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Become A Profitable Forex Trader Following The Trend

Thursday, March 22, 2007

Forex trading can be a hard world when you are just starting your trading career and you are in the beginning of the learning curve that will guide you to the goal of becoming a profitable forex trader; someone with the ability to make all the money needed to have a comfortable lifestyle just with the help of the currency markets.

Many forex traders tend to think that in order to become a good forex trader they must use many technical indicators so they can foresee what will happen in the currency markets and then act accordingly to enter the appropriate trade and make a good profit from their ability to read the indicators.

Technical indicators are good and will greatly improve your profitability, but there other ways to approach the world of forex trading that can be more simple but not without great profitable results, and this despite the use of fewer indicators. It’s a fact that forex trading systems that are based on logical, scientifically sound, and well-tested forex trading concepts have been performing extremely well and will continue to do so for many years to come. So you must aim to base your trading career on these kind of systems that on the long run will greatly outperform other kind of systems.

To be successful in forex trading, you only need to do two things: Identify the trend (or have someone or something to identify it for you) & join the trend with the precise timing. That’s really all profitable forex trading is about.

Forex Trading - The Beginning Trader's Action Plan (Step-by-Step)

Step 1 - Stop thinking you're going to be rich trading forex in the next 18 months. This is the most dangerous thing that kills most traders. Why is it that it is important that you get that idea out of your head? It will cause you to blow up mini account after mini account.

Don't believe me?

Come back later (several accounts later) . . . you'll believe me then. I guarantee it.

Most small traders start with ideas of getting rich starting with a little stake and turning it into some large number in short order (1 to 2 years). Unfortunately, it doesn't work that way. The experienced market players will take your money.

Step 2 - Now that you've cooled your blood a little, you need to get a good trading method. I'm talking about something old and reliable. You know, along the lines of Fibonacci or trading pullbacks.

You need something simple and proven. There is no need to spend $997 on the latest, whiz-bang system. It's not necessary.

You don't need to be trading something that no one else is trading. After all, think about it. What causes the price of a currency to go up? Buying pressure.

More buyers than sellers. More demand than supply.

Let me ask another question. When you buy do you want the price to go up? Obviously, yes. So you want to buy when others are buying. Since that's the case, why wouldn't you want to trade in a way that others are trading and be caught up in their upward move?

See?

Find an old reliable method. Don't be worried that everyone else is trading it so it won't work anymore. Of course it will, if it was a sound system to begin with.

Step 3 - Practice. To quote a cliché, "Practice makes perfect." You gotta work at it. There is no free lunch.

Do you want to learn more about how I trade? I have just completed my brand new guide, "Forex Trading - What Finally Worked For Me".

Forex Trading - Spotting the Big Trends For Big Profits Part 2

In part 1 we looked at how human psychology pushes prices away from fair value.

When there are extreme moves away from fair value you can make a contrary trade to the majority and pile up big profits with low risk.

So what tools do you need? Lets take a look.

As a general rule these tools will work in any market not just forex markets.

What sets ups do you look for?

Generally you want a set up that is the news where there is “no end in sight” to a spike move.

This generally indicates that greed and fear have taken hold and the market being looked at is emotionally driven and away from fair value.

This happens all the time:

The recent spike in crude oil, the 87 stock market crash and many others including in the forex market.

First place to start

Is the chart look for huge price spikes in short time spaces accompanied by “experts” and the news telling you there is no end in sight.

Now delve a bit deeper to see the true picture.

Useful technical tools are:

RSI, Sochastics and Bollinger bands

Then add in these sentiment tools to the mix.

% Bullish

This indictor is a poll of people, expert’s, brokers etc that have a view or interest in the market.

When this poll indicates above 70% are bullish the market is in overbought territory and when below 30% is in oversold territory.

In the currency markets we like to look for even more extreme readings of below 20% and above 80%

Commitment of Traders Net - Traders Position Report

This is a tool used for years by futures traders and shows the breakdown of open interest among three main participants.

We will explain what it means in a minute buy here is its definition of the groups.

Hedgers – The smart money commercial traders

Large speculators – These are normally large funds with reportable positions

Small speculators everyone else.

The commercials are long term traders and are close to the fundamentals and move very slowly – they are hedging not speculating and not influenced by greed or far and are the “smart money”.

Speculators on the other hand, both funds and small speculators, are driven by greed and fear

If you see a set up where commercials start to move the opposite way to speculators at a market top or bottom and hold an opposite extreme, then prices have moved to far from fair value.

With the commercials taking and building the opposite position to speculators in a rampant bull or bear market you know prices are probably due to re bound.

You must only use extremes with this tool and this normally means 8 months to 2 years.

Breaking it down

Study chart first, look for experts telling you there is no end in sight to the move, then look at % bullish and then net trader report.

Finally, use the technical indicators to confirm the move.

These moves do not happen often.

Maybe a few times a year.

But when they do

You can zero in on a contrary trade that not only offers huge profit potential but offer low risk.

Currency Forex Trading System - When To Abort A Trade

When the world markets, including the stock markets started to slide a few days ago, many experienced traders would only smile. Not that they were not affected, but they were smiling because they knew markets do go up and come down. It is only at what point in time is it necessary for a trader to quit a trade that has gone wrong- and these experienced traders could smile because they knew when to quit the markets, irrespective whether it is the currency markets, the stock market or the futures and commodities market.

Whether it is a smile or a smirk, these experienced traders have a good reason to do so.

Because when you quit at the appropriate moment, before a market collapse, you would make a lot of money getting out of the markets before the big drop. Those who quit immediately on the confirmation of the drop would not have done much worse, because they would also salvage a large part of their gains that have been obtained over the many months the markets have gone up. It is only those that hold on to their stocks, or shares or financial instruments they are investing in, that will feel the pain as the values of their holdings start to erode... and fall further, and further.

So the big question to ask today is"When exactly is the time to abort a trade?"

Many adopt stop losses, or make a certain cut off point to get out of their stocks.

So let us have some instruction today on the effective way to get out, or the correct timing to abort a trade.

There are two main ways to abort a trade.

The first way is to fix a time determinant to get out of a trade.

For example, for the day trader, if he or she has a basic understanding of a chart pattern leading to a trade, and believed that the chart pattern will work, and has entered a trade based on that chart pattern, but the conditions for that pattern to perform is no longer present, then he must immediately quit the trade, especially if a set number of trading bars have occurred.

For example, if you identify a break out pattern of an ascending triangle has occurred, and you have opened a trade by buying, but soon after you have purchased, your expected outbreak pattern has not occurred after 3 bars, then you may wish to abort that trade when 3 bars have occurred and yet the outbreak has not occurred.

When the time determinant as signified by the 3 bars have passed, it is easy to recognise the conditions for the trade have not occurred and you must then terminate or abort the trade.

The second way to know when to abort a trade is to do so when there is a pattern failure. Again, using the breakout of an ascending triangle as an example, if the price has broken out of the triangle, but then has fallen back into the triangle, signifying a failed pattern, then the conditions for the expected pattern have changed and it is no longer feasible to hold on to the projection of an ascending triangle. In other words the pattern has simply failed and it is the best time to abort the trade immediately.

Any delay is going to hurt you financially. It is wisest to quit a trade when the expected conditions are not fulfilled. Markets have a way to hurt the trader who procrastinates and wastes the earlier chances to get away with a profit, no matter how small.

Trading Opportunities - In The US Dollar Shaping Up Right Now

Here we are going to look at two trading opportunities last week we banked a great profit in the British Pound. This week we are going to look at the US Dollar V British Pound and Japanese Yen.

Lets look at these two set ups and simple method to profit from them.

For charts we are using the free service futuresource.com. We are using Cash charts, although same logic applies to futures and this is being written Monday AM CET 05 March

British Pound

If you saw our previous report you will see we banked a great short profit in the Pound and now were looking at it from the long side in line with the longer term trend, with the same method.

Daily chart shows short term weakness and prices are moving to the 19000 level.

The fall has been quite strong and the above is key short term resistance to key off.

Bollinger band has been penetrated, RSI is becoming oversold (30.76) stochastic momentum is weak and oversold.

It’s a simple trade.

Look at 19000 level to hold and upside momentum to re assert itself.

The trick for entry is to watch the stochastic momentum and watch a cross to the upside with bullish divergence to indicate strength in the Pound.

Japanese Yen

We have clearly defined nearby support in the dollar at the 11400 level

Prices are rapidly closing in on this level of support.

We have bottom Bollinger band taken out, RSI oversold (28.8) and stochastic momentum weak but not oversold.

Again it’s the same set up:

Dollar strength and resumption of up trend would be indicated by a cross of the stochastic with bullish divergence. A close below 114000 means all bets are off.

Right or wrong keep in mind the following:

These trades look good from a risk reward point of view and have clearly defined levels where the above trading scenario would be negated.

In trading it’s all about risk reward keeping losses small and targeting bigger profits with high probability set ups.

The British Pound trade we were correct with and made nice profit, but even if we were wrong the set up fitted the above criteria, as do these two trading set ups.

Take a look at the scenarios for yourself and see what you think.