Is Everyone Buying USD/JPY...Again?

  As USD/JPY is trading above the psychological 100 level again, it seems that playing the pair from the long side is gaining strong momentum as several big names are re-crowded in this trade.
This somehow resembles back in late March when banks were also crowded in the trade ahead of the BoJ new regime. But what is really interesting this time is that some banks maintain 2 or 3 units in the trade and they keep buying on dips.
The following is a list of these trades:
1. Morgan Stanley: macro trade, (2 units $10 million each) , from 97.00, and from around 98.50, with a stop at 95.75 and a target at 106.
2. Nomura: macro trade, (1 unit, $10 million), from 98.70, with a stop at 96.00.
3. Deutsche bank: structural trade targeting 110 by year-end.
4. Citi: macro trades via overlay portfolio and tactically from last week.
5. BofA Merrill: technical trade, 3 units from 98.00, 97.50, and 97.00 with a revised stop at 96.80, and a target at 105.80/106.
6. Commerzbank: technical trade, 2 units from 99.85 and 99.10 with a stop at 97.90, and a target at 101.50.
7. Credit Suisse: technical trade, from 98.00, with a stop below 97.85, and a target at 103.10.

Copyright © 2013 eFXnews

400% Profits in 3 Days!!- How to Spot a Forex Scam

Start researching Forex and you’re likely to see several ads proclaiming ridiculous guarantees such as “2,000 pips a Day!” or “400% Profits in 3 Days!!” Before you quit your day job and start trading Forex fulltime because of these outlandish claims, let’s evaluate how to spot a Forex scam.
Unfortunately, many people associate Forex trading with scams, and perhaps for good reason. The number of unscrupulous companies has been increasing. The number of Forex-related scams has increased abruptly over the last few years, and it is important for you to be able to identify a hoax.
Currency trading is an exciting and potentially profitable investment option, but as with anything involving money, there are people out there who will rob you blind if you don’t know what you’re doing. Let’s take a closer look at Forex scams, so you are properly equipped to spot one.

Understand Genuine Forex Operations

So, where are Forex scams likely to occur? Advertisements for scams can often be spotted in online pop-ups, newspaper advertisements, and the classified sections of financial magazines. How do you weed out the good from the bad?
A first step is to learn how legitimate Forex trading is conducted. Generally, Forex traders can place orders through an exchange or board of trade, a bank, insurance company, registered securities broker/dealer, or other financial institution.
This means that you should search out these types of institutions in order to trade currency. It also means that many scammers will masquerade as one of these types of companies in order to trick you. So where can you turn for help? Is there anyone out there tracking down and punishing these evil-doers? Never fear, the CFTC is here to help you.

Meet A powerful Ally – The CFTC

Even though Jack Bauer doesn’t work there (that’s CTU), the CFTC or Commodity Futures Trading Commission is a great source of information for Forex scams. They have been working tirelessly to crack down on the number of scams, and while it has taken longer than 24 hours, their efforts have produced solid results which Forex traders can utilize.
In the United States, the CFTC has federally mandated authority and jurisdiction to investigate and take legal action when appropriate against corrupt Forex brokers. Additionally, they have the ability to prosecute any firm registered with the CFTC if the firm’s actions violate any CRTC-mandated rules.
The CFTC was empowered in December 2006 with the passing of the Commodity Futures Modernization Act. Their efforts have centered on educating potential Forex traders about currency trading’s best practices as well as keeping tabs on the people who offer Forex services.

CFTC Guidelines

The CFTC has issued several reports concerning the offering and trading of foreign currency futures and options contracts. Some of the main points of advice from the advisory are the following:

1. Stay Away From Opportunities That Sound Too Good to Be True
2. Avoid Any Company that Predicts or Guarantees Large Profits
3. Stay Away From Companies That Promise Little or No Financial Risk
4. Don’t Trade on Margin Unless You Understand What It Means
5. Question Firms That Claim To Trade in the “Interbank Market”
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
7. Currency Scams Often Target Members of Ethnic Minorities
8. Be Sure You Get the Company’s Performance Track Record
9. Don’t Deal With Anyone Who Won’t Give You Their Background

Additionally, the CFTC warns to be careful of unsolicited phone calls about “can’t miss” investments from offshore salespersons or companies that don’t sound familiar.
The following are some of the steps prescribed to identify a potential scam by the CFTC, and we encourage you to follow them:

• Contact the CFTC.
• Visit the CFTC’s forex fraud Web page.
• Contact the National Futures Association to see whether the company is registered with the CFTC or is a member of the National Futures Association (NFA). You can do this easily by calling the NFA or by checking the NFA’s registration and membership information on its Web site. While registration may not be required, you might want to confirm the status and disciplinary record of a particular company or salesperson.
• Get all information about the company and verify that data, if possible. If you can, check the company’s materials with someone whose financial advice you trust.
• Learn all possible information about fees charged, and the basis for each of these charges.
• If in doubt, don’t invest. If you can’t get solid information about the company, the salesperson, and the investment, you may not want to risk your money.

No Free Lunch

One of the basic principles of economics is the concept that there is no such thing as a free lunch. This concept is for the most part true (soup kitchens excluded) and particularly applies to any type of investing, especially Forex trading.
If a Forex claim seems too good to be true and a broker is seemingly giving money away, then don’t invest. This doesn’t mean you shouldn’t try to find low commissions or low bid/ask spreads, but remember there is no invincible Forex formula or brokerage which will enable you to instantly make huge amounts of money trading currency.

Never Stop Learning

The only foolproof method to avoiding currency scams and to become a successful Forex trader is to gain as good an education as possible. The more you learn about Forex trading in general, the easier it will be to spot currency trading scams.
For example, what would happen if on your way into your favorite electronics store, someone stopped you and said not to buy that Plasma which you’ve been saving all year for, because they could guarantee you a better television at half the price? They explain all you have to do is give them $1000 in cash and they’ll present you with the TV.
Would this get your attention? Of course. Would this be a good idea? Not unless you want to wave goodbye to one thousand hard-earned dollars. How do you know? You’re a well-informed and responsible consumer with years of purchasing experience. In order to identify Forex scams you must also become a well-informed and responsible Forex investor.
Some good places to enhance your Forex scam-spotting abilities are:

• Federal Reserve Board
• Federal Financial Institutions Examination Council
• Federal Deposit Insurance Corporation
• U.S. Securities and Exchange Commission
• The Office of the Comptroller of the Currency
• Office of Thrift Supervision
• National Credit Union Association
• National Association of Securities Dealers Regulation, Inc.
• All U.S. Government Web sites
• Your state Attorney General’s office and state banking, insurance and securities regulators (which often have tweir own Web sites).

Do Your Homework

A crucial part of any education – and the primary source of agony for kids over the age of 5 – is homework. But before you take anyone up on an offer or enlist the services of an enticing broker, do your homework. Thoroughly research all aspects of the action you’re about to take, and don’t act until you are absolutely certain the offer is legit.

Basic Trading Math: Pips, Lots, and Leverage

Pips, Lots, and Leverage – oh my! Pips, Lots, and Leverage – oh my! No, this isn’t the set of a twisted, new production of the Wizard of Oz in which the Tin Man wears glasses and a pocket protector. These are some common words used in currency trading that you will need to add to your vocabulary in order to become a successful Forex investor.
You’ve probably come across these terms already during your investigation into currency trading. It is important to get a good grasp of these concepts before we go any further and explore the math associated with them. These concepts set the stage for knowledgeable Forex analysis and trading.

The Pip Exposed

As discussed in previous library articles, a pip is the smallest price change a given exchange rate can make. Most major currency pairs are priced to four decimal points, so the smallest change for most exchange rates is equal to a 1/100th of one percent increase.
Your profits and losses can be calculated in terms of how many pips you gained or loss. A pip is derived by comparing the starting rate to the ending rate. The difference between the two is how many pips you gained or lost.
For example, if the exchange rate for the USD/CHF was initially 1.2155 and rose to 1.2159 then it has moved 4 pips – which could be good or bad depending on whether you own Francs or Dollars.

Pip Examples

Each currency has its own value which is usually expressed in relationship to another currency. As such, the value of one pip is different for each currency pair and depends on several factors – the main aspect being the exchange rate.
The value of a pip is derived by taking 1/10,000 of most currency pairs (this holds true for all exchange rates quoted with 4 decimal places – Japanese Yen or JPY is an exception and will be explained later) and dividing that by the exchange rate:
pip = 1/10,000 ÷ Exchange Rate
Let’s take a look at several of the main currencies to gain a better understanding of how a pip is calculated. We will express these examples where the USD is quoted first in order to express the value of the pip in terms of U.S. dollars.

Common Pip Calculations

Let’s assume that the exchange rate for the USD/EUR is 0.7272. Since the rate is quoted to the fourth decimal place then we can use our trusty formula of: pip = 1/10,000 ÷ Exchange Rate. So,
0.0001 ÷ 0.7272 = 0.00013751
Therefore, one pip for the USD/EUR currency is worth 0.000138.
Now, let’s assume the exchange rate for the USD/EUR is now 1.1234. Using our same logic and formula we can calculate the value of a pip:
0.0001 ÷ 1.1234 = 0.00008902
Doesn’t seem like much? Well, in the following discussions about lots and leverage you will see how pips can add up quickly.

Pip Exceptions

There’s one little wrinkle in our pip calculations. What happens when the exchange rate of a currency pair is not expressed to four decimal places? While, this doesn’t happen too frequently there is one notable occurrence which is when the Japanese Yen or JPY is part of the currency pair.
Currency pairs involving the JPY are quoted with only two decimal places, so instead of using 1/10,000, we will now use 1/100 in our pip calculation which will look like this:
pip = 1/100 ÷ Exchange Rate
Let’s assume that the exchange rate for the USD/JPY is 123.51. To calculate the value of one pip for the USD/JPY pair with an exchange rate of 123.51 we would perform the following math:
0.01 ÷ 123.51 = 0.00008097
Therefore, one pip for the USD/JPY is worth 0.00008097.

A Lot Explained

Wheeewww. That seems like a whole bunch of work to calculate such small value. Don’t worry – pip values will almost always be calculated for you by most brokers and in most online trading platforms. But, a larger question is probably starting to form in your mind – How can I ever make any money in Forex trading with these worthless pips?!?
The answer can be explained by discussing the Forex term of a lot. Spot Forex is traded in lots or groups. The standard size for a lot is $100,000 and $10,000 is considered a mini lot size. Since currencies are measured in the tiny values of a pip, Forex trades are conducted with a large amount of money in order to gain a profit (or incur a loss).

Lots and Pips (Together at Last)

Let’s pretend that you just inherited $100,000 from your great aunt Matilda (may she rest in peace) and have decided to execute a few Forex trades. Since you have $100,000 you will be able to purchase a standard lot size from a broker.
After doing some research you decide to buy one standard lot of the USD/EUR at an exchange rate of 1.1234. Let’s find out how much one pip is now worth to you.
We do this by using our pip formula from before and multiplying it by your lot value, so it now looks like this:
pip = (1/10,000 ÷ Exchange Rate) x Lot Value
To apply this to our example, our formula looks like:
(0.0001 ÷ 1.1234) x $100,000 = $8.90 (rounded to two decimal places)
Therefore, the value of each one of the pips in your possession is worth $8.90 at the time of your Forex purchase. Ok, let’s now look at how this pip can earn you some money.

Profiting with Pips and Lots

Exchange rates are quoted in pairs as well know as the bid/ask spread. The first number in the spread is known as the bid price and the second is known as the ask price. So, for a bid/ask spread of 1.1229/34 the bid price is 1.1229 and the ask price is 1.1234.
For our example – remember dear Aunt Matilda? – let’s assume that when we bought our lot of USD/EUR the bid/ask spread was 1.1229/34 which is why we were able to buy our lot at the exchange rate of 1.1234 (the ask price).
A few hours later, you check the USD/EUR quote and discover that the bid/ask spread is now 1.1240/1.1247. This means the exchange rate at which you can sell your lot (the bid price) has increased to 1.1240. So, how many pips did you gain?
This can be calculated by subtracting the ask price you bought your lot of currency for from the bid price you can now sell your lot of currency for and then multiplying it by 10,000. Sounds confusing, but the following formula shows how simple it is using our example:
1.1240 – 1.1234 = 0.0006 then multiplied by 10,000 = 6 pips.
Now, in order to calculate your profit in actual dollars, take the number of pips you gained and multiply it by the value of your pips (which we calculated in the previous section). So, our actual profit from the money Aunt Matilda left us can be derived as follows:
(0.0001 ÷ 1.1234) x $100,000 = $8.90 x 6 pips = $53.40.

Leverage

Alright, so if the standard lot size for currency trading is $100,000 then you’ve got to be a millionaire to trade Forex, right? Historically, this was the case. For a long time currency trading was consigned to huge corporations and the ultra-rich. However, regulatory modernization has allowed smaller traders to engage in Forex by allowing high-leverage trading.
Leverage is the ability to use borrowed funds based on the principal amount of money that you are able to invest. Many Forex brokers will offer leverage in ratios as high as 400:1.This means that if you have $250 to invest and a broker is willing to let you leverage that money at a 400:1 ratio then you are able to buy $100,000 ($250 x 400) or one standard lot.
How is this possible? Since Forex fluctuations are typically small (a one cent or 100 pips trade is considered a large move) – a broker is able to hold a small amount of collateral for a given position. Also, brokers will usually require a minimum balance for opening an account with the amount of leverage offered being tied to the size of the account opened.

Leverage applied

Leverage allows Forex investors to gain a much higher return on their initial investment (it also allows for higher losses as well). Let’s use another example to demonstrate how leverage works.
Instead of inheriting $100,000 from Aunt Matilda, let’s now pretend that you take $1,000 which you earned cutting grass in your spare time and open a mini-account with a reputable Forex broker which offers 400:1 leverage.
Now, instead of using a full $100,000 to buy a standard lot we use $250 plus the leverage offered by the broker to buy a standard lot. Assume the same conditions exist as they did when we used Aunt Matilda’s money and we make a profit of $53.40 in a few hours. Our profit is still the same, but our rate of return is MUCH greater. Take a look:
Return on Investment (ROI) with Aunt Matilda’s Money: $53.40 ÷ $100,000 = 0.05%.
ROI with Leverage: $53.40 ÷ $250 = 21.36%
As you can see, using leverage GREATLY increase your return on investment. Would you rather earn 0.05% or 21.36% on your hard earned cash?

Margin Call

A natural question that emerges when discussing margin trading is what happens if I lose more money than I have in my account? Most Forex broker institute margin calls to ensure that you never lose more money then you have invested in your account.
Most margin calls are executed in real-time and on an automatic basis to close positions immediately before the market moves any further against a trade. Margin requirements – the amount of money put aside as collateral when opening a leverage position – vary from broker to broker and often depend on the size of your account.
Margin trading is can be dicey if you have not thoroughly researched your broker’s margin call policies and are not comfortable with risk involved. However, using margin as leverage will greatly increase your profits as a Forex trader.

Pop Quiz

You should now be able to understand now only what someone means when they mention a pip, lot, or leverage – but also how to apply it as a Forex trader. This comprehension will help you as we continue our discussion about currency trading.

What Makes A Great Trading Setup?

  Daytrading is comprised of two things: art and science.

A delicate balance of both is what you need to make you the greatest trader in the world. Alas, the art is ultimately left up to you, but the science we can help with. Some of the most important variables you need to consider when trading from home/daytrading are the following:

• Latency/Bandwidth
• Computing speed
• Order execution
• Liquidity

Latency is important because if you're located in California and your orders are being sent to New York, it's going to take more time the order to complete the order than say, someone in New Jersey. The same goes for computing power. You need a lot of RAM and CPU power to keep your charts and live data feeds going to ensure you have up-to-the-second information, so an expensive, refined desktop computer is essential. No laptops! And finally, liquidity is a must. If you're doing a 500,000 share block trade of Amalgamated Pinto Beans Inc., you better make sure someone is ready to take you up on your offer.
Scared? Worried? You shouldn't be. Our guide will put your mind at ease. So click on and let's get started!

Computer: Mac Pro

Some will disagree with this choice but consider this: The Mac Pro is outfitted with an 8 CPU cores. Two 2.93GHz quad-core Intel Xeon processors are beastly and with 32 gigabytes of DDR3 RAM, you're not going to have a problem running Microsoft Word while browsing the 'net with Firefox, that's for sure.
What does this power translate into for you? Faster execution times and no lag. Real-time data will indeed be real-time and no matter how many applications and tools you're multitasking with, the Mac Pro will keep chugging along as if nothing ever happened. A lot of traders like to boast about Intel's "i7" chip and their "i7" trading setups, but in reality, Mac Pro is king. And it uses Intel.

Outfit it with a few nVidia graphics cards, load up Microsoft Windows 7 in addition to OS X and you're good to go. Yeah, it costs $10,000 but so what? You're going to be a millionaire!

Three Dell 24 inch Widescreen Monitors

Dell makes decent monitors and sells 'em cheap.
Pick up three of the 24-inch G2410 displays and rotate them so they sit vertically. This way, you have three separate displays to keep you focused. One for web browsing/news and information, one for your trading software, and another for analytics and charts.
You can never have too much information on hand, so make the most with what you've got by allowing it all to display together seamlessly.
And in your downtime, you'll have one hell of a sweet gaming setup. If PC gaming isn't your thing, then you can at least watch movies in high-def quality.

Bloomberg Anywhere

Bloomberg offers a multitude of solutions but the key ingredient is Bloomberg Anywhere. It essentially brings a complete Bloomberg Terminal to your computer whether you're using a web browser or a native OS X or Windows application. Bloomberg is the de facto industry standard for information and performing rapid executions. You can even continue trading and getting information via an iPhone app.
For now, ignore the high monthly cost (~$1500-$2400) and enjoy the data. Bloomberg is really in a class of its own and is hard to compare to other, less costly services. Even Thomson's data terminals are no match for Bloomy's superior service, especially in terms of security.
Those of you who have never used Bloomberg Anywhere before, it works like this: You get a personalized credit card-sized device with a biometric (fingerprint) reader and small LCD display. You visit Bloomberg Anywhere via Bloomberg.com, enter your login info, then hold the device up to the screen after swiping your finger. The device does some weird syncing action with your computer and a random code is generated on the device's LCD. You then enter that code and presto: your computer is now a full on Bloomberg Terminal.

Finviz Elite

Can't swing the high cost of Bloomberg?
For $40 a month, subscribe to Finviz.com's Elite program. Incredible analytics, heat maps, charts, live stock quotes, and more are all part of the service and it works damn well for the price. If you're into technical analysis, Finviz has a very strong security comparison tool. You can triangulate betas and alphas to your heart's content with the amount of customization Finviz offers. It's also a little more lightweight and robust than say, Google Finance or a similar service. The FOREX section is also incredible, with easy-to-read visuals, etc.

MetaStock Pro

For the quant and analytical traders out there, you'll appreciate what MetaStock 11 has to offer. Advanced forecasting options with multiple indicators, oscillators and pattern overlays, real-time data and news, and a whole lot more. The makers, Equis, are pretty confident, too:

"Whether you trade stocks, bonds, mutual funds, futures, commodities, FOREX, or indices, MetaStock has the tools you need for superior market analysis and financial success."

The software can be a cheaper alternative to Bloomberg since it only has a one time cost of $1400-$1600 and the monthly subscription thereafter is $100 a month. It's also compatible with the Reuters Data Link service.

Hamzei Analytics Subscription

Fari Hamzei is known as one of the "Three Gurus" of the CBOE. His subscription website, Hamzei Analytics, will help you get a huge edge over other options traders due to his ability to tweet and trade. A private HFT twitter stream lets you know EXACTLY what's going on the in the market and access to a live chat room with other subscribers lets you get the most out of your experience.
Additionally, Hamzei frequently does webcast seminars and invites guest speakers to discuss options trading. Here's an amazing email Fari sent out the other week just to show you what kind of (non-guaranteed) returns his customers are getting:
HFT Traders took another [approx.] 10.5 handles per contract (net) today in 4 ES trades during the abbreviated trading session !!

That is ~ $550 gain of per contract (each ES handle is $50).  Assume $3,000 intraday margin from most brokers.  You do the Math.   Not too bad for a couple of hours of following me on Twitter.

Verizon FiOS

This is as fast as your home internet connection is going to get. A 50mbps pipe for $150 a month will do wonders compared to your ancient cable modem.  Remember: the lower the latency, the quicker the trade and faster the Internet. If money isn't an issue whatsoever and you're working in an office space, FiOS business class or a T1 line can really move those packets of data like never before seen. Still, for anyone not working for a big operation, FiOS is king.

Brokerage

The big question is what service to use to clear your trades. You want to be using services that provide you serious power:

Direct Edge: One of the biggest players in the world of high-frequency trading (HFT) and direct market making. Allows traders to connect directly to major brokerages and institutions for performing block trades. Looking for flash orders so you can get the edge? This is where it can happen.

Lime Brokerage: Lime also specializes in anonymous HFT, as well as algorithmic trading. A variety of tools and APIs are available for the trader who's also a computer programming or stat freak. Fully customizable algos and GUI-based building gives you a large range of options for your trading strategy.

Liquidnet: An alternative trading system that lets you trade directly with others looking to skip the middleman or exchange. Offers dark pools of liquidity and anonymous quotation systems. If you want to make a trade without the public knowing (in case you're trying to move a market), Liquidnet will allow you to accomplish this.

Spotify Premium

This may seem like it has nothing to do with trading, but really, a non-stop flow of music is essential to keep you from going insane. Sure it's not available in the U.S. yet but don't let that stop you from shelling out $15 a month for commercial-free music. Spotify has a boatload of songs - over 4 million last I checked. With everything from Prince to R.E.M. to Ratt, it's simply the best service around for music. Period.
If you prefer a web-based alternative that's free, give Pandora or Grooveshark a shot.

Cuisineart DCC-1100 12-Cup Programmable Coffeemaker

You're going to be tired and you don't have the time to be grinding up beans and what not.
Buy some Starbucks/Dunkin/Folgers, throw it in here the night before, and wake up the next morning to 12 cups of instant satisfaction. Besides, imagine the money you'll save for trading if you don't get two large coffees at Starbucks every day.
Let us assume 2 large (venti) lattes at Starbucks a day, 5 days a week, at the price of $4 a latte. That's $40 a week or about $160 a month. Nothing spectacular, but within one month, the coffeemaker pays for itself.

Herman Miller Embody Chair

Since you're going to be in front of a desk from early morning until at least 4pm, you need a chair that's going to keep your back comfortable and poised.
Herman Miller's Embody Chair is the Ferrari of office chairs and in addition to it being designed specifically for computer users, 95% of its materials are recyclable. Consider if you went to Staples and threw down $120 for a crappy chair that will break in 6 months. It's just not worth it.

Capital

Want to trade with someone else's money? Go work for a prop trading firm. Make sure that after plunking down all your hard-earned money on the stuff we've mentioned, you still have enough to get your feet wet and actually turn a profit.
Don't have the cash after all your purchases? Beg your aunt for $10,000 and promise her a 25% ROI.

You're All Set

Read more: http://www.businessinsider.com/the-ultimate-trading-station-2009-11?op=1#ixzz2ebFH00qj

Why I Don’t Use The 2% Money Management Rule

By Nial Fuller   Posted in Forex Trading Education Articles

Today’s article is about debunking the 2% money management rule that is so popular among much of the trading community. A lot of people out there have disagreed with me on this topic in the past so I wanted to write about it today to clarify my views on it. I’m going to put forward some strong arguments against relying on the 2% rule that I hope will save you money and open your eyes. You really need to pay attention to what I’ve got to say today because it could improve your trading results significantly.

Debunking the 2% rule

The 2% money management (MM) rule likely started in stock trading and longer-term investing many years ago. It is based on the idea that you would be in multiple positions at any one time and that you’d only risk 2% of your net equity on any one of those positions. For example, you might have 100k in your account and 20 active stock trades at 2% risk each. The 2% rule really started as a way for investors to spread their risk capital amongst a diversified spectrum of stocks and investments, but it was never intended to be used the way that many Forex traders use it these days…
The idea that the active Forex swing trader should also risk 2% of his or her account on every trade is simply illogical. The 2% rule is essentially a myth that got perpetuated around the trading world because it seems to make sense and is easy to understand, but just because a bunch of people are talking about something, doesn’t mean it is correct or useful for every situation, in fact, often the opposite is true. There are some VERY big problems with the 2% rule if you are an active Forex swing trader who generally is only in one or two positions at a time, holding them for a few days or maybe a week on average…
Why the 2% rule is essentially rubbish…
First off, Forex is highly leveraged, much more so than a stock trading account. This is the first and foremost reason why the 2% rule makes no sense for the Forex trader or for any trader of highly-leveraged instruments. Let me elaborate…
Forex should be thought of as a margin account, because that is essentially what it is. In other words, you really only need to keep enough money in your trading account to cover the margin of the position sizes you normally trade…you don’t need to keep ALL your trading / risk capital in your trading account, any professional trader will tell you this. Since we are only in at most, a few positions at a time that we can use high leverage on, and we are only holding for typically a few days to one or two week maximum, we do not need to diversify our risk across many different markets, in other words, diversification in Forex is irrelevant.
Account size is arbitrary in Forex because a Forex account is only a margin account, it’s only there to make the deposit / have a deposit to hold a position. Nobody who understands these facts would put ALL their trading money in their trading account because it is simply not necessary.  What you put in your trading account does not necessarily reflect all the income you have to trade and it does not reflect your overall net worth. In stock trading, you need a lot more money to control more money because there is less available leverage. Typically, if you want to control 100k worth of stock you need to have 100k in your account. Forex is much more leveraged as I’ve already said, and this means that to control say 100k of currency, which is about 1 standard lot, you only need around $5,000 in your trading account.
The rich guy and the poor guy
Whether you consider yourself “rich”, “poor” or “middle class”, there’s just no way that risking 2% of all your capital makes any sense. There is a skill factor involved with trading that varies widely from one trader to the next, given this fact, it makes no sense whatsoever that a new trader with only say 10k to his name should risk 2% of his account on any trade; he has no real trading skill yet and only 10k to his name; with the 2% rule, all he will do is lose money slowly, at best. You see, money management is dependent on both trading skill and personal risk tolerance, it should not be just some arbitrary percentage of your trading account.
For example:
Let’s say a guy in Singapore only has 10K to his name, that is all of his personal money, everything. If he follows the crowd and reads about the 2% rule on one of the many trading websites it can be found on, it means he will be risking $200 per trade (2% of 10K)! This is just totally ridiculous! The fact that so many traders are starting out with very little money to their name and they are told to risk 2% of all their trading money, really is borderline immoral. Skill levels and personal risk tolerance vary dramatically between traders, and this is another reason why the 2% rule is complete rubbish.
Conversely, let’s say a guy in Australia has 2 million dollars free to trade with, he is obviously not going to put all of that in his trading account, because he doesn’t need to. He may put 20k in his account just to cover the margins of the position sizes he normally trades. So if he uses the 2% rule, he is only going to start out risking $400 per trade, because 2% of 20k is 400. Does it make sense that someone with 2 million dollars of risk capital is only going to risk $400 per trade? If he is trading like a sniper as a swing trader in the Forex market (what I teach and how I trade), then no, it makes absolutely no sense at all. I hope you are starting to see why basing your risk per trade on 2% of the money in your trading account is simply irrelevant.
Thus, whether you have 10k to your name or 5 million, the 2% rule is pointless and even harmful if you are trading markets like Forex and others. It just does not make any sense and it does not apply to Forex like it might to longer-term stock investors.

Compounding is not what it seems

The big attraction to the 2% rule seems to be the notion that as you win trades and build your account, the money will compound and the 2% rule will naturally increase your position size, and conversely will decrease your position size as you lose. This sounds great in theory, but in reality it is really just a bunch of B.S. that is yet another reason why the 2% rule is a giant pile of rubbish…
The 2% rule is nothing more than propaganda spread by brokers to see you lose slowly, it helps you stay in the game longer… which is great for the broker because they collect more commissions and spreads. The 2% rule is really for losing traders to lose their money slowly…if you’re winning it’s not going to work to your advantage like it seems like it will in theory. What about drawing money to live on? If you really start doing well you are going to start withdrawing money from your trading account, so that pretty much sucks most of the wind out of the “compounding” theory. You cannot compound your trading profits in your trading account forever, it is not realistic or practical, forget about compounding.
Yes, 2% compounded will slowly increase over time, but you’ll be drawing on your money to live on, and original account size is arbitrary; the guy who has some serious money to trade who has only started off at 10k, when he gets confident he might dump 100k in his account…thus, what’s in the account is arbitrary…what’s important is managing your money properly and knowing how much you can risk per trade to stay in the game and stay profitable.
We’d all like to turn 10k into 1 million compounded, but it never happens like this. I’ll remind you that some of the greatest hedge funds of all time have drawn down up to 50% of their net worth on their equity curves. That just shows you the unpredictability of your equity curve. The compounding effect is stupid because it assumes you won’t have these hiccups in your trading, that’s why I prefer to bank the profits as I make them. Longer-term compounding is just for dreamers…

OK, so how much should I risk per trade Nial?

Your risk per trade is a very important dollar figure that YOU need to come up with based on your personal circumstances which will encompass a variety of different variables.
Quite a few of the pro traders that I know, as well as myself, never even think about the 2% rule or percentages…because we know it is irrelevant and because we know that there’s no mathematical advantage in thinking like that. Instead, we think in terms of dollars risked per trade and what our personal risk tolerance is; basically how much we are willing to risk on any one trade. We might have 1 million of trading money but will only have 50k in a Forex account. A lot of the margin in our account is used to hold a position and we don’t have a lot of extra money just sitting in there for no reason.
I get a lot of emails from traders asking me how much they “need to start trading live” or how much they should fund their accounts with. The answer I give to them is always basically the same:
1) You need to determine how much YOU are comfortable with having at risk at any one time in the market, and only risk THAT dollar amount or less. There’s no sure-fire way to determine this dollar figure besides a little trial and error and self-reflection. If you’ve risked an amount that causes you to remain preoccupied with your trade all day at work (constantly checking the market on your phone) and unable to sleep at night, then clearly you’ve risked too much. I know it might be sounding a bit cliché to any of my senior followers by now, but the best gauge to whether or not you’ve risked too much on a trade is whether or not you can truly set and forget the trade. You should not feel any urge to sit there staring at your charts after you enter a trade, if you feel that urge then you’ve probably risked more than you are comfortable with losing.
2) Obviously, your personal trading abilities come into play in determining how much you’ll be comfortable with risking per trade. If you’re relatively new or have just begun trading live, you’ll probably need to risk less per trade than someone with 10 years live account trading experience. As you improve and build your confidence you may feel more comfortable increasing your risk per trade a little bit.
As you can see, how much you should risk per trade is a somewhat personal question that requires some thought, time and trading experience to properly answer. It is not and should not be as easy as just saying, “Oh I will just risk 2% of my account, that sounds easy”. Money management is not easy, and anyone who tells you it is, is lying to you or doesn’t know what the hell they are talking about. Trading is the easy part of trading (does that make sense?)…money management and trader psychology (controlling yourself) are the hard parts!

MM and method are no good without each other

Just because you’re managing risk mechanically does not mean everything will “just” workout. Mainstream trading literature; websites, books, eBooks, all of these will have you believe that simply risking 1 or 2% will keep you in the game for the long term.
Whilst I agree that money management (MM) is crucial, you need to remember that if a trader was to draw down 50% of his first $1,000, he would then have to make 100% to get back to breakeven. Therefore, we’re missing a very important variable in this story…for any MM strategy to work, you still have to have a solid edge (solid trading method). There’s no point in having a good MM plan if your trading method is no good. Whether you use the 2% rule or fixed dollar risk, you’ll still blow up your account if you’re trading edge is not solid. MM should be thought of as a combination of trading method and money management, because money management alone won’t ‘save you’ or make you money in the market.
Whist the 2% rule may protect you as a beginner, you’ll probably never really move forward because you’ll be trading a very small amount…you have to up the ante and have confidence as your trading skill improves.

The 2% rule plays tricks with your mind

When people think to themselves “I’m only risk 2% per trade, that’s not too much, and it will decrease my position size as I lose”, it literally makes them less sensitive to the risk in the market and to the threat of account-destruction that results from over-trading.
When you lose decreasing amounts of money on every-trade it does something that many traders don’t think about; it makes you want to trade more because you keep thinking that you are “Losing less on every losing trade”. This is just a really stupid way to try and manage your money, and it clearly leads to gambling and over-trading. You don’t just stay in the market all the time because you are losing less and less money, this is no different than a gambler losing his gambling money at the casino.
Many day-traders and scalpers like the 2% rule because they trade with such high frequency that the 2% rule allows them to say in the game for a long time, usually just long enough to blow out their accounts, quit trading or realize that they should be trading higher time frames and with more patience.
Your risk per trade changes with skill, experience and confidence. It’s something you have to gauge. It is not something you automatically adjust up or down after every trade, as you do using the 2% rule.

Conclusion…

At Learn To Trade The Market, it’s all about being frank with people; I don’t sugar-coat anything, and trust me, there’s a lot of sugar-coated B.S. floating around out there in the trading world, hoping to catch your interest (as you probably have figured out by now).

Remember, money management is no good without a high-probability trading method, and if you guys have been reading my blog for a while, you know I am a huge advocate of price action trading. Implementing a solid price action trading method with a sound MM plan is in my opinion, the quickest path to trading success. Despite this ‘recipe’ for success, there is NO sugar-coating it, you still have to put the study and effort in, and it will take time for you to turn the recipe into a masterpiece.

Intraday Outlooks For EUR/USD, Sterling, AUD/USD, EUR/JPY & SP500 - SEB

By eFXnews.com

  The following are the intraday outlooks for EUR/USD, Sterling, AUD/USD, EUR/JPY, and S&P500 as provided by the technical strategy team at SEB Group:
EUR/USD: Glued at 21day equilibrium. The high end of “the Cloud” and the 21day "Base line" keeps capping. Over 1.3299 is needed to start seeing the Aug-Sep decline as either a more complex trend lower (which could end up really powerful) or as a mere correction. Until then the picture remains cautiously tilted to the downside from here.

GBP: Must be monitored closely. The sterling index is close to its correction target (with GBP/USD & EUR/GBP having their respective key points at 1.5753 and 0.8350-0.8400) so the near term development must be monitored very closely. Sterling should given the stretched conditions be very sensitive to any kind of negative surprises.

AUD/USD: Testing resistance. Another winner added yesterday brought the pair into a test of short-term resistance at 0.9320-45. Some selling has emerged there this morning, but near-term players shortening up here now face support at yesterday's midbody point of 0.9270 and at 0.9234. Above 0.9350 would be a short-term stretch, but if spending a little time up here this stretch would soon fade and in a bigger picture a potential "Double-bottom" would set a fair extended target near 0.96.

EUR/JPY: Headed into the May peak (133.82). A solid winner was added yesterday as the move through prior peaks at 132.42 & 132.75 drew above average volumes. The high session close shows demand and all the short-term "Ichimoku tools” are in positive positions. This puts the May high of 133.82 in harm’s way (but it should also be noted that immediate extension beyond this level would also bring a short-term stretch to consider). Support likely around those prior peaks that were violated yesterday.

S&P 500: Extended correction. No signs of the outlined sellers yesterday as the market steamed on past the estimated correction target, 1667. The behaviour is annoying (arguing for a second corrective leg lower that is) but not unusual after a possible peak/bottom. The first reaction (wave b or 2) often moves deep into the preceding wave’s territory commonly reaching the 78,6% Fibo correction point so let’s see whether we can attract a few offers toward 1688.

Copyright © 2013 eFXnews  

Barclays' Trades Of The Week: Sell GBP/USD & Buy AUD/USD

08 SEP 2013 15:26 EDT By eFXnews.com


Investors following short-term macro strategies should consider selling GBP/USD, and buying AUD/USD this week, advises Barclays Capital in its weekly FX pick to clients.
On the GBP/USD trade, Barclays' rationale is as follows:
"Our surprise index is in extreme positive territory, so the positive momentum which has driven GBP strength is likely to slow. Given crowded positioning in short-sterling contracts and recent price action, we would tactically look for some downside versus the USD," Barclays says.
"UK labour market data will be the most important event for GBP next week (Weds). The BoE has directed the market to look through the recent improvements in data, since they expect the unemployment rate to be sticky (as do we, beyond this month).  Governor Mark Carney will also speak in front of the Treasury Select Committee on Friday," Barclays adds.
On the long AUD/USD trade, Barclays' rationale is as follows:
"Our economists expect the recent rebound in Chinese data on trade, industrial production and investment activity to have rolled into August, supporting the AUD." Barclays projects.

Copyright © 2013 eFXnews

Introduction To Price Action Forex Trading

How to Trade Forex with Price Action Trading Strategies

So how exactly do we trade Forex with price action? It really boils down to learning to trade P.A. setups or patterns from confluent levels in the market. Now, if that sounds new or confusing to you right now, sit tight and I will clarify it soon. First we need to cover a couple more things:
Due to the repetitive nature of market participants and the way they react to global economic variables, the P.A. of a market tends to repeat itself in various patterns. These patterns are also called price action trading strategies, and there are many different price action strategies traded many different ways. These reoccurring price patterns or price action setups reflect changes or continuation in market sentiment. In layman’s terms, that just means by learning to spot price action patterns you can get “clues” as to where the price of a market will go next.
The first thing you should to begin P.A. trading is to take off all the “crap” on your charts. Get rid of the indicators, expert advisors; take off EVERYTHING but the raw price bars of the chart. I prefer to use candlestick charts because I feel they convey the price data of the market more dynamically and “forcefully”, if you are still using classic bar charts and want more info on candlesticks then checkout this candlestick trading tutorial.
I like simple black and white charts the best, as you can see below. In metatrader4 you simply right click on the chart and adjust the “properties” of the chart to get it looking like mine below. If you want more info on how to setup your MT4 trading platform checkout this metatrader 4 tutorial.
After you’ve removed all the indicators and other unnecessary variables from your charts, you can begin drawing in the key chart levels and looking for price action setups to trade from.
The image example below shows examples of some of the trading strategies I teach in my forex trading course. Note the key support / resistance levels have been drawn in:

How to trade price action from confluent points in the market:

The next major step in trading Forex P.A. is to draw in the key chart levels and look for confluent levels to trade from. In the chart below we can see that a very obvious and confluent pin bar setup formed in the USDJPY that kicked off a huge uptrend higher. Note that the pin bar trade setup showed rejection of a key horizontal support level as well as the 50% retrace of the last major move, thus the pin bar had “confluence” with the surrounding market structure…
In the image example below, we can see a pin bar setup that formed at a confluent point in the market:
All economic variables create price movement which can be easily seen on a market’s price chart. Whether an economic variable is filtered down through a human trader or a computer trader, the movement that it creates in the market will be easily visible on a price chart. Therefore, instead of trying to analyze a million economic variables each day (this is impossible obviously, although many traders try), you can simply learn to trade price action, because this style of trading allows you to easily analyze and make use of all market variables by simply reading and trading from the P.A. trail they leave behind in a market.

In closing…

I hope today’s introduction to Price Action Forex Trading has been a helpful and enlightening lesson for you.  No matter what strategy or system you end up trading with, having a solid understanding of P.A. will only make you a better trader. If you’re like me, and you love simplicity and minimalism, you’ll want to become a “pure” P.A  trader and remove all unnecessary variables from your charts. If you’re interested in learning how I trade with simple price action strategies, checkout my Price Action Forex Trading Course for more info.
Good trading, Nial Fuller

Forex Pin Bar Method – Trading Pin Bars From Key Levels

By Nial Fuller   Posted in Forex Trading Strategies

Trading Pin Bar Signals with Support and Resistance Confirmation, is perhaps one of the most effective ways to trade forex, if not thee most effective way to trade. This article will show some examples of trading pin bars from key levels. Follow along closely because this is likely to be one of the most powerful Forex trading strategies you will ever learn.

Pin bars are one of the most valuable tools that price action traders have in their Forex trading arsenal. They often form at major market turning points, correction levels, or within a trend as continuation signals. When combined with a strong support or resistance level, pin bars can be one of the most accurate trading signals available. The best pin bar setups occur near confluent levels of previous price action as the market moves in one direction and then regresses back to re-test a previous support or resistance level. We can see in this daily chart of EUR/USD two successive pin bars testing a previous support and resistance level and then resuming downward movement

Pin bars occur in all market conditions; up trends, down trends, and range bound. The beauty of price action analysis is that it teaches you how to analyze market movement based on inherently generated data; namely price data. Reversal bars taken at confluent levels can act as a map to long-term profits in the forex market. Trader’s can design a highly profitable trading method entirely around pin bars if they so desire. The more confluence added to a pin bar formation the more accurate it becomes. We can see in this daily chart of GBP/USD below a beautiful pin far formed at a previous support/resistance level with the up trend and also at a Fibonacci 61.8 retrace level. The more confluence you can combine with a pin bar signal the higher its accuracy becomes.

Pin bars are adaptable to ever-changing forex market conditions and can be very profitable even in ranging markets. They can be very accurate if the formation is clear and obvious and combined with solid support or resistance confirmation. We can see in the daily chart of EUR/JPY below two very well formed counter-trend pin bars that formed off support in a range bound market that netted some serious gains for traders with a keen eye for price action analysis. Pin bars of this clarity and magnitude can be entered after the close on a market order. We suggest specific entry, stop, and target levels for quality pin bar setups in our member’s trading forum.

Pin bars can be taken at major market turning points counter-trend if they are very well formed. Often times long-term trend changes are set off by large pin bars that can result in some serious gains for traders aware of the potential. The daily USD/JPY chart below demonstrates how a large, well formed pin bar can tip off traders to longer-term changes in trend direction. Often times trend changes will occur rapidly and form what is called a “V” bottom with the bottom bar being a pin bar.

When pin bars form at the top or bottom of a consolidating market that is taking a breather after a large directional movement they can often signal trend resumption is near. In the daily chart of USD/CAD below we can see multiple pin bars formed at the top of a range bound market that was most recently in a large down trend. The last pin bar on the right side of the chart set off a very powerful move that resulted in a breakout of the range and subsequent downward trend resumption.

In conclusion, pin bar reversals are a great price action tool that forex traders can use in all market conditions. They are best played at confluent levels with strong support and resistance confirmation. Pin bars taken with the dominant daily trend are generally more accurate than counter trend pins. However, counter trend pins can set off long-term directional bias changes that can mean serious cash for traders with a trained eye. Pin bars work great at the tops and bottoms of range-bound markets and provide very accurate setups in these conditions.

Pin Bar Forex Trading Strategy – Pin Bar Definition

By Nial Fuller   Posted in Forex Trading Strategies

An Introduction To The Pin Bar Forex Trading Strategy and How to Trade It Effectively…
The pin bar formation is a price action reversal pattern that shows that a certain level or price point in the market was rejected. Once familiarized with the pin bar formation, it is apparent from looking at any price chart just how profitable this pattern can be. Let’s go over exactly what a pin bar formation is and how you can take advantage of the pin bar strategy in the context of varying market conditions.
What is a Pin Bar?
The actual pin bar itself is a bar with a long upper or lower “tail”, “wick” or “shadow” and a much smaller “body” or “real body”, you can find pin bars on any stripped-down, “naked” bar chart or candlestick chart. We use candlestick charts because they show the price action the clearest and are the most popular charts amongst professional traders. Many traders prefer the candlestick version over standard bar charts because it is generally regarded as a better visual representation of price action.

Characteristics of the Pin Bar Formation

• The pin bar should have a long upper or lower tail…the tail is also sometimes called the “wick” or the “shadow”…they all mean the same thing. It’s the “pointy” part of the pin bar that literally looks like a “tail” and that shows rejection or false break of a level.
• The area between the open and close of the pin bar is called the “body” or “real body”. It is typically colored white or another light color when the close was higher than than the open and black or another dark color when the close was lower than the open.
• The open and close of the pin bar should be very close together or equal (same price), the closer the better.
• The open and close of the pin bar are near one end of the bar, the closer to the end the better.
• The shadow or tail of the pin bar sticks out (protrudes) from the surrounding price bars, the longer the tail of the pin bar the better.
• A general “rule of thumb” is that you want to see the pin bar tail be two/thirds the total pin bar length or more and the rest of the pin bar should be one/third the total pin bar length or less.
• The end opposite the tail is sometimes referred to as the “nose”
Bullish Reversal Pin Bar Formation
In a bullish pin bar reversal setup, the pin bar’s tail points down because it shows rejection of lower prices or a level of support. This setup very often leads to a rise in price.
Bearish Reversal Pin Bar Formation
In a bearish pin bar reversal setup, the pin bar’s tail points up because it shows rejection of higher prices or a level of resistance. This setup very often leads to a drop in price.
Examples of the Pin Bar Formation in Action
Here is a daily chart of CAD/JPY, we can see numerous pin bar formations that were very well defined and worked out very nicely. Note how all the pin bar’s tails clearly protruded from the surrounding price action, showing a defined “rejection” of lower prices. All of the pin bars below have something in common that we just discussed, can you guess what it is?
If you said that all the pin bars in the above chart are “bullish pin bar setups”, then you answered the question right. Good job!
In the following daily USD/JPY chart we can see an ideal pin bar formation that resulted in a serious move and trend reversal. Sometimes pin bars like this form at significant market turning points and change the trend very quickly, like we see below. The example in the chart below is also sometimes called a “V bottom reversal”, because the reversal is so sharp it literally looks a V…
Here is an example of a trending market that formed numerous profitable pin bar setups. The following daily chart of GBP/JPY shows that pin bars taken with the dominant trend can be very accurate. Note the two pin bars on the far left of the chart that marked the start of the uptrend and then as the trend progressed we had numerous high-probability opportunities to buy into it from the bullish pin bars shown below that were in-line with the uptrend.

How to Trade a Pin Bar Formation

The pin bar formation is a reversal setup, and we have a few different entry possibilities for it:
“At market entry” – This means you place a “market” order which gets filled immediately after you place it, at the best “market price”. A bullish pin would get a “buy market” order and a bearish pin a “sell market” order.
“On stop entry” – This means you place a stop entry at the level you want to enter the market. The market needs to move up into your buy stop or down into your sell stop to trigger it. It’s important to note that a sell stop order must be under the current market price, including the spread, and a buy stop order must be above the current market price, including the spread. If you need more help on these “jargon” words checkout my free beginners forex course for more. On a bullish pin bar formation, we will typically buy on a break of the high of the pin bar and set our stop loss 1 pip below the low of the tail of the pin bar. On a bearish pin bar formation, we will typically sell on a break of the low of the pin bar and place a stop loss 1 pip above the tail of the pin bar. There are other stop loss placements for my various setups taught in my advanced price action course.
“Limit entry” – This entry must be placed above the current market price for a sell and below the current market price for a buy. The basic idea is that some pin bars will retrace to around 50% of the tail, so we can look to enter there with a limit order. This provides a tight stop loss with our stop loss just above or below the pin bar high or low and a large potential risk reward on the trade as a result.
To effectively trade the pin bar formation you need to first make sure it is well-defined, (see pin bar characteristics listed at the top of this tutorial). Not all pin bar formations are created equal; it pays to only take the pin bar formations that meet the above characteristics.
Next, try to only take take pin bars that are displaying confluence with another factor. Generally, pin bars taken with the dominant daily chart trend are the most accurate. However, there are many profitable pin bars that often occur in range-bound markets or at major market turning points as well. Examples of “factors of confluence” include but are not limited to: strong support and resistance levels, Fibonacci 50% retracement levels, or moving averages.
Pin bar in range-bound market and at important market turning point (trend change):
In the chart example below, we can see a bearish pin bar sell signal that formed at a key level of resistance in the EURUSD. This was a good pin bar because it’s tail was clearly protruding up through the key resistance and from the surrounding price action, indicating that a strong rejection as well as false-break of an important resistance had taken place. Thus, there was a high probability of a move lower after that pin bar. Note the 50% limit sell entry that presented itself as the next bar retraced to about 50% of the pin bar’s length before the market fell significantly lower…
Pin bar in-line with trend with multiple factors of confluence:
In the chart example below, we are looking at a bearish pin bar sell signal that formed in the context of a down-trending market and from a confluent area in the market. The confluence between the 8 / 21 dynamic EMA resistance layer, the horizontal resistance at 1.3200 and the downtrend, gave a lot of “weight” to the pin bar signal. When we get a well-defined pin bar like this, that has formed at a confluent area or level in the market like this, it’s a very high-probability setup…

Other names you might find pin bars described by:

There are several different names used in ‘classic’ Japanese candlestick patterns that refer to what are basically all pin bars, the terminology is just a little different. The following all qualify as pin bars and can be traded as I’ve described above:
• A bearish reversal or top reversal pin bar formation can be called a “long wicked inverted hammer”, “long wicked doji”, “long wicked gravestone”, or “shooting star”.
• A bullish reversal or bottom reversal pin bar formation can be called a “long wicked hammer”, “long wicked doji”, or “long wicked dragonfly”.

In Summary

The pin bar formation is a very valuable tool in your arsenal of Forex price action trading strategies. The best pin bar strategies occur with a confluence of signals such as support and resistance levels, dominant trend confirmation, or other ‘confirming’ factors. Look for well formed pin bar setups that meet all the characteristics listed in this tutorial and don’t take any that you don’t feel particularly confident about.
Pin bars work on all time frames but are especially powerful on the 1 hour, 4hour and daily chart time frames. It is possible to make consistent profits by only trading the pin bar formation, and you can learn more about it in my price action trading course. Upon adding this powerful setup as one of your main Forex trading strategies, you will wonder how you ever traded without it.
 

How To Trade Trends In Forex – A Complete Guide

By Nial Fuller   Posted in Forex Trading Strategies

 We’ve all heard the saying “The trend is your friend”, and while it sounds nice it doesn’t really teach us anything about trading a trending market or how to identify one. In today’s lesson, I am going to give you guys some solid information on trend trading that you can begin using immediately. Today’s lesson is all about trading trending markets with price action, and we are going to talk about how to tell when a market is trending and how to take advantage of these trends.
I hope you guys pay close attention to today’s article and refer back to it when you have any questions about how to trade or identify a trending market. In fact, if you email me asking about trends…I will probably refer you to this article!
Let’s get started…

The first step: Learn to identify a trend with nothing but raw price action

As you probably already know, there are tons of different indicators that you can put on your charts to ‘help’ you identify a trending market and trade with it. Many traders spend countless hours and dollars on trend-following trading systems or on indicators that just end up confusing them and making the process of trend discovery a lot more difficult than it needs to be.
I have always been a strong proponent of visual observation of the raw price action of a market, as you probably know. I also believe that simply observing a market’s raw price action, from left to right, is the easiest and most effective way to identify a trend and to spot high-probability entries within it.
Let me make a quick note before we proceed: A trend is not actually a strategy by itself; it’s just an added point of confluence that increases the probability of a trade. However, just randomly jumping in with a trending market is not an edge or a strategy.
As a market moves higher or lower, its previous turning points, or swing points as I like to call them, become reference points that we can use to help us determine the trend of a market. The most basic way to identify a trend is to check and see if a market is making a pattern of higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend. This is just plain old visual observation of a market’s naturally occurring price action…no mumbo-jumbo trading systems or magic-bullets here. I’d like you guys to take a look at this simple diagram that I drew below; it shows us the basic idea of looking for higher highs (HH) and higher lows (HL) for uptrends and lower highs (LH) and lower lows (LL) for downtrends:
Note: each colored circle is highlighting what we would consider a ‘swing point’ in the market:
Thus, general observation of a market’s swing points is the first point of call in determining if a market is trending. If you do not see a pattern of HH HL or LH LL, but instead you see sideways price movement with no obvious general up or down direction to it, then you are probably looking at a range-bound market or one that is simply chopping back and forth.
Tip: You shouldn’t have to think too hard about whether a market is trending or not. Most traders make trend discovery WAY too difficult. If you take a common sense and patient approach, it’s usually fairly obvious if a market is trending or not just by looking at the raw price action of its chart, from left to right. Make sure you mark the swing points on your chart, as it will draw your attention to them and help you see if there’s a pattern of HH and HL or LH and LL, as discussed above.

Characteristics of trending markets

Trending markets tend to make strong moves in the direction of the trend followed by periods of consolidation or a counter-trend retrace before the next leg in the direction of the trend. You will notice this pattern happens in almost any trend you can find. Typically, what happens to many traders is that they will make some money during the periods of strong directional trend movement, but then they continue to trade as the market takes a breather from the trend and consolidates. It’s these periods when traders give up all of the gains they just made when the market was moving aggressively.
You need to learn to identify the different parts of a trend, this will help you avoid over-trading during the choppy / consolidation periods and will give you a better chance at profiting when the trend makes a strong move.
Here is an example of what I’m talking about:
In the diagram above, we can see that a trending market tends to move in spurts, moving in the direction of the trend and then stalling to take a breath before another leg in the direction of the trend. Now, all trends are obviously not exactly the same, but we do typically see the general pattern described above; a forceful move in the direction of the trend followed by a period of consolidation or a retracement in the opposite direction.
Now, these retraces are when we have the highest potential for a high probability entry within the trend. Often, a market will retrace to approximately the level of its previous swing point before the trend resumes. In an uptrend these swing points are support and in downtrends they are resistance. Look at the very first diagram in this article for a quick refresher on what I’m talking about. Also, let’s look at the chart we just looked at but this time with the support levels marked. These support levels resulted after the market began to retrace lower within the structure of the broader uptrend.
Note the ‘stepping’ pattern left behind by the swing points in this uptrend. As the market retraces back down to these ‘steps’ or support levels, we would focus our attention and watch for price action signals forming near these levels to rejoin the uptrend:
Note: These same principles apply in a down trending market but we would be looking for price action setups from resistance rather than support.
As we discussed previously, a trending market will tend to surge in one direction and then slow down and either consolidate in a sideways manner or retrace lower or higher, depending on what direction the dominant trend is. It is during these contraction or retrace moves that we can focus extra hard through our ‘sniper-scope’ and begin searching for high-probability price action trading strategies forming from previous swing points within the overall trend.

Trading from value in trends

My primary mission as a price action trader is to watch for obvious price action setups that form after a market retraces back to a confluent level in the market. This can be a swing point like we discussed above, a moving average level, or some other support or resistance level. Whatever the case, I am looking to trade from ‘value’ in a trending market. By value, I mean from an optimum point in the market that has proved significant before.
For example, in an uptrend I would consider ‘value’ to be support, since that is where the price of the market is likely to be seen as a good ‘value’ for the bulls, and thus they will tend to buy from that level and push the price higher. Whereas, in a downtrend, ‘value’ is seen at resistance, since the price has rotated higher within the broader downtrend; so it’s a good ‘value’ to sell from resistance in a downtrend. These rotations back to value points can also be called ‘trading from the mean’ or the ‘average’ price, this is why moving averages tend to act as dynamic support or resistance levels.
One tool we can use to find ‘value’ in a market is a moving average. I don’t use them all the time, but when I do I like to use the 8 and 21 day exponential moving averages. I use them as a general guide and a helper to find confluent points in a market. For example, often the 21 day EMA will align with a swing point in a trending market, this would be considered a confluent level since you have multiple factors lining up together. Then, if we see a price action signal there, we know we are seeing a setup form in a very high-probability area on the chart. See here:
Note: these moving averages should only be used as a ‘general guide’ and never as an actual signal (as in the old ‘moving average crossover signal’). We only use them as a helper to see dynamic support and resistance levels (to add confluence) and for trend direction. But just to be clear, our main focus is on visual observation of a market’s price action and levels, that is to say without any EMAs.

Don’t fall into the ‘breakout’ trap – Many amateur traders get stuck in a cycle of trying to trade breakouts all the time…this is not really an effective long-term strategy because the ‘big boys’ all know that amateurs are constantly trying to buy and sell breakouts. Instead, we want to enter closer to key market levels, swing points, EMA levels (confluent levels) in the market…always with confirmation from a price action signal. As a ‘regressive’ price action trader, we are looking to buy or sell from value within the trend…waiting for the inevitable pullback and then pouncing on an obvious price action signal if one forms.

Forex trends vs. other markets

One aspect of trend trading that I want to touch on briefly is that trends in Forex tend to differ from those in other markets, especially equities.
In Forex, bearish and bullish trends are typically equally as violent and potent…whereas in equity markets we tend to see slower moving price action in a bull market, along with lower volatility. Down-trending markets tend to be fast and volatile in equity markets. Forex trends tend to be the same in their volatility and price action whether the trend is up or down. The main reason is because it’s one currency against another in any given currency pair and this results in more balanced price movement.
Thus, in Forex, your trading strategy and plan will generally be the same for both up and down markets. Here’s an example of the EURAUD daily chart recently that shows just how consistent both down trends and up trends can be in this market…note how the volatility and speed of these trends were about the same:
In the equity markets, traders typically need to adjust their strategies or systems as a market moves from bull to bear or vice versa. But in Forex, whether you’re trading long or short, bull or bear, the volatility of a currency pair tends to say about the same. That’s not to say that volatility never changes in Forex, it just means that the particular direction of a Forex pair doesn’t have a very big impact on that pair’s volatility or price action, as it does in the equity markets for example.

Final notes on trading with trends:

Take advantage of trends when they happen – There is never anything concrete with trends…meaning you never know how long they will last for, so try to take advantage of them when they do occur. Markets typically only trend about 25 to 35% of the time, and the rest of the time they are range-bound or chopping in a sideways fashion. The trick is to learn how to identify a trending market so that you can get the most out of it and get on board as early as possible.
Counter-trend trading – Overall, trend trading should make up about 70% of the trades you take, and the other 30% might consist of counter-trend trades or trades in range-bound markets. It’s best to learn how to trade with near-term trend before you try trading counter-trend, because trading with the trend is naturally higher-probability than trading against it.
In conclusion, trend trading is perhaps the ‘easiest’ way to make money in the forex markets. Unfortunately, markets don’t trend all the time, and it’s the time in between trends that traders do the most damage to themselves. This damage is a result of not having the discipline to wait for high-probability setups to appear, and not being able to properly read a market’s price action to determine whether or not it’s trending.
I trust that today’s lesson has helped you get an idea of how to determine whether a market is trending or not and how to trade a trending market. Remember, there’s no ‘Holy-Grail’ for trend trading, but if you’re in doubt, the best thing to do is to just relax and take some time to visually observe the last few weeks of price data in a market…without indicators. This no-nonsense approach is hard to beat and will work if you know what you’re looking for.
Finally, I leave you with this little formula:
The Best Trades = Trend + Confluent level + Price action signal
I’ve touched on some topics that traders can use for short-term trend analysis today, and I expand on these topics in the members’ article section of my price action traders’ community. Trend following is a large part of my Price Action Forex Trading Course and of my general trading strategy. I’d really love to hear your feedback today, so please remember to leave your comments below & click the ‘like button’.
Good trading, Nial Fuller

Trading 50% Retracements with Price Action Confirmation

By Nial Fuller   Posted in Forex Trading Strategies


In this price action trading lesson, I am going to explain how to use the 50% Fibonacci retrace in conjunction with a price action reversal ‘confirmation’ signal, ideally a pin bar setup or fakey bar reversal setup.

It is a widely accepted fact among chart technicians that most major moves, and many minor ones, will eventually retrace to around the 50% level of the move. There are many reasons why these 50% retracements are so prevalent in the market, but we aren’t going to speculate on those today, because in the end it doesn’t really matter, what matters is that the 50% retrace is a very real and very useful event to be aware in the market.
I am only a fan of trading the 50% retrace off a swing low or high as long as there is a price action signal to confirm its validity; meaning, I don’t “blindly” enter only because the market has retraced to a 50% level. My trading is all about confluence and finding evidence to support the price signals on the charts.

How to find the 50% level of a move

Before we talk about trading price action signals from 50% retrace levels, we need to be clear on how exactly to draw in the 50% levels because I know from some of the emails that come in on the support line that some traders don’t really understand how to properly draw use the Fibonacci drawing tool on their Meta Trader 4 trading platform.
Quick note: I don’t use all the other Fibonacci extension levels because there are just too many of them and I don’t see the point of having so many different levels all over your charts. The 50% phenomenon has been proven across hundreds of years of technical analysis whilst the other Fib levels are much more haphazard and self-fulfilling in the sense that if you put enough lines all over your charts, some of them are going to get hit regardless of whether or not there is any significance behind them or not. I primarily only use the 50% level, but for me it is an ‘approximate’ 50% retrace and that means if a valid signal forms near the 50% level, say anywhere from a 45% retrace to a 60% retrace, I will also count that as a valid retrace and treat it the same I would as a signal exactly at the 50% level.
It really is quite simple to draw in the 50% levels, but it’s important that you understand where a move begins and where it ends, because I know some traders get confused about that. Where the move started should be an exact high or low of the move, or very close to it, this is where you first place the Fib tool, then you click and drag the other end of the Fib tool to the other end of the move; where the move terminated. Where the move started you should see the “100.0″ in the top right of the Fib tool and you should see the “0.0″ in the bottom right of the Fib tool. This might seem confusing at first to have the 100 % level at the start of the move, but it makes perfect sense if you think about it like this: You are looking for a retracement of a move, so by the time the move is finished and the market starts retracing, it is moving back toward the origin of the move and if it were to retrace back up or down on the whole move, it would then have retraced 100% of the move. See the chart below for more help:
In the example below, we are looking how to properly apply the Fibonacci tool to find the 50% retrace level of a major down move in the EURUSD pair:

How to trade price action signals from 50% retrace levels

When you have a price action signal present on the daily chart, you then match up the fib 50% retracement level if there is one present (see chart example below), if the price action candlestick signal matches up with the 50% swing retracement level then you’re good to go and potentially have a valid trade. If you can also find a relevant horizontal level to match up here, its a ‘double whammy’ of confluence (a reason to get excited).
The process of trading the 50% retrace is simple, below is one example of a recent trade on the AUDUSD pair:

After finding the potential trade signal, decide to enter at market prices, or wait for a pull back to get your stop loss tighter to reduce overall risk. In the chart example above, given the ‘perfection’ of the setup, as prices started to move up in the correct direction, a long entry could have been taken, momentum in the correct direction is always a good sign.
These obvious and ‘perfect’ price action setups at a 50% retrace level can lead to huge moves on daily chart time frames and learning how to identify and trade them can give you a very potent trading tool for your price action trading toolbox.
I personally feel that when a trader looks for the price action signal first, then matches up the supporting factors (confluence) they tend to make better trades. What I am saying here is this…if you see a giant signal on the daily chart, find out what other factors are backing it up and showing supportive evidence; we won’t always be able to trade a signal, mainly because we prefer not to fight the natural trend of the market, and many times we see signals forming against the trend.
In the next chart example below, the 50% swing retrace line and price action signal both came together at one common point and showed us a nice setup here, but what you should really take away from this example is that it was in line with the general thrust of the market, notice that prior to the pull back, we saw a nice rally up, and the pull back did not exceed the 50% area , rather it rejected it strongly and has now bounced aggressively higher to the new recent highs.
In this example we can see a 50% retrace in the EURJPY and a price action buy signal that formed showing rejection of it:

I hope this article clears some confusion about Fibonacci levels. Personally, I only get a handful of these setups every month on the daily charts, but when you see these swing retracements inside a general trend movement, its wise to mark them on your charts and then look for a price action confirmation entry signal. These setups typically lead to some very significant, and potentially very profitable moves, for more information on trading price action signals from 50% retracements levels, checkout my price action course and members area.