GBP USD CLOSE TO WEEKLY RANGE - forex trading system rules

GBP USD CLOSE TO WEEKLY RANGE ~ forex trading system rules

The GBP USD has been moving in step with the EURO USD as both pairs decline in sync with strong gains for the Greenback across the Forex market.  Similar to the EURO USD, the Sterling pair is closing in on its Weekly Range target which lies only 120 pips away. When that area is hit in the next few days, we could see a temporary pullback or consolidation take place before the downtrend continues. On the other hand, the slow and staggered nature of the downtrend also points to the possibility of a large Range being formed in the months ahead.

Daily Chart below shows that the pair is very close to hitting its first Weekly Range target of the new downtrend.

DAILY CHART

Within a very short time after hitting this price area, we could see one of two alternate scenarios unfolding.

SCENARIO 1

• A Pullback/Small Consolidation;
• New Bearish Signal to Continue Downtrend;

If the downtrend is going to continue in the next few weeks, we could either have a temporary pullback or a small consolidation being formed. This will then give way to another bearish signal to resume the existing trend direction.

DAILY CHART

  

After resuming the trend, the currency pair will decline until the 2nd Weekly Range Target is hit.

SCENARIO 2

• A Rally that starts a Consolidation;

The slow nature of the downtrend suggests that a Consolidation could also be formed over the next few months. If this is going to take the form of a Range, then the Weekly Range target that will be hit would represent the Support boundary of that Range.

DAILY CHART

 

Only time and traders will show us what actually transpires in the next few days. However, given the manner in which currency pairs behave based on the types of candles and their Weekly Range, these are likely to be the scenarios to look out for going forward.

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Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

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EURO USD MAJOR DECLINE TO SUPPORT AT 1 2154 - forex trading renko system

EURO USD MAJOR DECLINE TO SUPPORT AT 1 2154 ~ forex trading renko system

As the EURO USD continues to decline, a temporary pullback appears to be on the horizon in the next few days as the pair approaches its 2nd Weekly Range price target. Since this area will also coincide with the Monthly Range also being hit, a significant rally or consolidation is expected after that price point is reached. Following this pause in the downtrend, gains for the USD will resume as it sets its sight on the major Support area of 1,2154.

The first graph below shows that we are just about 100 Pips away from the 2nd Weekly Range and the Monthly Range being hit. Based on the average Weekly Range of the EURO USD, this target is expected to be at the 1,3307 area.

DAILY CHART

 

In most cases, currency pairs tend to pullback or go through a period of consolidation when the 2nd Weekly Range is hit. At that area, they will either start a new trend or resume the existing trend with another strong setup and signal. With this new downtrend having been formed with the break of the Inner and Outer Trend Lines of the uptrend started in July of 2012, a continuation in the current direction is expected.

DAILY CHART

This new trend has also led to a break back inside of the Resistance of the large Pennant setup. We are therefore likely to see a long-term decline to the Support area at 1,2154, over 1,200 Pips away.

DAILY CHART

Along the way, the market is expected to pullback at major past Support areas that can also be used as profit-taking targets. Some traders who trade against the trend will also be buying at these areas, while others will be selling as the pullbacks give way to the resumption of the strong long-term downtrend.

DAILY CHART

In trading these movements in the direction of the trend, one must ensure that the setups and signals are strong and clear enough. Naturally I recommend the setups in my Trading Manual based on Price Action, but if you are a Day Trader and/or someone who uses indicators, ensure that your analysis is spot on to capture the large number of pips that will be on offer over the next few months.

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Duane Shepherd 

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Currency Analyst/Trader

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Twitter: @WorldWide876

Facebook: DRFXTRADING 

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Psychological Mistake 1 The Need To Be Right - forex trading pro system free download

Psychological Mistake 1 The Need To Be Right ~ forex trading pro system free download

Ever since we started going to school, our educational systems have almost always measured our success based on how often we are right. In all the examinations, the number of right answers we give determines our grades. As such, we live in a culture that thrives on being right as often as possible. We have been taught to not make mistakes. Being right has almost become a necessity, because it seems to be closely tied to how we are being measured, and our egos seem to be at stake when we make major decisions and are judged based on how right or wrong these decisions turn out to be.

Such a psychological "need" becomes even more apparent when we make financial decisions. Perhaps this is because we live in a money-saturated culture that often measures our worth based on our financial status. When trading the Forex market, this psychological need is, very often, counter-productive to our trading success. This "need to be right" is rooted in the fact that humans are driven by instant gratification, i.e. we would like to experience the immediate joy of taking a small profit, and delay the pain of taking a loss.

Just imagine that you are given a choice between the following two scenarios. Which would you choose?

1. A sure loss of 20%, or
2. A 5% chance of no loss at all, plus a 95% chance of a 25% loss.

Most people will prefer the second option. This is because most people naturally refuse to "cut their losses short". Taking the second option (which is actually more risky) implies that people naturally hope that losses will stop and that the market will turn back in their favour. This causes people to hold on to losses even when the market does not turn back.

The psychological trap is such that the worse the loss becomes, the more unwilling we are to take it. Many traders are therefore ultimately being forced to take the loss when it becomes too painful. Instead of losing a mere 3% of their account balances, they end up losing 20%, 30% or even more. If the trader has been "discipline" enough to take that 3% loss based on a pre-defined exit point, he would have been able to catch profitable trades in the opposite direction when the price continued downwards.

Consider another similar scenario, where you are given a choice between two options as follows:

1. A sure gain of 20%, or
2. A 5% chance of no gain at all, plus a 95% chance of a 25% gain.

Which one would you go for?

If you are like most people who do not guard themselves against human psychological biases, you will choose the first option this time, i.e. you would prefer to take a sure gain, rather than to take a risky bet for a greater gain.

Once we have a sure gain in our hands, we tend to be afraid of seeing the profits disappearing away. We take the profits at any signs of reversals, even when our trading strategy has not given us an exit signal. By developing a habit of taking profits too soon, i.e. before the pre-defined profit target is reached, we end up short-changing ourselves in the long term.

So, what do the two scenarios illustrate?

The first scenario illustrates how we tend to be more risk-seeking in losing positions. While hoping that losses will turn to small profits or even just reach the break-even point, we are willing to see losses become bigger "for the time being". This behaviour is rooted in a psychological need, for it delays the immediate pain of taking a loss.

The second scenario illustrates how we tend to be more risk-averse in winning positions. We are afraid to see profits disappear, and are unwilling to "take the risk" to maximise our profits when strong trends are identified. This behaviour is rooted in our need to immediately experience the pleasure of taking a profit.

Think carefully about what happens when you repeatedly allow these two scenarios to happen in your trading journey. Inevitably, you will realise that your profits are not going to be enough to cover for your losses in the long run. This is why some traders can have very high success rates, and yet end up losing money!

These psychological responses to winning and losing positions are due to our distorted need to be right in every trade that we take. For most traders, being right naturally means not losing money in the trade. If we do not consciously overcome such dispositions, we find ourselves driven by a very short-sighted desire to force every trade to be a winner. This is why many Forex traders often operate in a "fire-fighting" state of mind, constantly watching their positions and attempting to "salvage" every trade by ensuring it does not become a loss.

We need to understand that being right does not simply mean not losing money. Some losing trades can indeed be valid ones, whereas some winning trades can be "wrong" in the sense that they are based on rash guesses and bad risk management. Being short-sighted and trying to make every trade a winner (even when the market has invalidated the trade by turning against us by a certain amount) will do more harm than good in the long term. When we learn to think in terms of probabilities, understanding that they work out over a large number of trades, we become far more comfortable about taking a small loss, and then moving on to the next trading opportunity.
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Implementing stock strategies using options - forex trading strategies tutorial

Implementing stock strategies using options ~ forex trading strategies tutorial

There are many stock trading strategies that are quite attractive in terms of Sharpe ratios, but not very attractive in terms of returns. (Pairs trading comes to mind. But in general, any market neutral strategy suffers from this problem.)  Certainly, one cannot feed a family with annualized returns in the single or low double digits, unless one already has millions of dollars of capital. One way to solve this dilemma is of course to join a proprietary trading group, where we would have access to perhaps x30 leverage. Another way is to implement a stock trading strategy using options instead, though there are a sizable number of issues to consider. (I recently brushed up on my options know-how by reading the popular "Options as a Strategic Investment".)

1. Using options will allow you to increase your leverage beyond the Reg T x2 leverage (or even the day trading x4 leverage) only if you buy options only, but not selling them. For example, to implement a pairs trading strategy on 2 different stocks, you would have to buy call options on the long side, and buy put options on the short side (but not sell call options). Otherwise the margin requirement for selling calls is as onerous as shorting the underlying stock itself.
2. The effective leverage is computed by multiplying the delta of the option by the underlying stock price divided by the option premium. If you buy an out-of-money (OTM) option, the delta will be small (smaller than 0.5), but the option premium is small also. Vice versa for an in-the-money (ITM) option. So you would have to find the optimal strike price so that the effective leverage is maximized. I personally choose to buy an at-the-money (ATM) call or slightly ITM call without actually computing the optimized strike, but perhaps you have reached a different conclusion?
3. Naturally, the shorter the time-to-expiration, the cheaper the option and higher the effective leverage. Additionally, for ITM options, their deltas increase as we get closer to expiration, which also contributes to higher effective leverage. However, the time-to-expiration must of course be longer than the expected holding period of your position, otherwise you would incur the transaction cost of rolling over to the further-month options.
4. The discussion of finding the right strike price based on its delta is moot if your brokerages API does not provide you with delta for your automated trading system. In theory, Interactive Brokerss API provide deltas for whole options chains, and quant2ibs MATLAB API will pass these on to your MATLAB exeuction program too. However, I have not been successful in retrieving deltas using quant2ibs API. If you have encountered a similar problem, and perhaps have found the reason/cure for this, please let me know. For now, I am reduced to assuming that all my near ATM calls for different stocks have the same delta, and I increase this common value from 0.5 to close to 1 as time passes.
5. Options dont have MOO, LOO, MOC or LOC order types. If one uses market orders to buy at the open or close, one would incur significant transaction costs due to the much wider bid-ask spread compared to stocks. I try to use limit orders on options orders as much as possible.

If you have used options to implement stock trading strategies, and have experiences with these or other issues, please do share them here.

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Reminder: my next pairs trading workshop will take place in New York on October 26-27th.
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Essential Trading Principles Every Trader Should Know Part 1 - yin yang forex trading system download

Essential Trading Principles Every Trader Should Know Part 1 ~ yin yang forex trading system download

Firstly, I would like to wish all visitors a Merry Christmas and Happy New Year! As the new year approaches, we would have made some resolutions to be achieved. And if profitable trading is one of your resolutions, then make sure you understand and acknowledge the following trading principles that I would like to share.

Over the many years of trading, I have found certain principles to be true. Understanding and using these basic principles provides an anchor of sanity when trading in a crazy world. Whenever I find myself under stress, questioning my judgement or my ability to trade successfully, I pull out these basic trading principles and review them.

Don’t Try to Predict the Future
I used to think that there were experts and geniuses out there who knew what was going to happen in the markets. I thought that these traders and market gurus were successful because they had figured out how to predict the markets. Of course, the obvious question is that if they were such good traders, and if they knew where the market was going, why were they teaching trading techniques, selling strategies and indicators, and writing newsletters? Why weren’t they rich? Why weren’t they flying to the seminars on their Lear Jets?

No One Knows Where The Market Is Going
It took me a long time to figure out that no one really understands why the market does what it does or where it’s going. It’s a delusion to think that you or any one else can know where the market is going. I have sat through hundreds of hours of seminars in which the presenter made it seem as if he or she had some secret method of divining where the markets were going. Either they were deluded or they were putting us on. I have seen many complex Fibonacci measuring methods for determining how high or low the market would move, how much a market would retrace its latest big move, and when to buy or sell based on this analysis. None has ever made consistent money for me.

No One Knows When The Market Will Move
It also has taken me a long time to understand that no one knows when the market will move. There are many individuals who write newsletters and/or books, or teach seminars, who will tell you that they know when the market will move. Most Elliott Wave practitioners, cycle experts, or Fibonacci time traders will try to predict when the market will move, presumably in the direction they have also predicted.

I personally have not been able to figure out how to know when the market is going to move. And you know what? When I tried to predict, I was usually wrong, and I invariably missed the big move I was anticipating, because “it wasn’t time.” It was when I finally concluded that I would never be able to predict when the market will move that I started to be more successful in my trading. My frustration level declined dramatically, and I was at peace knowing that it was OK not to be able to predict or understand the markets.

Market Experts Aren’t Magicians
Some of the experts that try to predict the markets actually make money trading the markets; however, they don’t make money because they have predicted the market correctly, they make money because they have traded the market correctly. There is a huge difference between trading correctly and making an accurate market prediction. In the final analysis, predicting the market is not what’s important. What is important is using sound trading practices. And if sound trading habits are all that is important, there is no reason to try to predict the markets in the first place. This is the reason strategy trading makes so much sense.

Successful Traders Have Trading Discipline
I have watched many market gurus continually make incorrect market predictions and still break even or make a little money because they have followed a disciplined approach to trading. It is these principles that make the money, not the prediction. To be a disciplined trader, you have to know how and why to enter the market, when to exit the market, and where to place your money management stops. You need to manage your risk and maximize your cash flow.

A sound trading strategy includes entries, exits, and stops as well as sound cash management strategies. Even the market gurus and famous traders don’t make money from their predictions, they make it from proper trading discipline. Over the years, they have learned the discipline to control their risk through money management. They have learned to take the trades as they come, and not forgo a trade because they are second-guessing their strategy or the market. These are the same practices that you must learn to include in your trading strategy.

Successful Traders Profit From Sound Money Management and Risk Control
Sound money management and risk control are the keys to being a profitable trader. I will say over and over again, it is not the prediction or the latest and greatest indicator that makes the profit in trading, it is how you apply sound trading discipline with superior cash management and risk control that makes the difference between success and failure. The key to profits in trading is not in the prediction or the indicator, but how well the trading strategy is designed and executed.

The ability to achieve risk control and cash management will make the difference between a successful trader and an unsuccessful trader. If you ever have the opportunity to watch a successful trader, you will see that they don’t worry about where the market is going or about predicting when the next big move will take place. They aren’t looking to tweak their indicator. They are worried about their risk on each trade. Is the trade being executed correctly? How much of their total account is at risk? Are the stops in the right place? And so on.

Successful Traders Do Not Have Superior Performance Numbers
If you want to have some fun, look at the performance of a successful market expert, one who is known for his or her market predictions and trading expertise. You will find that their performance numbers really aren’t any better than an average trading strategy. The percentage of profitable trades, the return on the account, average profit to average loss, number of losing trades in a row…all of these trading parameters are within the average trading strategy performance parameters.

Why is this? Because you can’t predict where the market will go and when it will move. But if you use correct strategic trading disciplines, you will make money whether you try to predict the market or just trade a good strategy. You might as well save yourself a lot of time, energy, and mental anguish and trade a good strategy.

Be In Harmony with the Market
We make money trading when we are in harmony with the market. We are long when the market is going up, and short (or out of) the market when it is going down. If we bring an opinion with us while trading, we will end up fighting the market. We keep trying to go long as the market is declining, or we keep shorting a market that it is in a bull phase.

Never Fight The Market
Fighting the market is not good for two reasons. First, we lose money. How much we lose depends on how well we are managing our money and controlling our risk. Second, fighting the market affects our judgment, and causes us to try to confirm that our judgment is correct, or persist in fighting a trend so that we will eventually prove to be correct. We figure that if we persist long enough, no matter how long it takes, we will eventually be right. Even if you ultimately make money fighting the market, it is not worth the price you have to pay, both financially and with peace of mind.

Let The Market Tell You What To Do And When
The correct attitude for successful trading is to let the market tell you what to do. If the market says to go long, buy, and if it starts to go down, sell. This sounds easy but it is much more difficult than you think. We always like to believe that we can be in control. We want to be in control of our trading and of the market. If you accept the notion right now that you cannot control the market, that all you can control is your execution of trades, you will take a great step toward being a successful trader.

Instead of trying to control the market, let the market tell you what to do. Let the market and your strategy take you long rather than you personally trying to predict or decide when to go long. Let your strategy take you out or get you short. Once you realize that you can’t understand the market, and that you can’t predict when the market will move, you will move into that detached state of mind where you let the market take you where it will when it wants to.

The Market Gives And Takes Away
To remove your personal biases and let the market tell you what to do is to give up control, to give up the notion that you are actually in charge of how much money you make. For profitable trading, you need to move into the mental state of letting the market determine the profits, not you. It won’t be whether you predict the market correctly that determines the profits, but whether your strategy is in a profitable mode or drawdown mode as determined by the market.

So, let the markets tell you what to do based on your strategy. Let it get you long and put you short. Let the market determine how much money you are going to make. Trade your strategy and let the market do the rest. And know that the market gives money and the market takes away money. Your goal should be to develop a strategy that gives you more money than it takes away.
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Are flash orders to be blamed for Dows 1 000 points drop - forex trading methods that work

Are flash orders to be blamed for Dows 1 000 points drop ~ forex trading methods that work

Before the smoke is clear, fingers are already pointing at flash orders. See these two NYT pieces here and here. Our reader Madan has convinced me previously that flash orders can indeed be used to  front-run other traders, but until more evidence comes in, I am yet to be convinced that they are the main culprit. Couldnt old-fashioned automated momentum programs accomplished the same thing after an initial erroneous transaction price and/or quote was reported? Perhaps you know of discussions elsewhere on the blogosphere that bring more light to the issue?
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