Forex Currency Trading System Possibilities

Forex Currency Trading System Possibilities

By: Bret Freak

So many people continue to discuss the use of common technical indicators in trading systems, without realizing or perhaps just not bothering to look at more predictive trading tools that are available to trade the forex market.

And so the purpose of this article is to present to you a few alternatives to using lagging indicators and instead incorporate leading indicators in your system, and that means looking directly at price action which some refer to as trading naked.

What I’m about to explain here, is a number of analysis techniques which I have combined together giving you an idea of what is possible. Now just because I have combined the use of all four market timing techniques in this article, doesn’t mean you have to use them together in your trading system, rather incorporate the use of one or more of these tools in your own forex trading system to suit yourself.

The first thing to do, is to identify a main market move, then apply fibonacci retracement levels to that move. These fibonacci resistance levels will now act as a reference point. We will now refer to other tools to indicate a possible reversal around one of these resistance levels.

We now wait for a candlestick reversal signal to occur around one of the main fibonacci resistance levels to indicate a possible reversal trend. When you think about it, fibonacci and candlestick reversal patterns are a great combination of analysis tools to use. Think about it for a moment. Once you observe a natural level of resistance in the form of a fibonacci, and at the same time you notice a candlestick reversal signal occurring aroung this level, for example a shooting star pattern, it gives you added confidence that a change in trend to the downside may be about to occur.

This brings me to our third indicator which gives further indication of a reversal occuring. This third analysis technique is called Elliott Wave. Now it is not my purpose here to go into detail about the Elliott Wave Principle, but rather show you the possibility of the tools you could use in your forex trading system.

To give you an idea of what Elliott Wave is all about, I quote from the Elliott Wave Principle book:

“In the 1930’s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns, the patterns he discovered are repetitive in form but not necessarily in time of amplitude. Elliott isolated five such patterns or waves that recur in market data. He named, defined, and illustrated these patterns and their variations. He then described how they link together to form larger variations. He then described how they in turn link to form the same patterns of the next larger size and soon producing structured progression.”

And further on into the book it goes onto saying:

“The primary value of the wave principle is that it provides a context for market analysis.”

And that is exactly how you should use it in your own forex trading system, in context with your other indicators or tools such as Fibonacci retracements, and candlestick reversal patterns.

Now to the fourth and final market timing technique you could incorporate in your forex trading system, or use with the other technical tools I have presented here in this article. This last market timing technique is called the Delta Phenomenon. More information about this technique and all the others presented here in this article can be found on my website listed below.

Basically the Delta Phenomenon is a cyclic phenomenon that was observed to be common in all financial markets around the world. Here is a quote from the book:

“Once one discovers the number of points that repeat and where the repeat begins, he is able to predict where in time each of these points will occur as far in the future or the past as he may want to go.”

The interesting thing here is the fact that this sounds similar to the paragraph I read out of the Elliott Wave Principle book which stated that, Elliott Wave patterns are repetitive in form but not necessarily in time or amplitude. This is where the Delta Phenomenon could complement EW, since DP gives you an idea of the time period to expect a reversal.

I would also like to mention here that the delta phenomenon is one of those market timing techniques that can be incorporated with any trading system, and it’s definitely worth looking into further if you’re interested in increasing both profitability and accuracy in your forex trading system.

Conclusion

It is up to you which market timing techniques you choose to use in your trading system.
However you should be able to add an extra layer of both confidence and accuracy, by incorporating the use of any of these four market timing techniques in your own forex trading system.

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Elliott Wave Principle

Elliott Wave Principle

By: Bret Freak

The chances are, you have probably heard of the Elliott Wave Principle, however without spending some time to carefully study this market timing technique, it can be a difficult principle to understand and apply. The Elliott Wave concept is a very interesting method of identifying cycles in the financial markets. Keeping in mind that it is not yet fully understood exactly why it works, this hasn’t stopped traders around the world from applying and profiting from this unique principle.

The Elliott wave principle or wave principle as some refer to it is a form of market timing that traders and investors use to forecast possible trends in the financial markets. Ralph Nelson Elliott developed a financial market model which he called The Wave Principle. Ralph published his views and ideas of how the market behaved in his book titled: The Wave Principle (1938). Elliott suggested that market movements unfold in specific patterns which he called waves. Today practitioners and traders refer to this principle as the Elliott Wave.

The best place to learn about the Elliott wave principle absolutely *FREE* is the Elliott Wave International website. I also suggest you get the Elliott Wave Principle book by Frost and Prechter, it only costs $29.00 USD plus shipping if you get it from Elliott Wave International, which is a small investment compared to what the Elliott Wave Principle is capable of achieving when used correctly.

To give you an idea as to what to expect from the book, here are some quotes from the Elliott Wave Principle Key to Market Behavior by A.J. Frost and Robert R. Jr. Prechter

“In this book, we have tried to produce a work that gives a complete treatment of the subject in a manner which we hope will succeed in introducing both experienced analysts and interested laymen to the fascinating field of Elliott. We trust our readers will be encouraged to do their own research by keeping a chart of hourly fluctuations of the Dow until they can say with enthusiasm, “I see it!” Once you grasp the Wave Principle, you will have at your command a new and fascinating approach to market analysis, and even beyond that, a mathematical philosophy that can be applied in other spheres of life. It will not be the answer to all your problems, but it will give you perspective and at the same time enable you to appreciate the strange psychology of human behavior, especially market behavior. Elliott’s concepts reflect a principle you can readily prove to yourself and evermore see the stock market in a new light.”

“In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or “waves,” that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.”

And further on down the page it goes on to say:

“The primary value of the Wave Principle is that it provides a context for market analysis.”

And:

“At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.”

(Quotes taken from the Elliott Wave Principle Key to Market Behavior by A.J. Frost and Robert R. Jr. Prechter)

Conclusion

The Elliott Wave Principle is definitely a viable method of market timing. However as stated in the Elliott Wave Principle book, it should be used “In context” with your other technical tools. So consider the added accuracy and profitability that can be added to your own trading system with the help of the Elliott Wave Principle.

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How does the Forex market work?

How does the Forex market work?

By: Andrew Daigle

The forex market is a huge international exchange where different currencies are traded, i.e. both bought and sold. It is estimated to be the largest financial market in the world, and is not governed by the rules of any one country. In addition to this, while it is open from Sunday to Friday, it is a 24 hour market and does not experience a daily closing like a traditional stock market. It is, thus, not regulated and there are no international panels to settle disputes nor are there any clearing houses to stand as guarantors of trades on the exchange. There is nothing more binding than a credit agreement between the buyer and seller in the forex market, and it works.

While this seems very nebulous to most stock market investors, forex traders are forced by competition and the need for cooperation to remain honest. There is no way for a trader to survive in the forex market unless he or she keeps up their end of the deal. Most countries will have their own body or association that serve to regulate the forex traders or brokers in that country and ensure that clients' rights are protected. This association will insist on its members accepting the decisions of their arbitration panel in case of disputes. In the United States, this organization is generally considered to be the National Futures Association or the NFA.

Another important aspect of the forex market to keep in mind is that on the market itself, there are no commissions, and thus it works on principal amount only. The so called forex brokers make money not by taking a commission from the trading parties, but by facilitating the trade itself and making their bit on the bid ask spread, i.e. the difference between the selling and buying prices. The implication is that they are not brokers in the traditional sense of the word, but more like forex traders themselves.

The single most attractive aspect of the forex market is that it is practically impossible for any investor, group of investors or financial institutions to misuse it. It is such a large market, with money flowing through it daily in estimated trillions of dollars, that no single entity, however large, can gain a statistically significant control over the forex market. This means that it is completely free of any influences, beyond the true fundamental driving forces that move it. The implication here is that this market offers every investor the same opportunity, regardless of size or influence, making it a free and fair market place, possibly the only one in the world. This aspect is very attractive to small investors in particular, since they are often the ones to suffer the most from stock market scams and fraudulent activity.

While these factors make the forex market more appealing to invest money on, it is also hard to make money on this market due to the fact that the forex trader has to always do better than the bid ask spread, which makes the opportunities for arbitrage profit limited. However, with no extra commissions and charges, the forex trader is left to enjoy every last bit of profit that he or she does make, once they are past the bid ask spread mark. Overall, the forex market is the place for a smart, vigilant and well trained investor.

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Is Forex Trading for Everyone?

Is Forex Trading for Everyone?

By: David Stevenson

Successfully trading the Forex market requires you to have the discipline to follow some rules. If you can "stay the course" and follow your system, regardless of what the market is doing, you can make money trading Forex.

As with most forms of financial investing - stocks, futures, etc., there are risks. There are no crystal balls to show you what is going to happen next, so your exposure to these risks is largely controlled by your money management practices.

Casinos operate, normally with extensive profits, based entirely on risk management. They have learned how to take advantage of probability, which is the same concept traders rely upon, and turn the tables in their favor. They have learned that the longer they can keep a gambler in their facility, the better the odds they will end up with the gambler's money.

Many new or inexperienced Forex traders fall victim to the hype surrounding foreign exchange trading. The electronic trading platforms used by retail Forex traders today, with their ability to display hundreds of "indicators" and present price data instantly, confuse many traders and actually lure them into making poor trading decisions.

Like futures, Forex trading offers high leverage. The readily available leverage of up to 400:1 has destroyed many potential trading careers. New traders, unaccustomed to the volatile nature of Forex, often fall into the trap of over-leveraged positions, which easily wipe out trading accounts.

Forex generally has some of the most predictable trends of all the markets over the longer term. However, many traders lose sight of the long term picture and try to trade based upon shorter term price charts. They believe shorter trends offer easy opportunities for profit, when in truth, most seasoned traders won't even look at charts of less than 1 hour.

The volatility of Forex means that a tight stop-loss order will usually result in being stopped-out of many trades. Too many trades ending in this fashion result in your trading account being slowly eroded away. Traders need to keep their "real leverage" (amount of currency controlled divided by their actual account size) at 3:1 or less. This will allow you to relax your stop-loss settings and enjoy more successful trades.

In the currency market, you don't have to worry (normally) about countries going broke. Typically the prices move in large waves, and if you had deep enough pockets, you could wait for the price to recover to profitable levels. The reality is this process could take years, so money management is again key.

Another benefit of this huge market is it's liquid nature. It's trading volume of approximately 2 trillion dollars per day ensure there can be no insider activities. Even the largest of central banks lack sufficient funds to seriously sway the market. Market moving data is released for all to see at the same time. No one has advance information of pending releases.

In conclusion, trading the Forex currency market is no more difficult than the stocks or futures markets and in fact has several advantages. To trade profitably in the currency market, you need to stick to leverage of no more than 3% to 5% and think "longer term". The lower leverage will allow you to ride the fluctuations which are common to Forex, while enjoying the benefits of long term trending.

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10 Forex Trading Essentials

10 Forex Trading Essentials

By: David Stevenson

These 10 Forex trading essentials are a high-level peek at the pitfalls that catch many traders. Compare your trading style with these simple fixes and if you are not employing some or all of them, you are placing yourself at a higher risk level.

1) Increase your time perspective - If you are not a well seasoned Forex trader, you shouldn't even look at a price chart of less than 60 minutes. The randomness of the normal transactions which occur in Forex will distort your judgment of the true picture. Use longer time frames, such as 60 minute, 4 hour and daily charts when planning your trades.

2) Reduce your position size to 5% Maximum - Having more than 3 to 5 percent of your trading capital on the table is a major no no. High leverage makes it very easy to get in away over your head. This combination snares many traders and can rapidly destroy your account. You need to have the ability to ride the volatility waves common in Forex.

3) Give your trade time to work - You can only use this option effectively if your position is sized safely... as per 2) above. Prices will fluctuate dramatically in Forex, and you need to be sure that a loss really is a loss before you close a trade that is moving against your plan. A 30 pip stop loss will often kick you out of a trade, just as it's about to turn in your direction. You need to allow for larger price swings... if you have determined the major price trend, be patient and let the odds work in your favor.

4) Reduce your dependence on technical indicators - Due to the fact that technical indicators get their data from past events, the reality is they have no ability to predict the future. Pro's that enjoy success using these indicators, often profit from the knowledge of how the masses are likely to react to this data, rather than the information itself. You need to determine the major trend (a simple moving average will show you this) and hop aboard. Use a longer time frame, as in 1). The largest players in Forex rely about 25% on technical indicators when making their trading decisions.

5) Trade only one or two currency pairs - And stick to the majors... not the crosses. Currency prices are driven primarily by fundamental data. In order to anticipate what is likely coming down the road, you need to follow some basic data for each of the countries involved. Trading too many currencies will make it difficult to keep up to date. There is equal opportunity to profit from each of the pairs, so wait until your experience level has matured and the information tends to sink in without as much effort on your part before you start to trade more currencies.

6) Average in and out of your trades - If your trading account is less than $50,000 have your broker enable mini-lots for your account. This will allow you to average in and out of your trades... a great way to add more flexibility to your account. If this applies to you and your broker doesn't offer mini lots, find a new broker... this is an important need to do.

7) Follow the data for your currency pair(s) - Know what data is pending for release. Volatility often increases dramatically when these releases occur. The safe strategy is to exit your positions prior to major releases... this is the way many of the larger accounts handle these situations. Data releases can often cause a change to the trend. Take them seriously.

8) Determine the trend and get aboard - As with any type of trading, the safest bet is to determine which way prices are trending, and then trade in that direction. You don't need anything fancy... a simple moving average on your candlestick chart is sufficient. Zoom your chart out to be sure you have the big picture. Compare where the price is now, relative to where is has been for a significant amount of time (at least a month). Use caution if the current price is near upper or lower extremes, as there may be a trend change once that extreme is reached.

9) Know when to take a profit - A winning position can quickly turn into a loser if you set your sights too high. Don't be afraid to take your profit - or a part of your profit at 20 or 30 pips. The price waves in Forex make it ideally suited to averaging into and out of positions by using multiple entry and exit points for each position. This is exactly where your mini lots can help! The benefit of spreading out your position is that your overall risk is reduced.

10) Stop listening to "Gurus" - Don't fall into the trap of believing everything, or even most things, you hear. The trading world is overflowing with gurus only too willing to offer their opinion on the future. It will only be an opinion, nothing more. They may seem to have convincing data, but trust your own brain. You need to weigh the economic data from your countries... that is what drives currency prices. The enormous size and nature of Forex ensure there is no insider information. You have access to the same data as everyone else in the game. In time, your own instinct will guide you to your goals, and that is what you need to trust.

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Which Indicators Should You Use In Your Forex Currency Trading System?

Which Indicators Should You Use In Your Forex Currency Trading System?

By: Bret Freak

From reviewing a number of forex currency trading systems and methodologies available online, I have found that the majority are based on having a number of indicators pointing in the same direction giving you a what’s known as a ‘confluence’ of indicators which is much more likely to be an accurate signal.

However, it is not just any combination of technical/fundamental indicators. The well thought out systems available on the internet makes use of different types of indicators. For example they might first decide to observe some type of resistance level such as a fibonacci retracement level, a pivot point, or a double bottom. This provides the initial support area. From here they may look to price action, for example they may decide that their system requires a certain candlestick formation to occurm such as an evening star, or morning star formation. Alternatively, they may just wait for any candlestick reversal signal to occur around that area, to take the trade.

Some traders would be happy to take the trade with just those two criteria. Others may require additional indication that a change in trend is about to occur. For example, they may use a bearish Stochastic, or MACD signal to confirm the change in trend.

Another less used method of trading might be, to incorporate the use of support and resistance type indicators as mentioned above, they may decide to make use of cycles. I wont go too far into the subject of trading using cycles since it would go off topic, and my aim here is to introduce you to the possibilities, and what other traders are using in there forex trading systems. However, one method of cyclic analysis comes to mind, it’s called the Delta Phenomenon.

The Delta Phenomenon can tell you with great accuracy, WHEN in time a move is about to occur, as well as the DIRECTION. However, to increase your probabilities of being correct you should refer to the Elliott Wave Principle. The Wave Principle basically can give you the FORM of the wave, as well as the ability to predict its DIRECTION. So if you had indications from both the Elliott Wave Principle and Delta that a change in trend to the upside was about to occur, wouldn't you feel more confident in taking the trade? Of all the methods and systems I have reviewed and examined, I have never come across a methodology that made sense as much as the method I have briefly described above involving the use of both Delta and the Wave Principle.

Of course it is essential that you keep in mind other factors such as money management, and expectancy when developing and implementing your own forex trading system.

Conclusion

There is literally an endless mix of technical analysis techniques that you could use in your forex currency trading system. The one you choose largely depends on what you are comfortable with. Some prefer not to use market timing techniques that take some time to learn and implement, however if you have the time and patience to learn analysis techniques such as the Elliott Wave Principle, and the Delta Phenomenon, it might just be the ticket to your success.

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Forex Low Cost Options Available

Forex Low Cost Options Available

By: Elboydny

This interesting article addresses some of the key issues regarding forex. A careful reading of this material could make a big difference in how you think about the forex market.

There are discount commission brokerages, charting resources, free news, and free analysis packages concerning Forex. This has become a downright scary situation in which securities regulators are in over their head. Many brokers have different types of accounts to suit the needs of individual investors. Ultimately a measure of market psychology is needed to achieve success.

By using several non-correlated systems. By using numerous automated strategies. You don't need much to get started with forex trading. Make sure that you accomplish your financial goals.

This has become a "trader's market" but only for the adroit. There are dealers who will quote currencies. Many brokers have found that their investors can benefit from following live trading accounts. It is true that they will tell you that a 1 or two pip spread exists on a specific currency pair. However some traders do forex-trading strategies that trade short term on the reactions to different news releases.

Be sure you are in touch with reality as far as your expectations and goals and other practical considerations. This trading method is so effective that your broker will think you can see the future. The majority of traders lose because they cannot control their emotions. Even though this market trades twenty four hours there are better times to trade.

Think about what you have read so far. Does it reinforce what you already know about forex? Or was there something completely new? What about the remaining paragraphs?

This means that by increasing your risk you can also maximize the dollar value of the position you open. Typically the minimum fees of an option trade range anywhere from fifteen dollars to $30 depending on your broker. This has become a strong correlation between a country's equity markets and its currency. Another advantage of the brokers market is that brokers might provide a larger selection of banks.

These rules have been researched and back tested and are then applied to a given market. Make sure that you are comfortable with the risks associated with your forex broker. Another advantage of dealing with a registered fcm is greater transparency of business practices. Additionally the system must be reliable and secure as digital signage can become a key point of contact with the customer. This trading method uses simple trader tools and does not require any costly traders software.

You don't know what point of the investing trend you are entering in. Ultimately a good trader fine tunes their trading system and see how the market reacts. The majority of traders make their decisions to buy or sell on impulse driven by emotions or opinion of others. Make sure you're ready to invest. Never lose more than your margin deposit, which is generally about 1%. There are many of forex systems sell online.

Knowing enough about forex trading to make solid, informed choices cuts down on the fear factor. If you apply what you've just learned about forex, you should have nothing to worry about and will make a lot of money.

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