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Sunday, July 31, 2011

Stealth Raids in Weak and Strong Markets

“You always need to be sufficiently in control of yourself to avoid any so-called random trading.” – Ben Lichtenstein

Hello:

Nowadays, it’s assumed that price formation in markets can be distorted by both rational and irrational behavior. It’s also understood that the financial markets is a kind of world formula that has an evolutionary and random component. This means that none of the developments are completely predictable. Nonetheless, whether a price movement is rational or irrational on the battlefield of the financial markets, you can reap some bounty if you know how to handle it.

The strategy discussed here arises out of the trading premise: In bull markets, trading instruments are prone to open weak and close strong, whereas in bear markets they tend to close weak and open strong. This kind of market behavior was discovered by some assiduous traders from long-term observations of the markets, and it also works for stock markets. The purpose of this article is to show you one way of benefiting from this type of market behavior. What’s needed here is the ability to carry out some short-term and swing stealth raids on the markets, so to speak. This trading method may make the trader enjoy some satisfactory accuracy.

In order to know the kind of action to take, a trader needs to verify whether a market is bullish or bearish – something that’s explained under the section titled ‘Strategy Snapshot’. Then she/he would buy bull markets at Sunday open and close the positions at the end of the New York session on Friday. Conversely, she/he would buy bear markets at the close of the New York session on Friday and exit the positions at the open of the markets on Sunday. This is done on Fridays – weekends, and when the markets open on Sundays.

Strategy Snapshot

Trading premise 1: Markets tend to open weak and close strong in bull markets

Trading premise 2: Markets tend to open strong and close weak in bear markets

Timeframe: 4-hour charts

Indicators: EMAs 200 and 50 (yellow color for EMA 50 and red color for EMA 200)

Pairs and crosses: 11

Names of the pairs and crosses: EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, EURGBP, EURCHF, EURJPY, AUDUSD, NZDUSD, and AUDJPY

Bull market: A bull market is identified when the EMA 50 is above the EMA 200

Bear market: A bear market is identified when the EMA 50 is below the EMA 200

Entry rule1: Buy the bull markets at the open of the markets and smooth your positions at the close of the markets

Entry rule 2: Buy the bear markets at the close of the markets and exit your positions at the open of the markets

Position size: 0.01 lots for each $2000

Stop loss: 100 pips each for long positions, 50 pips each for short positions

Risk per trade: 0.5% for long trades, and 0.25% for short trades

Take profit: 200 pips for long trades, and 100 pips for short trades

Trailing stop: 50% trailing stop for accumulated gains recommended on long trades

As you can see, the use of trailing stop is recommended for this strategy. I don’t need to tell you again the advantages of trailing stop. The main drawback to a trailing stop is that markets rarely just go straight up or straight down: they’ll generally zigzag or air-step one direction or another.

If this kind of trading methodology intrigues you, you may want to give it a try in a simulation mode for a minimum of 2 months. It’s imperative to stick to the position sizing recommended for this strategy; otherwise it won’t work (as it’s true of other strategies). Anyone risking even 3% of his account per trade is a suicide trader – not to mention anyone risking 5% per trade. It’s high risk that makes almost all trading strategies appear ineffectual in the long run. If you think that low risk can’t pay you, it’s high time you looked for a way to supplement your income (otherwise you’ll eventually blow yourself).

Sometimes, in the emotion of the trading moment, your mind may play tricks on you.

The more complex thoughts you’ve in you head when you trade, the less likely you’re to be successful. You must simplify your thought process and focus on what matters most. So tackle your trading as professionally as possible. Look at risk first and use your freedom as a private trader to your advantage.

NB: Please watch out for my coming articles with these titles: ‘Testimonies from My Subscribers,’ ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3,’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood – One of the Best Jobs in the World,’ ‘Developing the Right Attitude towards Losses - Part 3,’ ‘The True Holy Grail – The Long Sought for,’ ‘Suicide Trading Techniques,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with a Trading Enthusiast),’ ‘ Clarifying Some Issues – Part 5,’ ‘ Trade to Win!’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘A CHF Breakout Strategy,’ ‘Overview of My Signals Strategies,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘Monthly Trading Report (July 2011),’ etc.

I end this article with a quote from Steve Ward:

“…Embracing risk is critical as you can’t become good at something unless you confront it with all your energy… We should welcome risk, just as we’ll welcome the rewards that come with it.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Thursday, July 28, 2011

Weekly Trading Update (July 29, 2011)

“Yes I do (I believe that successful trading can be learned). But it’s obviously not easy. Once you’ve worked your way to a professional level, it’s also important not to want to optimize everything excessively. The KISS rule (Keep it Simple, Stupid) has proven to be a reliable guideline for professionals… It’s important that things don’t get too complicated here. So keep your strategy as simple as possible and avoid overly complex interpretations since this can exert unnecessary pressure on you while trading in real time.” - Thomas Kahdemann

Hello:

I used to believe that institutional traders were more skillful than private traders. Then, I wondered how long it’d take me to be like them, but later it dawned on me that they also can’t predict the future with absolute certainty. The fact that a trader has access to huge funds to manage doesn’t automatically make her/him a better trader than a trader who has less money. Furthermore, some people believe that trading in summer months are difficult because some traders tend to take vacation, yet I know those who currently make profits regardless of this belief; for there are always trending pairs/crosses somewhere. The fact that most top traders find the market difficult right now doesn’t mean that some private traders aren’t making money. I’ll continue saying that traders need to keep their strategies simple, because I’ve seen how a single indicator which is combined with price actions makes more pips than a complicated strategy using expensive charting software. There is no trading guru somewhere: the only way to become a guru is mentioned at the conclusion of this weekly update. And you’d do well to see the quote that follows at the end of the article.

Below is the summary of some of my trading activities this week.

AUDUSD

Primary Trend: Bullish

Last week, I said it was good to go long on this pair. I had a long trade here. Why? It was because the price action confirmed it: there was no other reason. However, it may be too late to go long right now.

Order: Buy

Entry date: July 22, 2011

Entry price: 1.0830

Stop loss: 1.0730

Trailing stop: 1.0959

Take profit: 1.1124

Exit date: July 29, 2011

Exit price: 1.0986

Status: Closed

Profit/loss: 156 pips

NZDUSD

Primary trend: Bullish

This pair has continued its journey northwards since last week. The kiwi remains a strong currency, but its days of strength are numbered. It’s possible for the price to retrace at this point. It’s always good to look left to make the right decisions.

EURCAD

Primary trend: Bearish

The pair is trying to edge its way upwards now, though the overall trend remains bearish. The price would need to break the price level at 1.3700 for this assumption to be true. I’m still anticipating more weakness in the Loonie.

EURAUD

Primary trend: Bearish

The strength in the AUD has been asserted again this week. There has been a sharp sell-off on this instrument. It’s better for speculators to find price levels by which this bearish move could be taken advantage of, rather than asking about the whys and wherefores of the market move.

EURNZD

Primary trend: Bearish

Slowly but steadily, and contrary to what I expected, the bearish move has continued. The price is still quoted below the SMA50 and SMA 200. The ADX 20 level is pointing towards the level 30, indicating a possible renewal of strong bearish pressures. The -DI has just crossed the +DI to the upside. I’ve no new position here.

Order: Sell

Entry date: July 15, 2011

Entry price: 1.6789

Stop loss: 1.6889

Trailing stop: 1.6639

Take profit: 1.6521

Exit date: July 19, 2011

Exit price: 1.6949

Status: Closed

Profit/loss: 268 pips

AUDJPY

Primary trend: Bearish

This market looks difficult: the long-term trend is still bearish, but the bearish outlook has been seriously violated. My last order was exited at breakeven. It’s better to stay away from this market now, as the AUDJPY is currently misbehaving.

Order: Sell

Entry date: July 12, 2011

Entry price: 85.42

Stop loss: 85.42

Trailing stop: N/A

Take profit: 82.46

Exit date: July 26, 2011

Exit price: 85.42

Status: Closed

Profit/loss: 0 pips (breakeven)

Conclusion: I’ve always revealed the folly of trying to predict the markets or using complicated strategies. We should focus on trading with very, very small position sizes; cutting losses as many as they are and running profit as many as they are. There’s no other way to be victorious.

The article is ended with a quote - which is an eye-opener - from Thomas Kahdemann.:

“When I was at the beginning of my career, working in a bank’s branch office, I always thought that people at the Frankfurt headquarters were better than everybody else and knew ‘how the … market really works.’ When I later worked at the headquarters, I quickly realized that this was not the case. There was the same uncertainty there as in branch office. Then I thought that at least the traders in the trading departments, for example, in Zurich, should know. When I worked there in proprietary trading, there was no trace of omniscience either. ‘But the top traders in the US are bound to know how it works,’ I thought. Yet again, I was disappointed when I worked in Chicago and was looking for the Holy Grail. No-one knows with absolute certainty how to achieve continuous gains. As a trader, you’ve to accept that and learn to cope with the inevitable uncertainty.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

Yahoo! Messenger ID: saazalmu

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Saturday, July 23, 2011

If I Were a Trading Neophyte…

I WISH I’D KNOWN THIS EARLIER

“If a trader believes that a talent or ability is trait-like, and unchangeable, he or she will be crushed after a failure. If, on the other hand, the person believes that a talent or skill can be improved and honed through experience, he or she will be less upset, less likely to internalize the losses under the same circumstances.” – Joe Ross

Hello:

If I were a trading neophyte, I’d be wary of those who promise 50% - 1000% returns on a quarterly basis, let alone on monthly basis. If making profits like that was easy, they’d never have to market their secret to colossal wealth. Going after huge profits is no different than courting financial disaster. Based on my personal experience, I’ve realized that there’s always a price to pay for stupidity. It’s better to learn lessons from others’ harsh experiences than from one’s harsh experiences.

If I were a beginner trader, I would ask prospective coaches to show me their own track records and forward them to a professional trading risk manager to interpret for me. I’d be suspicious of trading results that look too good to be true. I’d never be lured by account histories that use high risk to achieve huge profits in a short period of time or account histories in which stops are absent. I’d never trust any results that come from any source other than those that can be accessed by a valid login and investor’s password of a reliable brokerage account, live or demo. I’d also believe experts who make trades in live trading rooms and survive the uncertainty of the markets. By doing this, I’d escape the wiles of sham trading experts who’re out there to capitalize on my ignorance. The trading world is replete with criminality and hypocrisy. How could someone be callous enough to offer to give people what he/she doesn’t have? Many of them are out there. I can’t imagine how someone who can’t deliver consistently would ever offer to train others. Even if a trainee wouldn’t trade exactly like a coach, the coach should show him or her that they’re also surviving in the markets (if trainees would still choose a trading method that fits them). Who could be a more shining example than the best in their trades? A mentor should also be a successful trader, not just an adviser or educator. If a trading educator can’t show me his/her track records, I’d conclude that they’re not successful, and therefore, they aren’t qualified to teach me. The only criterion I’d honor is not university degrees or fame or business attire, but good trading track records.

If I were a trading neophyte, I’d create demo accounts on trading platforms of brokers whose demo accounts don’t expire. I’d practice, practice and practice on the demo accounts until I reached the level of consistent competence. Those who open live accounts when they’ve no good track records on demos may think they know what they’re doing, but the markets would soon prove them wrong. I’d never open a live account until I reached the level of competence, no matter how long it took me. It’s easy to open an account: it’s also easy to receive a margin call.

If I were a beginner trader, I’d choose only the brokers that allow excellent money management flexibility. I’d choose a high leverage to significantly increase my buying power, but I’ll keep my account intact with safe and stingy lot sizes. I’d never put $1000 into a standard account: plus using 0.1 lots for a position on $1000-capital is completely out of the question. Using 1% or less of my capital ensures that if and when a period of drawdown does occur I don’t lose too much!

If I were a trading neophyte, I’d discard any trading system that doesn’t include satisfactory risk management recommendations. I’d stick to a positive expectancy system I use despite occasional losses. I’d bear it in mind that complicated strategies can never achieve better results than simple ones. I’d simply cut my loss if I’m wrong and run my profit if I’m right. I wouldn’t complicate my trading strategies or add many more indicators.

If I were a beginner trader, I wouldn’t give up in the face of discouraging advice from those who are ignorant of what trading is all about; neither would I feel inferior to the so-called top or institutional traders. Losses don’t discriminate. A committed private trader may even be more skillful than an institutional trader. The biggest difference between retail and professional traders is that professional traders have someone else as a risk manager who forces them to follow sound money management practices. Retail traders have the difficult task of monitoring themselves.

If I were a beginner trader, I’d never forget that I’m a student of the markets. Trading is hard at best; losses and difficult adjustments abound. When a trader shouldn’t sustain heavy losses or a margin call, accepting the reality of the market unpredictability, intermittent loss, and discipline can lead to happily brighter experience. Trading success is more about discipline than talent. It's built on the back of the habits you form, and the commitments you make. It’s worth noting the fact that there are substantial differences between traders. There’s no single blueprint for market success. Instead, there are many paths to success and this means that each individual can find their own way.

If I were a trading neophyte, I’d never give up despite the challenges the markets would throw at me. I’d stick to trading until I find the secret to success. Those who explore other areas of human endeavor also face stubborn challenges. Life out there is very hard. Too often, we run from challenges. Yet successful traders whose results we wish we could duplicate continue getting impressive trading results because they battled challenges. Would life not be better if you were free of the daily grind – the conventional job and boss – and instead succeed or fail purely on the merit of your own trading choices? We’re the masters of our fate.

NB: Please watch out for my coming articles with these titles: ‘Testimonies from My Subscribers,’ ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3,’ ‘Carrying Out Stealth Raids in Weak and Strong Markets,’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood – One of the Best Jobs in the World,’ ‘Developing the Right Attitude towards Losses - Part 3,’ ‘The True Holy Grail – The Long Sought for,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with a Trading Enthusiast),’ ‘ Clarifying Some Issues – Part 5,’ ‘ Trade to Win!’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘A CHF Breakout Strategy,’ ‘Overview of My Signals Strategies,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘Monthly Trading Report (July 2011),’ etc.

This article is ended with a quote from Louise Bedford, an experienced female trader:

“When you truly desire something, your habits and actions will align themselves with your priorities. You'll find yourself doing things that are congruent with where you want to be in life, and you'll be granted some bonuses along the way as some things you've been desiring miraculously fall into your lap.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

If I Were a Trading Neophyte…

I WISH I’D KNOWN THIS EARLIER

“If a trader believes that a talent or ability is trait-like, and unchangeable, he or she will be crushed after a failure. If, on the other hand, the person believes that a talent or skill can be improved and honed through experience, he or she will be less upset, less likely to internalize the losses under the same circumstances.” – Joe Ross

Hello:

If I were a trading neophyte, I’d be wary of those who promise 50% - 1000% returns on a quarterly basis, let alone on monthly basis. If making profits like that was easy, they’d never have to market their secret to colossal wealth. Going after huge profits is no different than courting financial disaster. Based on my personal experience, I’ve realized that there’s always a price to pay for stupidity. It’s better to learn lessons from others’ harsh experiences than from one’s harsh experiences.

If I were a beginner trader, I would ask prospective coaches to show me their own track records and forward them to a professional trading risk manager to interpret for me. I’d be suspicious of trading results that look too good to be true. I’d never be lured by account histories that use high risk to achieve huge profits in a short period of time or account histories in which stops are absent. I’d never trust any results that come from any source other than those that can be accessed by a valid login and investor’s password of a reliable brokerage account, live or demo. I’d also believe experts who make trades in live trading rooms and survive the uncertainty of the markets. By doing this, I’d escape the wiles of sham trading experts who’re out there to capitalize on my ignorance. The trading world is replete with criminality and hypocrisy. How could someone be callous enough to offer to give people what he/she doesn’t have? Many of them are out there. I can’t imagine how someone who can’t deliver consistently would ever offer to train others. Even if a trainee wouldn’t trade exactly like a coach, the coach should show him or her that they’re also surviving in the markets (if trainees would still choose a trading method that fits them). Who could be a more shining example than the best in their trades? A mentor should also be a successful trader, not just an adviser or educator. If a trading educator can’t show me his/her track records, I’d conclude that they’re not successful, and therefore, they aren’t qualified to teach me. The only criterion I’d honor is not university degrees or fame or business attire, but good trading track records.

If I were a trading neophyte, I’d create demo accounts on trading platforms of brokers whose demo accounts don’t expire. I’d practice, practice and practice on the demo accounts until I reached the level of consistent competence. Those who open live accounts when they’ve no good track records on demos may think they know what they’re doing, but the markets would soon prove them wrong. I’d never open a live account until I reached the level of competence, no matter how long it took me. It’s easy to open an account: it’s also easy to receive a margin call.

If I were a beginner trader, I’d choose only the brokers that allow excellent money management flexibility. I’d choose a high leverage to significantly increase my buying power, but I’ll keep my account intact with safe and stingy lot sizes. I’d never put $1000 into a standard account: plus using 0.1 lots for a position on $1000-capital is completely out of the question. Using 1% or less of my capital ensures that if and when a period of drawdown does occur I don’t lose too much!

If I were a trading neophyte, I’d discard any trading system that doesn’t include satisfactory risk management recommendations. I’d stick to a positive expectancy system I use despite occasional losses. I’d bear it in mind that complicated strategies can never achieve better results than simple ones. I’d simply cut my loss if I’m wrong and run my profit if I’m right. I wouldn’t complicate my trading strategies or add many more indicators.

If I were a beginner trader, I wouldn’t give up in the face of discouraging advice from those who are ignorant of what trading is all about; neither would I feel inferior to the so-called top or institutional traders. Losses don’t discriminate. A committed private trader may even be more skillful than an institutional trader. The biggest difference between retail and professional traders is that professional traders have someone else as a risk manager who forces them to follow sound money management practices. Retail traders have the difficult task of monitoring themselves.

If I were a beginner trader, I’d never forget that I’m a student of the markets. Trading is hard at best; losses and difficult adjustments abound. When a trader shouldn’t sustain heavy losses or a margin call, accepting the reality of the market unpredictability, intermittent loss, and discipline can lead to happily brighter experience. Trading success is more about discipline than talent. It's built on the back of the habits you form, and the commitments you make. It’s worth noting the fact that there are substantial differences between traders. There’s no single blueprint for market success. Instead, there are many paths to success and this means that each individual can find their own way.

If I were a trading neophyte, I’d never give up despite the challenges the markets would throw at me. I’d stick to trading until I find the secret to success. Those who explore other areas of human endeavor also face stubborn challenges. Life out there is very hard. Too often, we run from challenges. Yet successful traders whose results we wish we could duplicate continue getting impressive trading results because they battled challenges. Would life not be better if you were free of the daily grind – the conventional job and boss – and instead succeed or fail purely on the merit of your own trading choices? We’re the masters of our fate.

NB: Please watch out for my coming articles with these titles: ‘Testimonies from My Subscribers,’ ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3,’ ‘Carrying Out Stealth Raids in Weak and Strong Markets,’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood – One of the Best Jobs in the World,’ ‘Developing the Right Attitude towards Losses - Part 3,’ ‘The True Holy Grail – The Long Sought for,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with a Trading Enthusiast),’ ‘ Clarifying Some Issues – Part 5,’ ‘ Trade to Win!’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘A CHF Breakout Strategy,’ ‘Overview of My Signals Strategies,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘Monthly Trading Report (July 2011),’ etc.

This article is ended with a quote from Louise Bedford, an experienced female trader:

“When you truly desire something, your habits and actions will align themselves with your priorities. You'll find yourself doing things that are congruent with where you want to be in life, and you'll be granted some bonuses along the way as some things you've been desiring miraculously fall into your lap.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Thursday, July 21, 2011

Weekly Trading Update (July 22, 2011)

“If there are no signals, I'm happy to sit in cash and wait for signals. If there are many signals, I will be very active and exploit the opportunities.” - Thomas Krawinkel

Hello:

How do technical analysts gain an advantage over fundamental analysts? In shorter timeframes, technically oriented traders clearly have better ability to gather the odds on their side. Why? They don’t trade their own opinions but what’s happening in the market. Smart traders follow a trend as long as it’s valid, regardless of whether the price quoted appears to have gone too far. Market technicians don’t ask for any reasons for the price movements because they’re aware that prices usually make the news and not the other way round. They make their own predictions, but always remain flexible and change their trading positions whenever that’s what the market behavior requires, rather than adamantly sticking to a losing position that’s no longer in the direction of the market.

Below is the summary of some of my trading activities this week.

AUDUSD

Primary Trend: Bullish

Because of a price fall from a supply zone, I shorted this pair on Friday – only to be stopped out at breakeven. The trend has gone up since then, and as such I’ll be looking for a way to enter long.

NZDUSD

Primary trend: Bullish

The Kiwi is furiously bullish right now, but it’s dangerous to enter long at this point; except one wants to buy a pullback. But any moment from now, there’s a possibility of a sell-off that may hold out longer than imagine. Ultimately, it’s only expectations for the future that are traded.

EURCAD

Primary trend: Bearish

The Canadian dollar seems to have gone too far at this point. The 1.3400 level rejected any further bearish move and the price has been trying to inch its way up since then. I’m planning to go long since I’m anticipating some weakness in the Loonie.

EURAUD

Primary trend: Bearish

The bears are losing their power in this market. If the AUD was weakened; according to my expectation, the present bullish attempts would be more pronounced. It’s bullish speculation that fuels the excitement of any bull market, and the other way round for the bear market.

EURNZD

Primary trend: Bearish

Apart from the 582-pip profit that was closed on this pair on July 11, I closed another 268 pips on July 19. Since then the price has pulled back by over 170 pips. The price is still quoted below the SMA50 and SMA 200, but the ADX 20 level is below 23, suggesting some pause in strong volatility. The +DI has just crossed the –DI to the upside, pointing to an imminent bullish wave. I may have to go long soon.

Order: Sell

Entry date: July 15, 2011

Entry price: 1.6789

Stop loss: 1.6889

Trailing stop: 1.6639

Take profit: 1.6521

Exit date: July 19, 2011

Exit price: 1.6949

Status: Closed

Profit/loss: 268 pips

AUDJPY

Primary trend: Bullish

My last order is still open on this cross. The price is trying to violate the bullish trend; something that may be thwarted if the Aussie develops any noticeable weakness. While some filter rule may be incorporated into this kind of anticipation, one must make sure that that a daily system doesn’t suffer excessively when decreasing the trading frequency i.e. when taking trade signals.

Order: Sell

Entry date: July 12, 2011

Entry price: 85.42

Stop loss: 85.42

Trailing stop: N/A

Take profit: 82.46

Exit date: N/A

Exit price: N/A

Status: Open

Profit/loss: 23 pips

Conclusion: Imagine you realized that you got on the wrong train and this train is going in the opposite direction that you wanted to go. Do you get out on the first possible stop or do you ride till the final destination of the wrong route? Likewise it isn’t wise to run one’s losses.

The article is ended with a quote from Angel Adams:

“In wisdom gathered over time, I’ve found that experience is a form of exploration.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

Yahoo! Messenger ID: saazalmu

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Saturday, July 16, 2011

The Proper Way of Using the Bollinger Bands

LEARN THE TRUTH FROM THE HORSE’S MOUTH

“Some people oversimplify things and think that the breach of the upper band is automatically a sell signal and the breach of the lower band automatically a buy signal. That, of course, is wrong…” – John Bollinger

Hello:

John Bollinger, who was quoted in one of my past weekly trading updates, is a CFA (Chattered Financial Analyst) and CMT (Chattered Market Technician). His past and present achievements and activities in the trading world have made him unique and renowned. He’s developed a number of well-known analytical tools – above all the world famous Bollinger Bands.

For experienced traders, the Bollinger Bands need no introduction. However for the benefit of my readers: “…The default setting is 20-period moving average plus/minus twice the standard deviation,” says Mr. Bollinger. “In principle, this variation may of course be varied. Over the years I’ve found that in short-term trading, for example, it makes sense to choose a shorter moving average so that the Bollinger Bands are even more responsive to rapid changes in trend. For starters, however, the default setting is ideal and many traders go on to use it later as well.”

According to its creator, the Bollinger Bands have been generally plotted in charts since the 1930s. The emphasis here is on ‘plotted,’ so this was done for many decades by hand. For this reason, everything had to be very simple, because otherwise it wouldn’t have been possible and relevant to practical applications. However there’s one big problem with these simple bands: what percentage is the right one with this shift? So what’s needed here is a method for automatic standardization and scaling. Once more, the bands show relative reference points to determine whether prices are currently high or low.

In a recent interview in TRADERS’ magazine, John Bollinger refuted the popular way of using the Bollinger Bands. At the beginning of my currency trading life, I was taught to buy when the price hits the upper bands and sell when it hits the lower bands (plus how to interpret Bollinger bounce and Bollinger squeeze). This rule failed as many times as it worked. I began to wonder what went wrong.

Later I discovered that a currency trader would do better to follow the line of the least resistance. Unless one is taking a trading signal out of the Bollinger squeeze, it’s better and safer to take signals from the Bollinger Bands only in the direction of the overall trend. Counter-trend trading is particularly dangerous for currency traders.

Mr. Bollinger continues: “Traders can set the multiple by which standard deviation in the Bollinger bands are shifted up or down. I’ve chosen the multiple of 2, since this is the range of roughly 95% of all price movements within the bands. The higher the multiple chosen, the less likelihood there’s that one of the bands is breached. So apart from the multiple of standard deviation everything is automatically calculated, which means that it’s hardly possible any more for traders to ‘talk up’ the chart. In addition, the Bollinger Bands show, on a relative basis, whether the current price action is high or low. How to interpret this, is of course, another story.”

What does he mean by saying this? Below are some examples of the proper way of using this great indicator:

1. Since there are trends in the markets, as we all know, prices may be relatively high (uptrend) or relatively low (downtrend) over a long period of time. For this reason, the interpretation of the band is totally different, as the chart must be part of the context. So price reaching the lower Bollinger Bands within an established sideways market may be a good buy signal.

2. Given the context described above, the same signal within an overall downward trend may be a trigger for a momentum short trade.

3. Try to recognize the trend in the market and trade alongside it. For traders to recognize that there’s a trend market, they should consult additional indicators. The ADX (the Average Directional Movement Index), developed by Welles Wilder is particularly suitable for this. You can also combine the Bollinger Bands with the MACD (Moving Average Convergence Divergence), or with an indicator that shows the ascending slope of any moving average.

4. If the price in the Bollinger bands on a higher timeframe touches the lower band and you see an oscillator clearly diverging from the lows in the market price, a good opportunity is offered for a long trade.

5. When the market seems indecisive, of particular interest are situations in which a pair/cross with highly relative strength moves into an equilibrium zone and then breaks out again upwards within a small channel. Sometimes traders may watch the news, too. If the EURUSD, for example is currently ranging and positive news is being announced that doesn’t cause the instrument to rise or only slightly so, then a clean bearish signal has been generated.

I could go on giving you more examples, but I got limited time. You may search some historical data on some charts to confirm these facts. The most important thing is to take signals from the Bollinger Bands only in the direction of the major trend. And there are many ways of doing this.

NB: Please watch out for my coming articles with these titles: ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3,’ ‘Carrying Out Stealth Raids in Weak and Strong Markets,’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood – One of the Best Jobs in the World,’ ‘If I Were a Trading Neophyte…,’ ‘Developing the Right Attitude towards Losses - Part 3,’ ‘The True Holy Grail – The Long Sought for,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with a Trading Enthusiast),’ ‘ Clarifying Some Issues – Part 5,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘A CHF Breakout Strategy,’ ‘Overview of My Signals Strategies,’ ‘Is It Realistic to Give Guarantees in Trading?’ ’ ‘Monthly Trading Report (July 2011),’ etc.

This article is concluded with another quote from the creator of the Bollinger Bands:

“There are many different systems and ways that you can be successful. A real winner not only knows that, but also trades accordingly – every day. This is what most people cannot manage to do. So I believe that my big advantage is that I’ve been doing all this trading here for 31 years.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Thursday, July 14, 2011

Weekly Trading Update (July 15, 2011)

“Only trained eyes can see what the financial markets have to offer.” – Naspoz

Hello:

Often and often, there are great similarities between trading and other areas of human endeavor. Many of those who succeed at their careers love what they do and are ever ready to spend their energy, time and resources to achieve goals that tend to elude an average individual. Very few of them have financial gains as their top priority. Many beginner traders are quickly attracted to trading and tend to think it’s very easy to make money (because they think the secret to riches lies in some newly-purchased trading system/software). It’s very common for traders to say they love trading at first – having great faith in their trading strategy. Nevertheless, it’s difficult to make money consistently in trading simply because the human mind isn’t wired to do the right things in the markets. It’s also sure that your passion for trading would be seriously tested by the financial markets. If money is your only objective in anything you do, you’d quit when you face great hindrances. Are you motivated to make money? This is an inverse attitude because the best traders/investors aren’t motivated to make money; they’re motivated by drive to be the best or by the joy of trading or by the desire to work on themselves.

Below is the summary of some of my trading activities this week.

AUDUSD

Primary Trend: Bullish

The strong resistance at 1.0800 easily rejected the advance of the bulls. Since then the price has zigzagged down. It’s obvious that the Aussie is running out of stamina. The trend may turn bearish at last, and therefore I’ll go short anytime from now.

NZDUSD

Primary trend: Bullish

My long trade was exited at breakeven during a short-term sell-off on this pair. The possibility of northbound continuation seems intact, but I’m not dogmatic on this point.

Order: Buy

Entry date: June 30, 2011

Entry price: 0.8265

Stop loss: 0.8157

Trailing stop: N/A

Take profit: 0.8857

Exit date: July 12, 2011

Exit price: 0.8265

Status: Closed

Profit/loss: 0 pips (breakeven)

EURCAD

Primary trend: Bearish

I’m looking for a short trade in this market; either later today or early on Monday. Based on the past price actions, it makes a lot of sense to sell a rally in a vivid downtrend, especially with the expectation of more weakness in the Euro.

EURAUD

Primary trend: Bearish

Later today or earlier on Monday, I’d go short on this cross. It’ll just be a sell-on-a-rally approach; just like the EURCAD. The price is trying to consolidate, and one of the most reliable entry methods for many, many years has been the breakout of an area of consolidation.

EURNZD

Primary trend: Bearish

It’s hard to tell when the downtrend will end, when a weak currency is pitted against a strong one. The price is quoted below the SMA50 and SMA 200. The ADX 20 level is pointing around 50, suggesting that the trend is very strong, but may be temporarily stalled. The -DI is also far above the +DI.

Order: Sell

Entry date: June 30, 2011

Entry price: 1.7531

Stop loss: 1.7649

Trailing stop: 1.7381

Take profit: 1.6949

Exit date: July 11, 2011

Exit price: 1.6949

Status: Closed

Profit/loss: 582 pips

AUDJPY

Primary trend: Bullish

I had to go short on this instrument. There’s been a serious threat to the bullish bias, and this is expected to continue, which would soon force the primary trend to turn bearish. Only a very small portion of the portfolio would be exposed; something that goes against the mindset of the starry-eyed trader.

Order: Sell

Entry date: July 12, 2011

Entry price: 85.42

Stop loss: 86.46

Trailing stop: N/A

Take profit: 82.46

Exit date: N/A

Exit price: N/A

Status: Open

Profit/loss: 49 pips

Conclusion: An average person doesn't have a chance at profitable trading because he or she concentrates on all of the wrong things. You won’t learn the real secret of trading success watching the financial news, reading financial magazines, or reading the mainstream financial newspapers, because the media will totally ignore the most significant aspects of trading success. But you can learn it by studying risk management principles. You must learn little-known, closely-guarded secrets that are not published in books and that you’re not likely to find unless you accidentally stumble upon them.

The article is ended with helpful quotes from Joe Ross:

1. “Trading and investing decisions are often driven by fear and greed… When we are greedy, we tend towards buying. However, it's a little more complicated than that. Regret and hope also come into play. We may buy and sell to avoid feelings of regret, or may hold on to a losing position out of denial and a fruitless hope that a loser will turn around.”

2. “Other emotions have a more indirect influence. Due to inattention, we may make a trading error. For example, when we are tired or frustrated, we may act too soon or too late. Similarly, during a serious drawdown, it's hard not to feel a little depressed and frustrated to the point that we just want to give up the whole business of trading or investing altogether.”

3. “The impact of common emotions of fear, greed, hope, and regret may seem obvious to many. But it's possible that incidental emotions elicited by events that have nothing to do with the markets may bias our decisions. It just goes to show that trading is a psychological endeavor. Keeping extreme emotions at bay is paramount. The more we can stay logical and objective, the more we'll trade profitably.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

Yahoo! Messenger ID: saazalmu

NB: There is risk of loss in trading, but it is possible to be a successful trader.

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