Month: December 2010

By James Woolley

Forex trading is one of those professions that you could quite easily learn by yourself. You can buy some books, looks through various websites and learn how to trade the forex markets. However going it alone is not always the best option.

The fact is that no matter how well you educate yourself on the basics of forex trading, you may still struggle to make any money. That’s because the hardest challenge you will face is actually coming up with a trading system that is able to generate consistent profits. Indeed the vast majority of aspiring traders never manage to fulfill this objective and ultimately give up forex trading because they find it too difficult.

Technical analysis is not that difficult to learn because all you are doing is using different indicators to help you predict future market movements. However it is the construction of a few of these indicators into a workable trading system that is the hard part because you need to come up with a set of criteria that you can use to enter and exit positions.

Then once you have some kind of system in place you need to deal with certain money management issues to insure that you don’t lose money in the long run. After all there is no point coming up with a system that has a very high winning ratio, if your few losing trades wipe out all of these gains as a result of using a stop loss that’s too big.

This is why you are generally better off learning how to trade forex from a professional trader. You can spend years blowing up several trading accounts trying to come up with a winning system. So why not find a mentor and pay them to teach you everything you need to know and share with you their winning trading methods, because this investment could help put you on the road to success right from the start.

Alternatively you could go on the internet and buy a trading course from a full-time trader (if they are actually using their own systems and making consistent profits). It doesn’t really matter. The point I want to get across in this article is that in this day and age you don’t need to go it alone. You will save yourself a lot of heartache and stress by learning how to trade from an expert trader right from the beginning.

About the Author

Click here for more information about forex currency trading and to discover the exact 4 hour trading system that James Woolley uses to trade the markets. You can also read reviews of several profitable trading products including the new Forex Profit Multiplier course.

By Taro Hideyoshi

Before go to the strategies, please allow me reviewing what short selling means.

When you buy stock, it implies you believe that the stock’s price is going to rise. Conversely, when you go short it implies that you are anticipating a decrease in stock’s price.

In futures, commodities or forex, you are able to choose whether you want to go long or go short since you are dealing with contracts. Short sell stock, in the other hand, is selling of a stock that you do not own.

When you short sell a stock, your broker will lend it to you. Sooner or later then, you must “close” or “cover” the short by buying back the same number of shares to return them to your broker. Generally, you need margin trading account in order to sell short.

You will gain profit if the price drops, so you can buy back the stock at the lower. By the way, if the price of the stock rises, you will lose money since you have to buy it back with the higher price.

Basically, a strategy for selling short is to sell short when the chart pattern indicate a price reversal. For swing traders, they will sell short when the price reach its resistance levels. The stock that its price raises steeper in uptrend, the steeper falls when it is in downtrend.

You can still use the same indicators that you use to buy a stock for short selling. But you have to reverse the reading. When you sell short, you want all indicators showing weakness.

For example, you have to look for declining of moving averages and overbought oscillators. Also for the volume, you have to look for the stock that is falling with strong volume.

Here is the trigger list for short selling.

1) Market conditions are negative
2) Poor company fundamental
3) Industry is in downtrend
4) The price has formed a reversal pattern
5) Strong volume when the price breaks down
6) The price is traded under moving averages and is not able to penetrate them
7) Oscillators indicate overbought conditions

Like buying a stock, you also need to set your stop loss for your short selling. When you place stop for short selling you have to place it above the entry price. You may place it few ticks over previous resistance, or place it few ticks above highest price of the day if you are swing traders.

About the Author

Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.

If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System.

By Owen Trimball

Swing trading is one of the oldest and most popular methods for trading the markets. It was popularized by the legendary W.D. Gann in the early 20th century, who made millions on the stock market after defining his own unique set of rules and applying them to futures. Many books have since been written about this technique, each containing variations of the one overriding theme – identify a trend, wait for the pullback and hop on for the ride when it resumes.

Option Swing Trading takes advantage of short term moves in share prices and uses the leverage available in options to create an income stream with much less capital than would be needed if you were merely trading shares alone. Options also give you the ability to make money whether the move is upwards or downwards. You simply use call options for an upward swing and put options for a downward swing.

Option Swing Trading can be applied in either of two ways:

The first way is to wait for a strong price move in either direction, compare it to the size of recent historical moves and anticipate a short term reversal. The stock does not need to be trending for this strategy. You enter the trade at what you believe to be the extremity of the move, preferably after price action has been consolidating over at least 3 days. Once you enter the trade, the next challenge is to exit before the reversal blows itself out. You can often clean up with a tidy profit of greater than 50 percent on your risked capital. If you understand the advantages that can be obtained from using Vertical Debit Spreads in combination with this method, you can make excellent consistent profits with minimal risk.

The second way is to wait for a pullback on a trending stock. Using charting software, you draw trendlines under the “lows” if the stock is rising, or over the “highs” if the trend is downward. Trendlines help you decide whether the trend is weakening or not. If the trend is upward and you have drawn your lines under the troughs, you should also take note of the peaks. If the angle of the peaks is converging toward the angle of the troughs, the trend may be weakening so you need to be more careful. Same goes for a downward trend, only in reverse.

In short, you need to have some knowledge of stock chart patterns and technical analysis so that you can recognize opportunities and time your entry. Good trading psychology and self discipline are also essential. It is far better to patiently wait for just the right entry signal, rather than jumping in because you feel you have to be doing something. Same goes for your exit – accept a target profit and don’t be greedy. Greedy pigs end up in the bacon factory.

Option Swing Trading presents a number of advantages for the novice trader. It is simple to learn and can be undertaken “without giving up your day job”. You can make a significant income without the need for a lot of trading capital, as you would with share trading.

About the Author

Visit Owen’s popular site to understand the advantages of Option Trading and how strategies like Option Swing Trading can provide a significant income without the need for a lot of trading capital.

By James Woolley

Many people who invest in the stock market pay a monthly subscription for access to Level 2 data. They may even be lucky enough to get this data for free in some instances. However although this data can give you a slight edge, it is not always that beneficial.

For those that don’t already know, Level 2 data basically lets you see the order book for any given stock. So you can see how many orders are waiting to be filled on both the buy and sell sides of the order book. Therefore you can see how much demand there is for a certain stock and see how many buyers and sellers there are at any given moment.

The trouble is that it is only really useful if you are trading short-term price movements. If there is a big imbalance on the order book with ten times more buys on the left-hand side, ie the buy side, than the right, then you would expect the price of the share to move up a couple of pence in the next few minutes or hours (depending on how actively traded the stock is).

This is great for those placing spread bets who can generate profits from such small price moves. However for share traders who are using a conventional broker, it is no good at all because you often need the price to move about 1% in your favour just to cover the stamp duty and dealing costs.

Similarly if you are a long-term investor it won’t be that useful because it doesn’t really matter about the short-term price movements that occur. It is the long-term price movement that you are most interested in. Nevertheless Level 2 data can at least help you with your timing of your entry point or exit point because this data may help you get a slightly better price if you wait a bit longer, for instance.

Another downside of using Level 2 is that because it is only a snapshot of the order book, you may enter a position based on this data and then find that the picture suddenly changes when a flurry of new orders come on to the order book later on. Unfortunately there is nothing you can do about this because there is no way of predicting the number of orders that may be placed at any time in the future.

So the point is that Level 2 is quite useful for determining short-term price movements in various stocks, but it is definitely not foolproof. It should really be used as a guide more than anything else, rather than a concrete trading signal.

About the Author

Click here for more information about Level 2 share trading and to read all about the Donchian breakout system.

By James Woolley

The thing about stock market investing is that anyone with some spare capital can play the markets. That means that the markets consist of both highly skilled investors and people with no investing experience at all. The trouble is that a lot of these inexperienced investors will end up losing money very easily.

There are various mistakes that these people make. The first is that they will often have no type of strategy in place to begin with. It’s all well and good getting investing tips from the various stock market-related forums and picking up tips from newspapers and investing magazines, but this is a dangerous strategy and can easily lead to losses.

So many of these so-called experts give out bad advice all the time, which is why they are journalists and not seriously wealthy investors, and a lot of the people on the forums are not much better either. In fact some of them only go on these forums to ramp up their own stocks, and encourage others to buy them so the share price rises as a result.

Another reason why so many people lose money is because they do not have a well-diversified portfolio. It can sometimes be very tempting to plough all of your money into one or two stocks, and while you may make huge returns, you can also lose most of your capital if you’re not careful. In fact you could lose absolutely everything if your chosen companies go bust. This can easily happen if you invest primarily in smaller cap stocks, which is another mistake that a lot of investors make.

Finally even if you do have a well-diversified portfolio, you can still end up losing a lot of money if you don’t apply a solid stop loss strategy. Some people absolutely refuse to admit defeat when the share price keeps on falling, and end up racking up huge losses as a result. So if you cut your losing trades early, you can keep your losses to a minimum and help to avoid any major blowouts.

A similar rule applies to winning trades as well. So many people like to bank profits as soon as they are there, but if you keep on taking profits in the region of 5% and use a stop loss of 10%, for example, then you are sure to end up losing money in the long run.

Stock market investing is far from easily, and it’s very common for people to lose money, particularly when the wider stock market falls. However if you manage your capital wisely and maintain a well-diversified portfolio, then there is no reason why anyone cannot make money from investing, regardless of their previous experience.

About the Author

Click here to read a review of TradeKing, the online discount broker, and to read a full Zecco review.

By Markus Heitkoetter

Kelly F, Optimal F, and Secure F are all money management strategies used by many traders. While the strategies may seem different, Optimal F and Secure F are actually evolutions of Kelly F. To better understand the strategies themselves, it is helpful to know how they got to where they are today.

There are a few popular variations of fixed fractional money management that look for optimum fractions in order to generate the greatest returns possible when trading. These variations are the Kelly formula, Optimal F, and Secure F.

Kelly F was a concept that came from a Bell Labs researcher. This researcher, John Kelly, found that there was an analogy between growth rate of a trading account, and the rate of information transmission through a communications channel, such as a telephone line. This led to the Kelly formula. The formula is used to determine a fixed fraction that will maximize equity growth. A Kelly formula, however, assumes that losses and wins will stay the same. This means that if you are betting the same, risking the same amount, and you are looking to see the same return, it could be a great formula to use. Larry Williams used a variation of this formula when he won his world cup trading challenge. There are problems with the Kelly formula, however, which Optimal F tried to address.

Optimal F is a strategy that was made popular by Ralph Vince. Optimal F, just like Kelly F, assumes that there is an ideal fraction of equity that must be risked to maximize equity growth. Optimal F is, therefore, just an optimal fraction that can be used. The Optimal F fraction is based on a series of trades, and actually looks at the largest loss over a historical period. This number might provide a very nice fraction that can be used if everything is going right, but it does not address drawdowns. Secure F was created to address the problem of drawdowns.

Secure F is a calculation that is similar to Optimal F, but is based on the max drawdown instead of the largest loss. The creators of Secure F found that the Optimal F value typically led to a position that was not appropriate for a trader. Although Optimal F was based on the largest loss, if a drawdown occurred the Optimal F value was often too aggressive. The Secure F value was made to be more conservative. Keep in mind that a Secure F value will never be larger than an Optimal F value. And this makes sense because a largest loss does not account for a drawdown, which is a series of trades. That series of trades or that drawdown could be substantially higher than the largest loss. If you are basing your fraction, or your money management, on the largest loss it could be a little too aggressive for your trading and your account.

The advantages of using these variations and looking for an optimum fraction are that in an ideal situation nothing is better. With other forms of money management, if you trade with too small a position you are going to make money too slowly, and it might not be as efficient as using a more aggressive fraction. On the other hand, if you trade too large a position there is a possibility that you will blow out an account when you have an unexpected loss or drawdown. In theory, Secure F or one of its variations would be the best solution because it would maximize your money management and the potential returns that you could have on your trading account based on historical information. However, these money management methods can often lead to positions that are too large for many traders. These money management methods should be studied carefully before being implemented, but are generally not suitable for beginning traders.

About the Author

Markus Heitkoetter is the author of the international bestseller “The Complete Guide To Day Trading” and a professional day trading coach. For more free information on day trading visit his website http://www.rockwelltrading.com

By James Woolley

Warren Buffett is one of the most successful stock market investors of all time because his long-term returns have been nothing short of incredible. We can learn a lot from him and the way he invests in stocks, and in this article I want to discuss three specific things that you can learn from Warren Buffett.

First of all you should learn how important it is to only invest in high quality stocks. Unlike most traders and investors, Buffett doesn’t tend to invest in start-up companies or high-risk stocks. Instead he generally looks to invest in big market-leading companies that have a long and consistent record of earnings growth and dividend growth.

He is only interested in companies that are at the forefront of their industry and likely to keep on showing growth for many years to come. A classic example of one of these companies that he has invested in in recent years is Tesco. This is the leading UK supermarket that is not only expanding it’s market share in the UK all the time, but also expanding all over the world, so there should be many years of steady growth for this particular stock.

Another lesson you can learn is that patience is everything when investing in shares. He doesn’t worry about dips in the stock market because he isn’t planning on selling his shares any time soon. As long as his chosen companies are still showing steady growth, that is all that matters because eventually the share price will correct itself and reflect this growth in the future.

Finally if you look at the years and years of trading records of Warren Buffett, you will see just how important dividend reinvestment is, and how this has helped his portfolio grow quite substantially over the years. Some people like to bank these dividends, but Buffett has shown just how much of a difference it can make to your long-term wealth if you plough these dividends back into your current investments.

The point is that Warren Buffett did not get rich by accident. He has become one of the richest men in the world by having a sound investing strategy. He simply picks good growth companies that are the leaders in their field and holds on to them for years and years, reinvesting the dividends along the way. He has patience and discipline in abundance. So you could do a lot worse that following a similar investing strategy to the great man if you wish to achieve just a fraction of his success.

About the Author

Click here to learn how you can build an oversold stocks list using a stock screener, and to learn all about share trading using Level 2.

EURUSD is forming a cycle top at 1.3497 level on daily chart. The fall from 1.3497 could possibly be resumption of downtrend from 1.4281. Deeper decline to test 1.2969 key support is expected next week, a breakdown below this level will confirm the cycle top, then another fall to 1.2500 area could be seen. Resistance is at 1.3497, only break above this level could indicate that lengthier consolidation of downtrend is underway.

For long term analysis, EURUSD had formed a cycle top at 1.4281 level on weekly chart. Deeper decline towards 1.1876 previous low is expected in next several weeks.

Weekly Forex Analysis

President Obama will be signing into law an $858 billion tax deal on Friday afternoon, details of which have been driving the direction of the market all week.

By CountingPips.com

Today, we are pleased to bring you a new forex interview with forex trader, author and currency analyst Jamie Saettele. Jamie is an active trader, senior technical strategist at Forex Capital Markets LLC in New York, and author of “Sentiment in the Forex Market”. His technical strategy focuses on sentiment indicators and Elliott wave and is published daily at DailyFX.com. He has also contributed to Technical Analysis of Stocks and Commodities magazine, SFO magazine, Futures magazine, and Investopedia.com.

How did you become involved in the forex world? Was there something particularly attractive to you about the forex market?

I was attracted to the big picture macro nature of FX.  Also, the size of the FX market hinders manipulation.  It is a pure market in my opinion.

How did you get your “forex” education? Did you learn by demo trading, did you have a mentor?

Reading as much as I could and trading.  You’ve got to get your feet wet.  Demo trading is worthless because trading success or failure is primarily a function of psychology – in other words, how the trader responds to making and losing his or her own money.  Money has to be at stake in order for emotions to materialize.  The only way to learn how to trade is to risk your own money and trade.

How often do you trade, are you a full-time trader? Do you trade longer or shorter times?

I’m fairly active.  Sometimes I’ll be in and out of the market 20 times a day.

Do you have any preference on the currency pairs you trade?

I prefer the majors due to the tighter spreads but I tend to trade whatever is showing the clearest patterns.  The clearest patterns tend to be the pairs that are most volatile.  Right now, the AUDUSD and EURUSD have the highest daily ranges, at about 1.35% a day.  This can change of course.  For a long time, the GBPUSD was especially active but now it moves less than 1% a day.

Do you use more technical analysis or fundamental analysis, both? Do you take sentiment analysis into your decision making?

I am technical in nature.  Timing is clearly important in trading and I don’t see one can time the market with fundamentals.  I monitor sentiment with measures such as COT data, risk reversal rates (options) and volatility.  You’ll find that a lot (if not all) of these measures move with rate of change, which is a function of price – which underscores that price pattern is the most important consideration.  It is when sentiment measures or rate of change diverge from price that a useful signal is derived.  I also scan the WSJ and Bloomberg for headlines that may indicate market extremes.

Do you have any favorite economic indicators or favorite technical indicators that you feel are most reliable?

I like RSI and certain bar/candle patterns but my entries are based mostly on the opening ranges of Asia, Europe, and the US combined with support/resistance and price patterns.

What markets, outside of currencies, do you keep an eye on?

Equity markets, especially the S&P.  Gold, silver, copper, crude, and bonds.

Going into 2011, what do you see as the major themes for the forex markets? What should traders be watching?

I am keeping a close eye on the Australian and New Zealand dollars.  These currencies are trading at levels that I don’t think are warranted.  I see the potential for a housing crisis in Australia.  The housing market there looks similar to the pre crises US housing market.  Also, a setback in China (a question of when not if) would have a negative impact.

In conclusion, do you have any advice to anyone starting out in forex trading? Is there anything in particular that you wish you had learned when you started out?

Don’t use too much leverage.  Don’t use too much leverage.  And finally, don’t use too much leverage.

Thank you to Jaime for taking the time for our forex interview and to read Jaime’s latest currency analysis and trading strategies you can visit DailyFx.com.