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Saturday, March 10, 2012

How the MACD Generates Good Trading Signals

“As we know, ultimately the market will do its own thing. It’ll spend some time in a bullish phase, some time consolidating and some time in a bearish phase. If you’ve a bias and you’re in phase with the market then the rewards are there to be enjoyed.” - Paul Wallace

Hello:

Here’s a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD (which can be pronounced as either "mac-dee" or "m-a-c-d") was invented by Gerald Appel in the 1970s. Thomas Aspray added a histogram to the MACD in 1986, as a means to anticipate MACD crossovers, an indicator of important moves in the underlying security. The indicator has 2 lines which can be given different colors each, a histogram or bar chart which calculates the difference between the two lines. The period for the moving averages on which an MACD is based can vary, but the most commonly used parameters involve a faster EMA of 12 periods, a slower EMA of 26 periods, and the signal line as a 9-period EMA of the difference between the two. It is written in the form, MACD (faster, slower, signal) or in this case, MACD (12,26,9). The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. A 9-period EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals. Truly, values are calculated from the price of the instrument in the main part of the graph.

Mathematically:

1. MACD = EMA[stockPrices,12] – EMA[stockPrices,26]

2. Signal = EMA[MACD,9]

3. Histogram = MACD – signal

Traders recognize three meaningful signals generated by the MACD indicator.

When:

A). the MACD line crosses the signal line

B). the MACD line crosses zero

C). there is a divergence between the MACD line and the price of the instrument or between the histogram and the price of the instrument

Characteristics of MACD

You’re advised to go check this great indicator in your trading platform and apply it on a chart. You may also examine its parameters, levels, colors and so on. It’ll now be helpful to delve deeper into some characteristics of the MACD.

Signal–line crossover: Signal–line crossovers are the primary cues provided by the MACD. The standard interpretation is to buy when the MACD line crosses up through the signal line, or sell when it crosses down through the signal line. The upwards move is called a bullish crossover and the downwards move a bearish crossover. Respectively, they indicate that the trend in the pair/cross is about to accelerate in the direction of the crossover. The histogram shows when a crossing occurs. Since the histogram is the difference between the MACD line and the signal line, when they cross there’s no difference between them. The histogram can also help in visualizing when the two lines are approaching a crossover. Though it may show a difference, the changing size of the difference can indicate the acceleration of a trend. A narrowing histogram suggests a crossover may be approaching, and a widening histogram suggests that an ongoing trend is likely to get even stronger. While it’s theoretically possible for a trend to increase indefinitely, under normal circumstances, even pairs moving drastically will eventually slow down, lest they go up to infinity or down to nothing.

Zero crossover: A crossing of the MACD line through zero happens when there’s no difference between the fast and slow EMAs. A move from positive to negative is bearish and from negative to positive, bullish. Zero crossovers provide evidence of a change in the direction of a trend but less confirmation of its momentum than a signal line crossover.

Divergence: The third characteristic, divergence, refers to a discrepancy between the MACD line and the graph of the instrument price. Positive divergence between the MACD and price arises when price hits a new low, but the MACD doesn't. This is interpreted as bullish, suggesting the downtrend may be nearly over. Negative divergence is when the pair price hits a new high but the MACD doesn’t. This is interpreted as bearish, suggesting that recent price increases will not continue. Divergence may also occur between the pair price and the histogram. If new high price levels aren’t confirmed by new high histogram levels, it’s considered bearish; alternatively, if new low price levels aren’t confirmed by new low histogram levels, it’s considered bullish. Longer and sharper divergences—distinct peaks or troughs—are regarded as more significant than small, shallow patterns.

Timing: The MACD is only as useful as the context in which it’s applied. An analyst might apply the MACD to a weekly scale before looking at a daily scale, in order to avoid making short term trades against the direction of the intermediate trend. Analysts will also vary the parameters of the MACD to track trends of varying duration. One popular short-term set-up, for example, is the (5,35,5).

False signals: Like any indicator, the MACD can generate false signals. A false positive, for example, would be a bullish crossover followed by a sudden decline in an instrument. A false negative would be a situation where there was no bullish crossover, yet the instrument accelerated suddenly upwards. A prudent strategy would be to apply a filter to signal line crossovers to ensure that they will hold. An example of a price filter would be to buy if the MACD line breaks above the signal line and then remains above it for three days. As with any filtering strategy, this reduces the probability of false signals but increases the frequency of missed profit. Analysts use a variety of approaches to filter out false signals and confirm true ones.

Further Notes on MACD

The MACD is an absolute price oscillator (APO), because it deals with the actual prices of moving averages rather than percentage changes. A percentage price oscillator (PPO), on the other hand, computes the difference between two moving averages of price divided by the longer moving average value. While an APO will show greater levels for higher priced securities and smaller levels for lower priced securities, a PPO calculates changes relative to price. Subsequently, a PPO is preferred when: comparing oscillator values between different securities, especially those with substantially different prices; or comparing oscillator values for the same security at significantly different times, especially a security whose value has changed greatly. A third member of the price oscillator family is the detrended price oscillator (DPO), which ignores long term trends while emphasizing short term patterns.

Conclusion

As a means of emphasis, traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. As you can see on your own chart, the zero line often acts as an area of support and resistance for the indicator. When applying the MACD to your trading, you may use it in conjunction with another useful indicator so that you’ll make better informed trading decisions. If the markets conditions aren’t favorable or things are seriously consolidating, then you may stay out for a while. Additionally, why waste one’s precious mental capital of constantly monitoring the markets unless the odds are stacked in one’s favor? Take the day off if only mediocrity is available.

Ever heard the saying, “buy the rumor, sell the fact”? Do you ever wonder why prices go down after a positive announcement? Do you think the Smart Money knew the facts or the good news beforehand and the reason why they’re already long? I think so. So when the good news is announced to the market all the weaker hands jump in and start buying and the Smart Money take the opportunity to offload their positions into the demand strength. Sometimes a market can be predicted easily and sometimes it mayn’t be easy to predict. I heard a great analogy once, “If you see a thousand people walking around a shopping mall, it’s impossible to know where they will all be in 5 minutes time. It’s too complex to predict and calculate (yes, even with fractal mathematics). On the other hand, if you set off the fire alarm, it becomes very simple to predict where they will all be in 5 minutes time”. So it’s with the markets, there are times when it’s easy to push people around because so many have shown their hands. People have put their stops in a big cluster and they’ll all run for the exits when the market moves there.

Whether you trade every day or every so often, the ideas found here at FXInstructor.com can help you make the most of your time in today’s markets.

This article is concluded with a quote from Dr. Woody Johnson:

“The fact of the matter is the market is only a neutral representation of the price action; there is no pain in nor created by the market. It is only in the head of the trader. Also, there are traders who think that the market is "against them," and that it is a fight. However, if there is a fight, it is with yourself. The fight with yourself is caused by the internal conflicts. These internal conflicts are in the form of unconscious limiting beliefs that drive thoughts about the price action and about yourself.”

NB: Please watch out for my coming articles with these titles: ‘Carry Trade Explained in a Layman’s Language’ ‘Questions Traders Ask – Part 1 (Should I Abandon My Strategy?)’ ‘The Joke about a Cough Medicine Applied to Trading,’ ‘Angry Traders,’Traits of Successful Traders,’ ‘A News Trading Strategy,’ ‘Analyze the Markets with the Aroon Indicator,’ ‘A Brief Introduction to Point and Figure Charts,’ ‘Does High Hit Rate Work Always?’ ‘My Typical Trading Day,’ ‘A Trader’s Trick Entry Technique – Sighting Golden Trading Opportunities,’ ‘Making Money out of Losses – A Blessing in Disguise,’ ‘Achieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),’ ‘Play the Markets Victoriously with Nano-cent Accounts,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘Trading Signals,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 3 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘A Hedge Funds Strategy,’ ‘My Hedge Funds Strategy Update,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘A Simple Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers (2),’ ‘Best-case Scenarios – The Beauty of Trading,’ ‘Gap Trading Revisited,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses – Part 4 (Losses Aren’t Abnormal) ,’ ‘The True Holy Grail – The Long Sought for,’ ‘Forex Trading Vocabulary,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Before You Open that Trade,’ ‘Cogent Trading Biases,’ ‘Overview of My Signals Strategies – Can You Become a Super Trader?’ ‘Winning Trades, Losing Trades,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘I Can’t Express How Grateful I’m to You!’ ‘Yearly Trading Update (2012) – The Big Picture,’ ‘What We’ve Decided to Do in the Markets - Trend Following It Is!’ ‘Yearly Trading Results (2012)’ ‘Monthly Trading Report (December 2011),’ etc.

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

If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

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

Friday, March 9, 2012

Weekly Trading Update (March 5 - 9, 2012)

“Trading is not a problem without a solution. Trading is a game that you need to become skilled at.” – Peter Davies

Hello:

In one of his former articles, one trading educator explained that the dream of easy success has been sold to people throughout the ages, and the current boom in sales of software and investment courses holds disquieting historical parallels. In Amsterdam, Holland, during the sixteenth century, there was an accredited course in alchemy from a respected center of education. An historical ancestor of the British, Dr. John Dee – mystic, astrologer and advisor to Queen Elizabeth I – is reputed to have researched alchemy there. No one had ever turned lead into gold, and we now know that turning lead into gold does not fit the facts of empirical quantum mechanics and inorganic chemistry. Regardless of the lack of evidence, it did not change the fact that people believed it could be done. This belief existed for almost a thousand years. Great halls were filled with people, and if you could convince somebody that you had done it once, people would pay large amounts to learn the secrets of alchemy… Perhaps the strongest evidence in support of intelligent life existing in some distant corner of the universe is that they have not contacted us. Traders lose money by repeating mistakes time and again and view these blunders as business expenses on the road to market mastery. They look to self-professed experts for guidance, some of whom hold no qualifications apart from a certificate in audacity and the ability to convince people that they hold esoteric knowledge providing a conduit to wealth and prosperity. Who can question their integrity when the very nature of investment is based upon an unpredictable market open to interpretation? The corner shop vendor will tell you of his trading profits with an anecdote regarding earlier failures, adding realism to the events. However for some, trading mayn’t be that difficult. Some people can do it and some people can’t. The problem for the retail trader is the sea of bullshit you have to wade through to get to the point where you can trade.

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

AUDUSD

Primary Trend: Bullish

The recent southward dive on this pair has nearly rendered the bullish outlook on it invalid. The price seems to be moving up but it mayn’t be possible for the pair to reach its recent high of 1.0857. If the current weak rally fails, then it would signal another opportunity to sell.

NZDUSD

Primary trend: Bullish

The outlook on this pair is closely similar to its AUDUSD counterpart. A downmove was followed by a rally attempt. Things look tricky at this point, but it’s what happens to the USD that’ll determine the next move. There can at any time be someone stepping into the market that will move it in a way you could not have anticipated.

AUDNZD

Primary trend: Bearish

The AUD is weaker than the NZD at the moment and I’ll prefer to trade accordingly. The past bullish effort was rejected at 1.3048 and the price has fallen by over 160 pips since then. The SMA 50 just moved above the SMA 200, but it may be improbable for this to last long. The RSI 14 is below the level 50, supporting this view. The Stochastic 14,3,5 is now in the oversold area, but this kind of indicator can be in an oversold area for a long time.

EURCAD

Primary trend: Bullish

A bullish bias here? This bias is under potentially serious violation, and if the EUR continues to be weakened against the CAD, then the bullish bias is over. This might be supported by the widely held notion that the market tends to drop 3 times as fast as they climb. There’s certainly some truth to the fact that bearish markets tend to be more volatile, with greater snapbacks. Depending on individual’s bias, this can be enough of a threat to make people stay away for now or provide an excellent opportunity.

EURNZD

Primary trend: Bullish

This cross, which is in a notable correction, is currently hesitating before finding the next line of the least resistance. The SMA 50 is still above the SMA 200, and the price still stays above the former. Nevertheless, the ADX 20 is far below the level 20 – showing another trendless situation. -DI is precariously situated above +DI. Expect a great move soon, probably to the upside.

GBPCHF

Primary trend: Bearish

The primary trend remains bearish on this instrument, though the price is attempting to move higher. This can only hold if the resistance level at 1.4400 is successfully breached – without reversal. Markets will tend to seek out pockets of liquidity. It gives you some general guidelines on where you expect the market to go. Still, that is not the end of the story. You could have two markets that follow these guidelines and yet behave very differently. One market could reach a point of resistance and turn around at that exact point; another market could blow through by 15 pips before reversing. Their charts would look different, they are behaving differently but they are both following the same guidelines.

Conclusion: How can you create money from nothing? There are winners and losers of the zero-sum games. It’s especially successful traders who contribute to more efficient pricing as well as to the supply of liquidity and in return for that contribution collect their trading profits. The origins of these profits – how could it be otherwise – are the book losses of other market participants. When a majority loses in the markets, the money hasn’t gone, it’s just changed hands. Those who stick to basic trading rules and use a professional strategy with an expected value that’s positive can withdraw money from the market in the long run. Those who don’t meet these requirements will accordingly put money into it. It’s much better to imagine the cycle described and remember that the mistakes made by the other participants will fill the pockets of the professionals in the long run. So follow basic rules of successful trading and play the markets conservatively and for the long term. There’s no other way for you to be among the real winners.

This article is ended by quotes from Peter Davies:

1. “Trading is not a game for the weak-willed. Don’t start buying into the theories that day trading is mathematical and that it has a [magic] solution. It’s like more a game of poker. Sure, probabilities play a part but so do psychology and game theory.”

2. “There is much to learn about trading but there is no point in trying to learn it all. In fact, you could read thousands and thousands of pages on the different products and ways to trade, yet still come no closer to making any money. If you don’t want to trade options, then there is no point learning the intricacies of the Black-Scholes pricing formula. If you do not plan to hold stocks long-term, there is no need to understand discounted cash flow. If you plan to make money trading, then you need to focus on a specific area of trading and become good at it. If you wanted to become good at a ‘ball’ sport, you would not approach this by playing Tennis one week, cricket the next, soccer the next and pinball the week after. There are many games to play and you will only make money by becoming a good player. Just like any sport, this takes practice.”

3. “Any trade can fail; any individual trade will either win or lose. That’s it; your next trade will be a winner or a loser. It’s largely irrelevant which for any individual trade. Accept it and move on. You should certainly not be changing the game based on one loser or even a string of losers. Nor should you change based on a string of winners.”

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

If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

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

Friday, March 2, 2012

Unlock the Power of Everlasting Triumph in the Markets - Part 2

Impossibility’ is found in the dictionary of fools.” – Napoleon Bonaparte

"Success is not final, failure is not fatal: it is the courage to continue that counts.” - Winston Churchill

Hello:

Trading profitably need not be reserved for financial gurus and degree-wielding mathematicians in investment banks. The process of buying and selling looks simple when considered at first. For instance, long and short possibilities are also categorized by signals. When you buy an instrument you’re long. That’s simple enough to understand. But trading in reality is more difficult since the markets can’t be predicted with absolute certainty. This is why you need to learn the principles that can ensure permanent safety of your capital in the face of the market uncertainty. Traders might not get rich quickly, but they shouldn’t get poor fast either. In view of this, trading risk managers work hard to educate people on the best ways to keep their portfolios safe. Those who refuse to listen risk losing out on the opportunity of getting on the road to everlasting triumph in the markets. What about you? Would you be guided by misconceptions and preconceived ideas, or would you be willing to test facts with an open mind?

Many a trader is haunted by a memory of devastating mistakes they made in the past. What influence does past life or trading experiences have on your conduct as a trader? Have you invested the time to uncover the impact they may well have upon your performance? Memories can be a blessing. Reflecting on past pleasant trading results can warm our heart. But in other case, memories may seem more like a curse. Are you plagued by painful memories of hurtful past trading results? If so, you may wonder, ‘Will these sad memories ever fade from my mind?’ Good thoughts illuminate one’s trading career, bad thoughts darken it. Now, what choice can you make to revolutionize the way you trade? How can the choice help you in your trading? The greater the choice, the more the effort, and as time passes you’ll build your own toolkits of profitable trading ideas and these will likely serve you well because experience is the trader’s most valuable asset and it soon develops into your own valuable investment guidelines. No victory without battles

The essence of this article is this: You need to learn what it takes to be a permanently successful trader, and you need to discipline yourself to carry out what you learn automatically. Some golden rules should be rigorously followed, plus traders shouldn’t be afraid to make up their safety rules based on time-tested experience.

How Long Does It Take to Be Successful in Trading?

Humankind tends to take the most difficult route which is often perceived as the easy way out. It’s this very perception that makes it easy for many to believe anyone saying that a trading idea or system is magical. Innumerable amount of trading ideas and methodologies have been hyped, yet over 90% of traders can’t still make money in the long run. I can’t forget the famous song by Kermit the Frog: ‘It’s Hard Being Green’ (voiced by Jim Henson). If you can get the necessary knowledge and practice long enough, your trade results should end up being green. For you to survive so long in the markets, you need more than a strategy that shows or let you know when to buy or sell. Now the question is:

Then how long does it take to be a permanently successful trader?

Have you watched the Korean Epic season movie called Jumong? You probably have. The main character of the story, Jumong, is destined to accomplish what his father, General Hae Mo Su, fails to achieve and even surpass him exceedingly. He starts with a comfortably easy life in a palace – a typical comfort zone. It’s not surprising that his comfort zone renders him useless to himself, nation and destiny. He’s lazy, myopic and hare-brained. He’s completely hopeless; until he’s forced out to of his comfort zone to face the realities and challenges in the world. He starts having a series of experiences and life-threatening encounters that begin to toughen him. He gets trained by a dreaded veteran (he doesn’t know that the veteran is his after), and a few loyal experts. His life’s characterized by grave vicissitudes. Although he’s unique qualities that endear him to most people, circumstances are against him. Many foes, including those who’re supposed to support him, stand on his way to the realization of his destiny. He faces battles and near-death circumstances. Fate provides him with loyal comrades who’re ready to die for him. Sometimes he’s guided by the Providence. But on many occasions, he’s to light his torch and find his way in very dark and unexplored labyrinthine zones and impasses. The more challenges he faces, the tougher and more experienced he becomes. He becomes very useful to himself, his nation and destiny. He becomes peerless, unrivalled and formidable. He realizes his destiny and attains his goals in life.

“Trading is a performance skill like sports, the arts, medicine, etc. There are many world-class trading educators out there who’d be glad to show you effective and timeless trading principles. But do you have the discipline to learn and develop a method that works for you? Do you have what it takes to step up to the challenge, take risks, and do the work necessary to review and improve your trading? Also, can you control your emotions when, not if, you lose money? Once you have a game plan that works for you, will you still be able to stick to it day in and day out? How long it takes you to reach a level of competence in trading depends on the circumstances surrounding you and your level of discipline. It absolutely depends. The time it takes is really up to the time and effort you put in to learning and practice, and your situation in life. If you’re trained by someone who hasn’t found the secret to permanent success or doesn’t seem to know how to keep his account safe in the face of excruciatingly protracted losing streaks, then you’re going nowhere. It doesn’t pay much to learn from people that can’t trade. If you are constantly exposed to those who believe some entry system to be the magic solution rather than the real secret (the real secret has nothing to with a system that lets you know when to buy or sell), it may take you more than 10 years to be successful. This is because many people don’t know what they’re doing. Mike Bellafiore (co-founder of prop trading firm SMB Capital) says, "It is common for experienced traders to acknowledge that they did not know what they were doing until after three to five years." This is also true of any other performance skills. However, if you’re trained by those who know this secret, your learning curve would be sped up. It would take you shorter to master the art of trading. What you need to do, as quickly as possible is to hook up with people that actually trade successfully.

Success comes from inside. That means you must have the persona that successful traders have. While you’re journeying towards trading mastering and learning, your mindset must be prepared. If you like, you may recite the following in quiet surroundings. This may be done in every morning for the next 30 days. The recital is below:

1. I believe I’ll be exposed to the secret of permanent success in trading. I’m on my way to becoming a wealthy and financially independent trader.

2. I’m stepping into a state of peace of mind in the markets I’ll start doing what successful traders do As I learn the secret of successful trading, I’ll have the self control to carry it out.

3. Many market wizards were once failing in the markets, yet they adjusted their trading methods and moved on to the level of competence and trading mastery. I believe I’ll soon reach that level of competence and expertise. I’ll recover my lost glory in the financial markets. I’ll recover everything I’ve lost in a matter of a few years.

4. From now on, I imagine myself to be a market expert. I behave like an expert, make trading decisions like an expert, and control my risk and emotions like an expert.

5. All the emotional distractions that lead to suicide trading will no longer have power over me.

6. The reward for success is very attractive. I believe this will be my portion.

7. Nice and commendable annual returns will come to me regardless of the directions of the markets. So shall it be.

I wish you well in your trading and want to commend you for wanting to continue to learn and educate yourself to new ideas. If you are experienced in trading risk control and self-discipline then I hope this brings new meaning or refreshes your outlook. Successful trading principles are a treasure. They can show you: how to be the best trader you can be, the ways to survive anything that the markets will throw at you, and help you to learn about yourself and become a disciplined trader. Take responsibility for your survival. That’ll put you in control and will empower you to do something about your trading returns. The future of our trading career is loaded with great opportunities. We can’t afford to trade them away and we’ll not.

Conclusion: Trading is hard work normally, but in these volatile times of global economic uncertainties, individual traders need something really different to compete successfully. The articles in this series provide the edge that you can use in today’s unforgiving worldwide markets. They include tools to increase a trader’s insight into real-time market environments help them identify trading opportunities and further simplify the overall trading experience. As from the next month, this secret would be unfolded systematically. It’ll be one of the highlights of a global effort to reach out to avid traders who love trading and want to learn more about it. You’re invited to learn from us at FXInstructor.com.

This article is concluded with a quote from Jeff Cooper. It’s a beautiful description of trading:

“Trading is not about control. It is about going with the flow. Trading is not about knowing the future. It is about allowing the future to take place. Trading is observation, pure and experiential. Thinking is not necessary and just gets in the way. Trading is the glass half empty and the glass half full, alternating without rhyme or reason by the minute. Trading is total ruin and absolute reward; dual demons that lurk around every corner. Trading is an alluring distraction from life or a life raft on the stormy search for self. Trading is strangers offering up their most precious ideas. Trading is the clueless trying to offer ideas to their friends. Trading is your best friend who steals your spouse and your house. Trading can send us to hell or to paradise, but it always takes us somewhere we have never been. Trading is a blessing whose rules, if ignored, become a curse. Trading is taking a knife to a gunfight. Knives and guns leave traces of blood, but the logic of the market is the weapon that manages to destroy without leaving clues. The mountain of trading is in the mind as the lake is level. Trading is more about knowing when not to trade than it is about trading. Trading seeks equilibrium. Trading is learning a never ending balancing act on a tight wire above a moveable abyss. Trading is timing. Waiting is painful. Pain brings wisdom. Wisdom brings balance. Trading can be excruciatingly exciting when done wrong and tauntingly tedious when done right.”

NB: Please watch out for my coming articles with these titles: ‘Carry Trade Explained in a Layman’s Language’ ‘Questions Traders Ask – Part 1 (Should I Abandon My Strategy?)’ ‘The Joke about a Cough Medicine Applied to Trading,’ ‘Angry Traders,’Traits of Successful Traders,’ ‘How the MACD Generates Good Trading Signals,’ ‘A News Trading Strategy,’ ‘Analyze the Markets with the Aroon Indicator,’ ‘A Brief Introduction to Point and Figure Charts,’ ‘Does High Hit Rate Work Always?’ ‘My Typical Trading Day,’ ‘A Trader’s Trick Entry Technique – Sighting Golden Trading Opportunities,’ ‘Making Money out of Losses – A Blessing in Disguise,’ ‘Achieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),’ ‘Play the Markets Victoriously with Nano-cent Accounts,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘Trading Signals,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 3 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘A Hedge Funds Strategy,’ ‘My Hedge Funds Strategy Update,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers (2),’ ‘Best-case Scenarios – The Beauty of Trading,’ ‘Gap Trading Revisited,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses – Part 4 (Losses Aren’t Abnormal) ,’ ‘The True Holy Grail – The Long Sought for,’ ‘Forex Trading Vocabulary,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Before You Open that Trade,’ ‘Cogent Trading Biases,’ ‘Overview of My Signals Strategies – Can You Become a Super Trader?’ ‘Winning Trades, Losing Trades,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘I Can’t Express How Grateful I’m to You!’ ‘Yearly Trading Update (2012) – The Big Picture,’ ‘What We’ve Decided to Do in the Markets - Trend Following It Is!’ ‘Yearly Trading Results (2012)’ ‘Monthly Trading Report (December 2011),’ etc.

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

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Thursday, March 1, 2012

Weekly Trading Update (March 2, 2012)

“The journey to investment competence is a challenging yet potentially rewarding path, and we may see things of beauty along the way. It is inevitable that traders will experience loss and fear, frustration and self-doubt; but it is how these events are perceived and managed that determines a place among the 90-percent majority or ten percent of profitable traders.” – Mike Elvin

Hello:

This is an update on some of the movements in the markets and what I’m doing about them, plus my losses and profits. The analyses are based on 4-hour charts, looking at the overall price actions on the charts. My preferred leverage is 1:100 and my position size is 0.01 lots for each $2000 or 0.1 lots for each 20000 cents in a cent account (making it 0.5 lots for each 100000 cents). The risk per trade stands at 0.5%. The Stops are my insurance policy. For trading purposes, I’ve decided to do only trend-following; and only trend-following I’ll do. This kind of trading approach has stood the test of the time. I make my money somewhere in the middle of a trend. I open primary positions with a risk-to-reward of 1:2, riding the trend until the target is hit or I’m stopped out. The value of patience will forever be emphasized. As long as I stick to my rules and keep my risk low, I’m immune to fear.

Whenever a price is involved, supply and demand will dictate valuation at any point of time. If there’s more supply than demand, what’s to happen to price? It must fall. If there’s more demand than supply, what’s to happen to price? It must rise. If there’s a balance between supply and demand, what happens to price? It stays within a stable range. It then becomes a matter of simple logic to realize that if price enters into a strong demand area, it must rise. Likewise if price enters into a strong supply area, it must fall. Going back to a ranging market, it develops during a market phase where there’s a little uncertainty among market participants and neither bulls nor bears take the reins. It’s identified by a saw tooth pattern, because it fluctuates between support and resistance. In general, there’s a lack of important news, which would break one of these resistance/support levels. Both parties wait for the triggering signal. A range-speculation method has a very high hit rate and a very low stop level in general, but a low profit level as well.

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

AUDUSD

Primary Trend: Bullish

This pair is still in the bullish mode, but one would need to go long at a reasonable price or else one stands a chance of being stopped out even if the forecasted direction is right. The price is currently bouncing up after a short-term sell-off.

NZDUSD

Primary trend: Bullish

The upward bias on this pair is long-term. But long-term trends are usually accompanied by declining volatility. In order to reduce the possibility of being stopped out in a right direction, it’s good to buy low. Does this sound tart? No, it simply means it’s good to buy cheaper in the context of the present bullish trend.

AUDNZD

Primary trend: Bearish

In the present bearish scenario, the price keeps on edging higher and higher. The SMA 50 is still below the SMA 200, but the price has broken the former to the upside and is very close to the latter. The RSI 14 is above the level 50, supporting this view. The Stochastic 14,3,5 is almost in the overbought area. This could be another opportunity to sell short. However, if the price should break the SMA 200 to the upside, then it could be the start of a new trend.

EURCAD

Primary trend: Bullish

The price on this cross has fallen by over 300 pips since the beginning of this week. If this continues for a few more days, the bullish bias would be rendered invalid. This brings out an interesting point in the mechanics of the market. Whether it would be the last cycle of the trend that started last or not is still to be seen. Let’s hope the cycle of the strong bearish sell-off and panic isn’t followed this time and that the readjustments caused by this epic change in the price mechanics is as smooth as the fall of the Soviet Union in 1989.

EURNZD

Primary trend: Bearish

The previously bullish trend on this cross is no longer valid. The SMA 50 has crossed the SMA 200 to the upside, and the price is above the latter. Nevertheless, the ADX 20 is far below the level 20 – showing a currently quiet market. +DI is trying to go over -DI. Yes, this could be the beginning of a new trend.

GBPCHF

Primary trend: Bearish

There’s presently a strong rally in the context of the current bearish bias. If this rally fails at an important resistance level, say 1.4400 or 1.4500, it may be a signal to sell at an expensive price. Expert traders know when to hold on and when to let go. You’re implored to stick to trading: you’ll soon find yourself in a position of an expert.

Conclusion: Humility is essential. The line between conviction and stubbornness is so fine that it’s often invisible. Once crossed, the damage can spiral quickly out of control. This is why humility should be the essence of any trade. It’s okay to admit when you can’t figure out what the market is doing. The goal isn’t to trade more and trade everything. Quite the opposite, it’s to trade less for more gains. Quality overrides quantity. Humility is liberating because it takes the pressure off and relieves tension. It’s a misguided belief that you must know what’s happening at all the time. The first thing any trader needs to acknowledge is that they’re just a midget, in a land of giants. The dinosaurs move the markets. Dinosaurs don’t walk in the sand without leaving footprints. Knowing when the environment is worthless is how you gain an awareness of when an environment is fertile. It’s the contrast that you intuitively have to be able to spot.

This article is ended by quotes from Mike Elvin:

1. “There are very few occupations that require the determination, strength, courage and integrity of beliefs as does trading. Traders have only their knowledge and courage – in essence, we are on our own before the computer screen.”

2. “Having discussed the downside of market investment, there is also an optimistic and rewarding element. There are many traders who make regular profits from their homes and brokers who are highly skilled and committed to providing a quality service. A common attribute of successful traders is their belief in the successful trading rules – and the personal responsibility they take for all investment decisions. Trading success requires a set of skills that enables traders to think clearly under stressful conditions, to make intelligent decisions devoid of perceptual and emotional biases and to keep control of money in their account. The successful trading rules make explicit the requirement of self-awareness and self management, two important (yet neglected) domains of emotional intelligence.” – [paraphrase]

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

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If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

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

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