downtrends.

Moving Averages as Support and Resistance

As we were able to see in the above picture of the 200 period moving average, peculiar events can take place when price interacts with one of these lines. As such, many traders will look to moving average intersections as opportunities to buy up-trends cheaply, or to sell down-trends when price is thought to be expensive. The thought being that while an uptrend takes a break by moving lower, down to its average, traders can jump in while price is relatively low. The picture below illustrates further:

Moving Average Crossovers

Some traders will take the utility of the moving average a step further, hypothesizing that when two of these lines cross, something may happen. The ‘Golden Crossover,’ often referred to in the financial press is simply the 50 periods moving average crossing the 200 period MA. When this happens, some believe that price will continue moving in the direction of the crossover.

Some traders feel moving average crossovers can be ineffective as they can often produce considerable lag to a traders’ analysis, compelling traders to buy after an uptrend is well entrenched, or to sell when a downtrend may be nearing its end.

LESSON-07

How to enter to a trade with the use of MACD indicator.

Traders who use the MACD indicator often are critical of the fact that it will signal an entry after the initial move has begun and therefore leave pips behind. As such, many traders wanting to enter a trade sooner dismiss it as a “lagging” indicator.

In the case of the MACD indicator, the most widely used entry signal is when the MACD line crosses over the Signal Line in the direction of the Daily trend. Since these two lines are simply two moving averages (we are talking about moving averages on our next post), by their very nature the crossover will not occur until the move itself is under way. And, since that crossover is the entry signal, this will get you into the trade after the initial move has begun. Some traders prefer this method of entry as it offers more confirmation that the move is more likely to continue in that direction.

For more aggressive traders who are not interested in the additional confirmation and are simply looking for an early entry, they may prefer a less widely used entry signal based on the histogram bars.

As seen on the 1 hour chart of the EURUSD below, as soon as price action begins to move to the downside, the green histogram bars will begin to shorten. As soon as a bar does not close above the previous bar, that means that upside movement by price has subsided for that moment in time. An aggressive trader can use that as a signal to short the pair at that point.

Traders who are a little less aggressive may prefer to wait until a few histogram bars (perhaps 3-5) in a row close continually lower…or continually higher in an uptrend. This will provide greater confirmation than just one histogram bar but generally will be a quicker entry than waiting for the MACD Line to crossover the Signal Line. As can be seen on the chart below, although the bearish move has begun, the crossover entry signal has not yet taken place.

Note how a trader entering based on the histogram bars would have entered the trade ahead of a trader who entered based on a MACD/Signal Line crossover.

Each of the above entries based on MACD is a valid entry. As usual, it is up to each individual trader to decide which one is right for them.

Keep in mind however  entering a trade sooner means entering with less confirmation and that is not always a good thing.

The Forex Trader Vs the Gambler

The Forex Trader Vs The Forex Gambler

Here we going to open your eyes and help you decide if you are trading or gambling, so I want you to read the whole thing very closely, three times over if you have to. You should read today’s lesson even if you don’t think you have a problem with gambling in the markets, because you will surely pick up some useful advice that will work to improve your overall trading results.

Gamblers fund $500 accounts, blow them up and fund them again with another $500, they repeat this process over and over again without changing their routine, mindset or their strategy; they do the same thing week in and week out expecting to actually make money. I believe it was Einstein who said “doing the same thing over and over again and expecting different results is the definition of insanity”… so we could even go so far as to say that continuously gambling with your Forex trading account is not only financially problematic, but it’s insane.

Any business like trading where you are your own boss and there are basically no rules except the ones you make can be addictive and induce gambling qualities. Now, I am not here to tell you have a gambling problem; I am here today to help you recognize that you may be trading like a gambler and you need to make a change and start trading like a professional. This lesson will help you transition your mindset and your daily routine into that of a professional trader’s, so that you can avoid throwing anymore of your time and hard-earned money down the drain.

The difference between pro trading and gambling…

In trading, we have the possibility to do almost unlimited financial damage to ourselves. There are basically no rules in the trading arena, it’s just you versus you, and the winner or loser will be you. Sure, you can think you’re trading against other market participants, but in reality you are trading against yourself. You are the one who determines whether you make or lose money in the markets. My point is that when you put a human being in this unbounded trading environment, they have nearly unlimited temptation to gamble with their money, so we have to devise a plan to combat this temptation. Many traders think they are ‘trading’ when in reality they are behaving exactly like someone with a gambling problem.

Since it’s so easy to fall into a cycle of gambling as a Forex trader without even really being aware of it, it’s important that we go over some of the basic traits of both a gambler and a pro trader so that you can determine which best defines you:

Basic traits of a gambling Forex trader:

• Has no trading edge or effective trading strategy
• Doesn’t have or use a trading plan
• Doesn’t have or use a trading journal
• Pays little to no attention to risk management
• Spends most of their time focused on profits and rewards
• Often feels intense emotional ups and downs while trading
• Often holds trades in blind hope of unrealistic profit targets
• Trades far more often than they should

Basic traits of a professional Forex trader:

• Mastered an effective trading strategy like price action
• Has a Forex trading plan and uses it
• Has a Forex trading journal and uses it
• Focuses on risk management and on controlling risk on every trade
• Not overly-focused on profits and rewards
• Trades only when their trading edge is present.
• Does not become emotional over a win or a loss
• Treats their trading like a business

As we can see from the traits of a gambling Forex trader listed above, we are mainly dealing with psychological ‘traps’ and pitfalls that we create for ourselves as we interact with the market. I would say that if two or more of the traits of gambling Forex traders we listed above apply to you, then you need to take some action.

Unlike normal gambling addictions, a trader can break a cycle of gambling-like behavior if they will accept that they need to change their habits and then follow a predefined plan of action to start thinking and trading like a pro.

Solutions for the gambling Forex trader…

If you find that two or more of the above traits of Forex gamblers describe you, it’s time to do something to change them. There’s nothing wrong with admitting that you are gambling in the markets, it happens to all of us, I have even been guilty of it in the past. What you should focus on is changing this behavior and on constantly trying to improve yourself both as a trader and as a person. Let’s have a look at some of the most important things you can start doing today to transition yourself from a gambling trader to a professional trader.

A checklist for the gambling Forex trader:

• First thing is to stop trading with real money. You’re going to have to take a break from trading real money to cut out the emotion and regroup effectively.

• Second, make sure you: A) Have a trading strategy that you know can be a high-probability trading edge, like price action trading strategies, and B) Fully understand how to use this strategy and you’ve demo traded it long enough to feel you have ‘mastered it’.

• Create a daily checklist or Forex trading plan. This should essentially be your daily trading routine…write down your daily trading routine so that you have a guide to follow each day, this way you’ll be far less likely to enter random trades or ‘wing it’. This will help you view your trading more as a business and less as a trip to the casino.

• Have a risk management plan, and make sure you actually adhere to it by being aware that you never know when a losing trade will come up. In other words, your trading edge is randomly distributed across a series of trades, so don’t ever assume any one trade will be a winner and risk more than you are comfortable with.

• Start tracking all your trades in a journal…don’t deviate,

• Limit your time in the market by setting a maximum of 3 trades per week until you feel you are not gambling anymore. This will give you a strict rule to follow and help instill some discipline into your trading routine.

• Be confident in your trading strategy and rely on the long-term edge to recover any short-term losses, rather than trying to get ‘revenge’ on the market and jump right back in after a loser.

• Constantly be aware of your mindset and try to control your emotions in the market by doing the things discussed above. If you feel yourself getting an urge to trade for no reason or to risk more than you should, simply remove yourself from the markets. Also, work in a section on maintaining the proper forex trading mindset into your trading plan and read it every day.

Professional Forex trading is all about habits, and the first step to changing your habits from a gambling trader to those of a pro trader is by determining whether or not you have a problem. If you are bold enough to be honest with yourself about this and find that you do have a problem, please try to follow the above points at least for one month and see if your trading, mindset, and general physical state of well-being don’t improve.

The gambling traps that snare amateurs and that pros avoid…

A few winning trades often misleads amateur traders into thinking they are ‘onto something’. But what usually happens is they hit a big winner and then they give it all right back, and usually more. This cycle of winning here and there and then giving all your gains back, works to keep traders in a cycle of gambling in blind hope, and it slowly depletes their accounts until their gone. Humans are wired to fall prey to this trap of randomly distributed rewards. What happens is once we hit a few winners via luck, we sort of view that as some ‘special trading ability’ and then we just end up gambling our money away in a futile attempt to keep winning. There are scientific studies that show that we condition ourselves to repeat self-destructive behavior like this for the allure of a large randomly distributed reward…playing the lottery comes to mind here…or going to the casino and hitting one nice sized jackpot and then spending countless hours and dollars trying to hit another.

You have to recognize this gambling behavior and try to break through it, because it really is a part of our wiring to trade like a gambler. Luckily, we have large brains with highly-developed pre-frontal cortexes that can plan and think long-term amongst other things. This is our primary tool to use in defending against our more primitive brain areas that tend to naturally dominate most of our actions in the markets and cause us to gamble.

A professional forex trader is constantly managing their risk and thinking about it. They are disciplined and they follow a strict routine, they know they are in the business of trading and they treat it as a business. A pro trader is not fazed by a winning trade or even a series of winning trades; they are emotionally neutral on a loser or a winner. Professional traders are more emotionally excited about their ability to stay true to their trading plans and capital preservation plans than they are about the outcome of any one trade…because pro traders know if they can manage their bankroll properly they will end up out front. ———————————————————————————————————————————————————————-

LESSON-06

Technical Indicators.
Any class of metrics whose value is derived from generic price activity in a stock or asset. Technical indicators look to predict the future price levels, or simply the general price direction, of a security by looking at past patterns.
                                                                                  Technical indicators, collectively called "technicals", are distinguished by the fact that they do not analyze any part of the fundamental business, like earnings, revenue and profit margins. Technical indicators are used most extensively by active traders in the market, as they are designed primarily for analyzing short-term price movements. To a long-term investor, most technical indicators are of little value, as they do nothing to shed light on the underlying business. The most effective uses of technicals for a long-term investor are to help identify good entry and exit points in forex by analyzing the long-term trend.Here are some most common technical indicators.

1. MACD
2. STOCHASTIC
3. MOVING AVERAGES
4. BOLLINGER BANDS
5. RSI
6. ATR
7. STANDARD DEVIATION
8. CCI
9. PARABOLIC SAR
10. CANDLESTICK PATTERNS.

And there were some more, before we talk about these indicators we need to familiar with the chart and trend,

What is a candle stick?

A westerner by the name of Steve Nison “discovered” this secret technique called “Japanese candlesticks”, learning it from a fellow Japanese broker. Steve researched, studied, lived, breathed, ate candlesticks, and began to write about it. Slowly, this secret technique grew in popularity in the 90s. To make a long story short, without Steve Nison, candlestick charts might have remained a buried secret. Steve Nison is Mr. Candlestick.

Okay, so what the heck are forex candlesticks?

The best way to explain is by using a picture:

Candlesticks can be used for any time frame, whether it be one day, one hour, 30-minutes – whatever you want! Candlesticks are used to describe the price action during the given time frame.

Candlesticks are formed using the open, high, low, and close of the chosen time period.

• If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.
• If the close is below the open, then a filled candlestick (usually displayed as black) is drawn.
• The hollow or filled section of the candlestick is called the “real body” or body.
• The thin lines poking above and below the body display the high/low range and are called shadows.
• The top of the upper shadow is the “high”.
• The bottom of the lower shadow is the “low”.

Types of Charts

Let’s take a look at the three most popular types of charts:

1. Line chart
2. Bar chart
3. Candlestick chart

Now, we’ll explain each of the charts, and let you know what you should know about each of them.

Line Charts

A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.

Here is an example of a line chart for EUR/USD:

Bar Charts

A bar chart is a little more complex. It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid.

The vertical bar itself indicates the currency pair’s trading range as a whole.

The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.

Here is an example of a bar chart for EUR/USD:

Take note, throughout our lessons, you will see the word “bar” in reference to a single piece of data on a chart.

A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word ‘bar’ going forward, be sure to understand what time frame it is referencing.

Bar charts are also called “OHLC” charts, because they indicate the Open, the High, the Low, and the Close for that particular currency. Here’s an example of a price bar:

Open: The little horizontal line on the left is the opening price

High: The top of the vertical line defines the highest price of the time period

Low: The bottom of the vertical line defines the lowest price of the time period

Close: The little horizontal line on the right is the closing price

Candlesticks Charts

Candlestick chart show the same information as a bar chart, but in a prettier, graphic format.Candlestick bars still indicate the high-to-low range with a vertical line.

However, in candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or colored in, then the currency closed lower than it opened.

In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price. If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled.

we don’t like to use the traditional black and white candlesticks. They just look so unappealing. And since we spend so much time looking at charts, we feel it’s easier to look at a chart that’s colored.

A color television is much better than a black and white television, so why not splash some color in those candlestick charts?

We simply substituted green instead of white, and red instead of black. This means that if the price closed higher than it opened, the candlestick would be green.

If the price closed lower than it opened, the candlestick would be red.

In our later lessons, you will see how using green and red candles will allow you to “see” things on the charts much faster, such as uptrend/downtrends and possible reversal points.

For now, just remember that we use red and green candlesticks instead of black and white and we will be using these colors from now on.

Check out these candlesticks...........

Here is an example of a candlestick chart for EUR/USD. Isn’t it pretty?

The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same information appears on an OHLC bar chart. The advantages of candlestick charting are:

• Candlesticks are easy to interpret, and are a good place for beginners to start figuring out chart analysis.
• Candlesticks are easy to use! Your eyes adapt almost immediately to the information in the bar notation. Plus, research shows that visuals help in studying, it might help with trading as well!
• Candlesticks and candlestick patterns have cool names such as the shooting star, which helps you to remember what the pattern means.
• Candlesticks are good at identifying marketing turning points – reversals from an uptrend to a downtrend or a downtrend to an uptrend. You will learn more about this later.

LESSON-05

How to enter to a trade?

TREND IS YOUR FRIEND, all of you know what is a trend and i dont want to explain it in detail,below is a picture of a trend of EUR/USD.

you can see lots of  bulls and bears on the chart. The terms bull market and bear market describe upward and downward market trends respectively. The terms "bear" and "bull" are thought to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a market: if the trend was up, it was considered a bull market; if the trend was down, it was a bear market.

                                                                                            ok let me answer this question, today is sunday and a man is asking from you whether it will rain or not? what will you do? you will wonder, but finally you will look into the sky and you'll give him a answer, if its cloudy you'll tell it has chance to be rain 80%, and if its a sunny day then you will answer it has 10% of rain likewise. ok its just an example. and now will move to EUR/USD trend , look at the above trend . now a trader is asking from you to give him the direction of  the above trend, now the problem starts for you!!
                                                                      you can answer whether its gonna rain or not with the help of sky, at the meantime the sky indicate you to get the answer. please consider here the sky is the indicator to verify whether its rain or not right? what is the indicator for trend whether in future the trend will be a bull or a bear trend?
                   now you can check for the indicators which traders are using to identify the trend's direction. now you have to find out what are these indicators.

there were not only 1 or 2, there are thousands of indicators that we can use. keep in mind that the indicators are not the only way to identify the trend right, some traders using fundamental analysis too, which means they are keep looking at the over whole news to identify the trend. there are two type of traders, which they are TECHNICAL TRADER &  FUNDAMENTAL TRADER.

                                                                                                Technical trader trades with technical analyzing , which means using the indicators and trading systems.Fundamental trader trades with news. ok first we look into this technical trader on our next post.

LESSON-04

Before trade make a tarding plan.

How can we identify the market? whether its on a BUY or SELL arena?,In this article I’ll go over how to create a simple trading plan that you can follow. But first let’s discuss why this step is necessary for any aspiring trader.

As human beings we are prone to emotions. We trade on hope and fear. Having a trading plan helps to eliminate at least some of the emotions that are inherent with a risky activity like trading. Logical traders who plan their trades are successful traders.

Each trading plan should include 3 main parts: A way to enter the market, a way to Limit your risk and a way to take profits once you’re in a winning trade.

Part 1 of any trading plan is the entry

The first part of any trading plan involves the entry. You should know exactly when you should get in a trade. Have you entry criteria written on a post it note and slap that note on your monitor so that you can always keep an eye on it.you can enter to a trade by using technical and fundamental analysis (we are talking tech & fund analysis on our next post) In addition to this, you should know your reasons for the entry, why you enter a particular trade.

Part 2 – Define your risk

The first thing you should do after you enter any trade is to limit your risk. You do this by having pre planned exit criteria and knowing beforehand where to put your stoploss. Once the stoploss is set, don’t move it to allow “more room for the trade to breathe”. Only move the stoploss if a trade goes in your favor to lock in profits.. Moving the stoploss to allow more room is one of the biggest trading mistakes that newer traders make. Always keep the stoploss where your trading plan says that it should be.

Limiting the risk is probably one of the most important distinctions between losing and winning traders. Losing traders trade without a trading plan or a stop loss and they HOPE that price stops and reverses once they’re in a losing position. Winning traders know beforehand when they will get out of a losing trade.

Part 3 – Have a predefined way to take profits

The last part that any trading plan should include a defined way to take profits once you’re in a winning position. This doesn’t mean that you should always have a set take profit order that limits your upside potential. You can use stop losses to lock in profits instead. The exit not the entry is where the money is being made so you should always know in advance when to cash in those wins.

NOTE: 1-before you placing a trade keep in mind that you need lack of patience.

         2-don't be greedy and be discipline.

         3-make stop loss and take profit according to your money management. 

            click here to read more about trading discipline 

well from this article you found 3 steps to enter to a trade, first finding the entry point through tech or fundamental analysis,second risk and money management and finally taking the profit out.

                                                this is not enough for you, in our next lesson we are briefly discussing about the entry point with the help of technical and fundamental analysis, dont miss it , bye bye.