Just want to share a complete forex system.TRADE SET-UP
5-Minute or 15 Minute Chart
Hourly Chart
Four-Hour Chart
5-Minute Chart
• 20-period EMA (apply to close)
• 10-period EMA (apply to close)
• Automated Daily Pivots (IBFX)
• MACD (12, 26, 9-period, apply to close)
• Stochastic (10, 3, 3-period, apply to low/high, simple MA method)
15-Minute Chart
• Bollinger Band (15-period, deviation 1, apply to close)
• Bollinger Band (15-period, deviation 2, apply to close)
• Automated Daily Pivots (IBFX)
• RSI (14-period, apply to close)
• Stochastic (10, 3, 3-period, apply to low/high, simple MA method)
Hourly Chart
• 100-period EMA (apply to close)
• 50-period EMA (apply to close)
• 20-period EMA (apply to close)
• 10-period EMA (apply to close)
• Automated Daily Pivots (IBFX)
• MACD (12, 26, 9 period, apply to close) and RSI (14-period, apply to close) > consolidate these two indicators into one chart to save on space
• Stochastic (10, 3, 3 period, apply to low/high, simple MA method)
Four-Hour Chart
• 100-period EMA (apply to close)
• 50-period EMA (apply to close)
• 20-period EMA (apply to close)
• 10-period EMA (apply to close)
• MACD (12, 26, 9 period, apply to close) and RSI (14-period, apply to close) > consolidate these two indicators into one chart to save on space
• Average True Range (14-period)
Your multiple time frame combination should either be of the following combination:
• 5-minute chart, hourly chart and four-hour chart
• 15-minute chart, hourly chart and four-hour chart
ADDING OTHER STUDIES
You may incorporate the use of the following subjective studies:
• Significant trendlines that you see in any of the time frames to identify the direction of the market (ranging or trending)
• Fibonacci retracements that you see in hourly or four-hour chart
• Major support and resistance (traditional) that you see in any time frames
• Pivot points that you plotted in the 5-minute, 15-minute and hourly charts
• Chart patterns (flag and pennants) that you see in any time frames
FINDING ENTRY AND EXIT POINTS
Bullish
• Price crosses 20 EMA as the MACD histogram is increasing and/or crossing above the zero line (5-minute chart).
• Price breakouts above the upper Bollinger Band (15-minute chart) after a period of price consolidation or low volatility
• The four moving averages (10, 20, 50 and 100-EMA must be in “proper order”) in upward trend
• Bullish candlestick engulfing formation or any other major reversal formations
• Trendline/channel breakout upwards
• Positive divergences in RSI, Stochastic and MACD
• Prepare to buy when a currency pair hits strong support or there is breakout of resistance.
Bearish
• Price crosses 20 EMA as the MACD histogram is decreasing and/or crossing below the zero line (5-minute chart)
• Price breakouts below the lower Bollinger Band (15-minute chart) after a period of price consolidation or low volatility
• The four moving averages (10, 20, 50 and 100-EMA must be in “proper order”) in downward trend
• Bearish candlestick engulfing formation or any other major reversal formations
• Trendline/channel breakout upwards
• Negative divergences in RSI, Stochastic and MACD
• Prepare to sell when a currency pair hits strong resistance or there is breakouts of support.
It is a good idea to place exit points (both stop losses and take profits) before even placing a trade. These points should be placed at key levels, and modified only if there is a change in the premise for your trade (oftentimes as a result of fundamentals coming into play). You can place these exit points at key levels, including:
• Just before areas of strong support and resistance
• At key Fibonacci levels (retracements)
• Just outside of key trendlines or channels
INDICATORS POINTING IN THE SAME DIRECTION
• The moving averages (10-day, 20-day, 50-day and 100-day EMA) must be in “proper order”. In our chart set up, the proper order for an uptrend for example is as follows: 10-period EMA is located above the 20-period EMA, which is above 50-period EMA, which is above 100-period EMA or 10 > 20 > 50 > 100. The order would be reversed in the case of a downtrend 100 > 50 > 20 > 10.
• Make sure that any trades that you intend to place are supported in all three time frames.
• The multitude of indicators are pointing in the same direction.
AVERAGE TRUE RANGE (ATR)
• The ATR measures the average movement for a currency pair which is normally set at 14-day period default. For example, if the GBPUSD pair shows and ATR of 0.0148, which would translate to an average daily range of 148 pips. This means that for the past 14 days, the pair has moved an average of 148 pips per day. With this, you have a good idea whether the market has reached its full potential or not.
• Although ATR is set here at four-hour chart, use the daily chart to determine the average daily range movement for the past 14 days.
MONEY MANAGEMENT RULES
Money management is the key to success in any marketplace particularly for the forex market, which is one of the most volatile markets to trade. Money management is one element that all successful traders share. Good risk management will keep you out of trouble and allow you to survive the tough times and gain valuable experience. Here are a few specific ways of money management rules.
• Live to trade another day is perhaps the greatest piece of advice you could receive in your investing. The single factor that causes most investors to overextend themselves and blow up their account is greed. When investor get greedy, they take unnecessary risks. They also spend countless hours trying to find technical indicator or the one economic announcement that is the “Holy Grail” of investing. Unfortunately, all this searching and hoping is unproductive simply because there is no secret. Sure, they may be able to identify a technical indicator and economic announcements that provides outstanding returns during a given period, but the market changes and they will be looking again for a new keys to success. Revenge is also the other big one. A lot of traders lose some pips and then want to strike back so they double their last order and go broke. The impulse to get greedy and revenge is natural and must be deal with. Remember that market is not your friend. The market has no emotion. It is so much more powerful than you are. If you take a big loss, then stop, take a deep breath, go into sports or any activities you enjoy or talk to any your friend-trader.
• Know what you are are willing to risk before you enter a trade. This rule is the basic tenet of living to trade another day. Determine what percentage of your account you are willing to lose in any trade. If you want to be more aggressive, consider risking 2 to 5 percent in any one trade. If you want to be more conservative, consider risking 1 to 2 percent in any one trade. If you risk too much, you probably won’t be around to trade another day much longer. If you risk too little, you probably won’t make very much money in your investing. The equation to know the amount at risk is as follows > Account balance x risk percentage = amount at risk. If you have an account balance of $50,000 and that you would like to risk 2 percent of your account in one trade, you should not risk more than $1,000 in any one trade > $50,000 x .02 = $1,000. Once you have determined how much you are willing to risk, you are ready to determine your trade size.
• Know how to determine trade size to prevent unnecessary exposure to risk. Trade size is the number of contracts you purchase in any one trade. To determine your trade size, you must first decide where you are going to set your stop loss. The equation to determine you trade size is > Amount at risk / (pips at risk x value per pip) = number of contracts. If you are willing to risk $1,000, decided a stop loss of 50 points and each pips in currency pair is worth $10 in standard lot contract, you trade size shall be 2 contracts computed as follows > $1,000 / (50 x $10 per pip) = 2 contracts or $1,000 / $500 = 2 contracts.
NEWS AND ECONOMIC CALENDAR ANNOUNCEMENTS
Fundamental analysis in forex is a type of market analysis which involves studying of the economic, social and political forces that drives the supply and demand of the currencies.
There are literally thousands of fundamental factors that could have an impact on the forex market at any given time. Nobody could possibly keep track of every little things that happens. Some forex investors may be focusing on commodities prices while other others in other fundamental issues. To be successful, you do not have to monitor everything that happens everywhere around the world. You only need to stay on top of the big stuff.
Focus on US Economic Calendar
For this purpose, we will focus on the following US news and economic reports because the US dollar is involved in a majority of currency trades and therefore tends to have the most significant impact on the currency markets. The following are the top and important list of some of US economic calendar reports:
• Unemployment (Non-farm payroll)
• Interest Rate (FOMC decision)
• Trade Balance
• Inflation
• Gross Domestic Product
• Inflation Reports (CPI and PPI)
• Retail Sales
• Current Account
• Durable Goods
• Treasury International Capital Flow Data (TIC Data)
• Central Bank Governors speeches
• Consumer Consumption
• Housing Starts/Building Permits/New Home Sales
Every country has a set of economic calendar events almost similar to the above list. This calendar events are scheduled in advance in a plenty of website in the Internet with schedules and rankings (low, medium and high impact). You can visit the www.dailyfx.com for news and economic calendar or other forex websites of your choice. It is suggested that you read the commentaries, definition and news of the economic calendar on a daily basis before you trade to familiarize yourself about these economic reports and its effect on the currencies being traded.
Effect of After Economic Calendar News
There is a significant and big movements in pips few minutes after the economic calendar release. As a newbie trader, it is not advisable to trade during the economic the news. Wait for several hours after the economic announcement or you may trade on the following day.
The effect on of the news the succeeding has impact on your currencies being traded but the price movement is not big and volatile compare to that of after announcement.
Other Fundamental News and Reports
It is also valuable to keep track of the following fundamental data and reports that have a large impact on the currencies.
a. Commodity Prices
• Gold (strong correlation with AUD/USD)
• Oil (strong correlation with USD/CAD)
b. Macroeconomic Events
• Significant G7 and G8 finance ministers meetings
• Presidential elections
• Geopolitical risks such as wars and terrorism
• Important summits
• Major central bank meetings
• Possible debt defaults by large countries
c. Breaking News
• US Stock market
• Political news
• Natural calamities
Learn all that you can about the fundamental aspects of trading. Do not be intimidated by fundamental analysis! A solid understanding of fundamentals is often what separates the good traders from the great ones. Of course, it takes time to master the fundamental factors that drive the forex market and apply what you have learned in your forex trading.
MAJOR TREND
There are three types of trading conditions: trending, range-bound or non-trending and consolidating currency pairs. Traders must approach each situation with the proper technique. Here is the one thing that you must realize: market change. A currency pair that is trending now will eventually begin trading in a range or move into a consolidation phase.
Before placing a trade, it is important to identify the major trend in the currency pair you are watching. If you trade with the trend, you are most likely to be able to find some trading opportunities. One way to determine if a pair is trending is through the use of moving averages, and what is referred to as the “proper order” of moving averages as mentioned earlier.
PSYCHOLOGICAL OUTLOOK
Aside from employing proper risk management strategies, one of the other most crucial yet overlooked elements of successful trading is maintaining a healthy psychological outlook. At the end of the day, traders who are unable to cope with the stress of market fluctuations will not stand the test of time – no matter how skilled they may be at the more scientific elements of trading.
Emotional Detachment
Traders must make trading decisions based on strategies independent of fear and greed. One of the premiere attributes good traders have is that of emotional detachment; while they are dedicated and fully involved in their trades, they are not emotionally married to them; they accept losing, and make their investment decisions on an intellectual level. Traders who are emotionally involved in trading often make substantial errors, as they ten to whimsically change their strategy after a few losing trades, or become overly carefree after a few winning trades. A good trader must be emotionally balanced, and must base all trading decisions on strategy – not fear or greed.
Know When to Take A Break
In the midst of a losing streak, consider taking a break from trading before fear and greed dominate your strategy. Not every trade can be a winning one. As a result, traders must be psychologically capable of coping with losses. Most traders, even successful ones, go through stretches of losing trades. The key to being successful trader, though, is being able to come through a losing stretch unfazed and undeterred. If you are going through a bad stretch, it may be time to take a break from trading. Often, taking a few days off from watching the market to clear your mind can be the best remedy for a losing streak. It is always better to acknowledge your losses rather than continue to fight through them and pretend that they don’t exist. Make not mistake about it: regardless of how much you study, practice, or trade, there will be losing trades throughout your entire career. You can overcome a lot of bad luck with proper money management techniques.
Whether you are trading forex, equities, or futures, there are 10 trading rules that successful trader should live by:
• Limit you losses.
• Let your profit run.
• Keep position sizes within reason.
• Know your risk-reward ratio.
• Be adequately capitalized.
• Don’t fight the trend.
• Never add to losing positions.
• Know market expectations.
• Learn from your mistakes-keep a trading journal
• Have a maximum loss or retracement in profits
No comments:
Post a Comment