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  • September 13, 2019 03:10:28 PM
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Forex Fiili offers valuable free valuable tradings tips on forex trading for aspiring forex traders.

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How to Smile All the Way To The Bank Trading Pullbacks In a Trend

Hello and welcome to another edition of the bulls vs the bears. Today we are going to learn how to smile a little bit. We are going to learn how to smile all the to the bank trading pullbacks in a trend. Trading pullbacks in a trend is one trading strategy that has stood the...

Hello and welcome to another edition of the bulls vs the bears. Today we are going to learn how to smile a little bit. We are going to learn how to smile all the to the bank trading pullbacks in a trend. Trading pullbacks in a trend is one trading strategy that has stood the test of time. I can imagine somebody asking”Well, what’s so special about trading the pullback? Well just like any other strategy you make your entry in the market after confirming the direction of the trend. This way you don’t make your entry on a crazy whim and risk the market doing a nasty 360 on you.

If you want to successfully  trade the pullback you need to cultivate the mentality of a sharpshooter. Just like a sharpshooter, you wait for hours if not days for the  trade setup to take shape before pulling the trigger. Even more important you need to identify the point where the retracement move is likely to end. Because if you miss it, you miss out on a lot of cash.

So before we dive into how to trade the pullback  we are going to answer a few questions starting with:

What’s The Whole Idea Behind The PullBack Strategy?

Well the whole idea behind the pullback strategy is to buy low during the uptrend and sell high during the downtrend. You put your stop losscloser to your entry instead of placing your order in the direction of the trend.

Now before we get into illustrations of trading the pullback, there is a burning question that needs answered. And it is:

Why is The Trend The Trader’s Best Friend?

I’m sure most of you have heard the famous forex”The Trend Is Your Best Friend.” Newsflash!The trend is your only friend until it runs out of gas.

Anyways back to the main question. You see while most of the major forex players have access to all the current forex information, the forex market is pretty much in consolidation mode. Forex player pretty much take a breather trying to figure out their next moves. However things get very interesting when press releases about economic fundamentals are released. If the data differs from that of the forex market, expect to see significant price movements. Why? that’s because the forex market is trying to make sense of the new information to find a new alignment.

Now once price establishes a trend by pushing price up or down, traders start taking their profits and head for the exit. Their mindset is  price cannot for any higher or lower than it is now or they just want to save their hard earned cash. Better safe than sorry. Right?Anyways regardless of the traders, motives, they affect the trade’s momentum, causing the pullbacks that we see on the market.

There are two things you need to know about  pullbacks. First off they show up at a previous consolidation zone or pivot point on the price action chart. Second pullbacks test a previous support and resistance level. Now a lot of forex traders place their orders around this support and resistance area since they’ve seen these levels convert into pivot zones.

Consequently when a pullback of the trend touches these price levels, accompanied by market orders, the market sparks a resumption of the trend(Getting the picture now?). If the opposite happens, both support and resistance levels get breached, resulting in a deadly trend reversal.

If you are getting started as a trader I suggest you kick off with trading pullbacks rather venturing in the unknown with reverse trends. I assure you will be eaten alive trading countertrends. The good thing about trading pullbacks is that even if the price goes beyond your entry You get a second crack at a missed signal. As you get comfortable trading pullbacks you can now make the transition to more complex strategies to complement your pullback trading.

Now that we’ve identified why the trend  let’s get into how to trade pullbacka The first step is to trading pullbacks is:

Identify The Trend

Of course you should be able to identify the trend if you want to perfect the art of trading pullbacks. If the price on the left is lower than the price on the right and creating higher highs and higher lows, you have yourself an uptrend. You can’t  miss it. Y However, if the price on the left is higher than that of the right you have yourself a downtrend. You can’t miss either of the two.  can also employ the use of moving averages to confirm a trend when a crossover is in effect. You can also use the crossover to confirm a pullback resuming the prevailing trend. Let’s look at an illustration using the GBPUSD pair.GBPUSD-Moving-Average-Trend-Identification-Uptrend

The green line suggests the bulls are powering the GBP USD pair upwards. However, the addition of two moving averages  colored in red(13 EMA and 21 EMA)  confirmthe temporary momentum in the market.

Notice how the red EMA crosses the green EMA. That’s the pullback we’ve been talking about. However, the GBP ends and the uptrend resumes his journey when the red EMA crosses back above the green EMA(as indicated by the red arrow).

Now let’s look at an illustration of trading the pullback in the  downtrend  again using moving averages

GBPUSD-Moving-Average-Trend-Identification-Downtrend

We see a similar scenario in the downtrend. Just like the uptrend, red EMA crosses above the green EMA, signalling a pullback. As soon as  red EMA crosses below green EMA, it signals the end of the GBUSD pullback and the resumption of the downtrend.

Unfortunately there is one major stumbling block when using crossovers. You see, crossovers only take shape if the pullback momentum is strong, as was the case in the first scenario. The trend then resumes, leaving you acting like a deer stuck in the headlights. You start wondering whether whether to enter the market or not, which shouldn’t be the case especially if you have a solid trading edge.

Even worse, the EMA starts to lag as an indicator. Such that by the time it generatesthe signal,the market may have you buy and moved in the opposite direction of the prevailing trend.

Consequently the risk to reward ration of your trade also takes a substantial hit. In that case, you’d be better off trying to identify a potential reversal area during a pullback and using better price action analysis to place your trades.

For more information on moving averages look up We Moving Averages Parts I and II

Next up is

Identify Potential Pullback Reversal Area

Another way of trading the pullback in a prevailing trend is identifying a potential pullback reversal area. If you are familiar with support and resistance analysis you would know that old resistance turns into new support and  old support turns into new resistance. Let’s take a look at an illustration using the GBPUSD pair

Identify-Pullback-Reversal-Area

Initially GBPUSD run into strong resistance at the 1.5750 mark twice. Once price breaks through this level we witness the first pullback finding solid support at this level.. These old support levels are a convenient place to place your limit orders on the side of the prevailing trend.

Just place  your limit order a few pips above the old resistance, and you should earn yourself a decen trisk to reward ratio in the ensuing breakout. This only works if the pullback doesn’t penetrate below the pivot line.

Now let’s look at another illustration of potential pullback reversal zones using the Fibonacci retracement levels.

04-Fibonacci-Pullback

As you can see  Fibonacci retracement levels are also  very useful in identifying  potential pullback reversal areas.  Here we draw two Fibonacci retracement levels on the same uptrend at different levels using two different colors. The green colored retracement levels identify the first swing point while the red color retracement level spots the second swing point.

Notice how price pulled back to the 23.6 Fibonacci level after the first upsurge. Price then pulls back to the 38.2 retracement level after the second upswing. Price then resumes its upward climb.  When you make use of the Fibonacci tool whenever price carves a new high during aan uptrend, and a new low during the downtrend you will find that price defers to the retracement levels. Also Fibonacci levels act as support and resistance levels in disguise. You can also find confluence signals from both support and resistance levels and a Fibonacci resistance levels. And when you find these signals you have yourself a high probability setup.

For more information Fibonacci retracements look up Lighting Up Candlesticks with Fibonacci Retracements

And Finally:

Best Strategy For Entering The Market After A Pullback

One recommended strategy for entering the market after a pullback is the use of price action patterns such as a pin bar or engulfing patterns. When you find these two patterns near a previous support or resistance, or near a moving average, that is confirmation that the pullback is ending and the trend is about to resume, Let’s take a look at an illustration using the GBPUSD pair.

Price-Action-Enter-Market.-pullpack-trading

Here the moving average and the downward trendline tell us of an ongoing downtrend. Once that ‘s confirmed we then see strong resistance at the 1.5750 level as the GBPUSD pair get rejected a few times. Please do not jump into the lion’s den blindly. Just wait  for the bearish pin bar to make its appearance to tell you that the pullback has run out of steam.

The pin bar makes its entry when prices breaches below the low of the pin bar. And when that happens expect to make decent profits with minimum risk and fuss.

Understand that when trading pullbacks you are making use of the power of confluence and increasing your odds of making a profit.A combination of existing trend support and resistance, and price action patterns, cuts down your risk and increases your profits in the process

For more information on trading pullbacks  look up Trading The Pullback With Panache

That’s  a wrap for ” How to Smile All the Way To The Bank Trading Pullbacks In a Trend”  Trading pullbacks with a multiplicity of factors sets you up to trade high. However you need to a clearly defined trading trading strategy that identifies your trading edge.

Your  trading edge outlines the circumstances under which you will  enter the market. Instead of jumping into the deep end just wait for confirmation after identifying a trend and a potential reversal zone.When you sit and wait you are in absolute control of your trading situation. You decide where to place your stop loss and where to exit the trade. Do this, and you will be smiling all the way to the bank

Til next time take care

Open Live  Forex Trading Account 

If you’re looking to open a live trading account sign with EasyMarkets


How To Cultivate The Right Mindset For Forex Trading

Hello and welcome to another edition of the bull vs the bears. Today We are going to talk about having the right mindset for forex trading.  Inn short we will be looking into the psychology of forex trading. If anybody ever tells you that prosperity in the forex market depends on your forex strategy ,...

Hello and welcome to another edition of the bull vs the bears. Today We are going to talk about having the right mindset for forex trading.  Inn short we will be looking into the psychology of forex trading.

If anybody ever tells you that prosperity in the forex market depends on your forex strategy , Ask that person” What have you been smoking?” Yes a solid forex strategy helps but that’s partly the story. you see success as a forex trader largely depends on having the correct trading mindset, your thought process and the way you respond to the movement of the forex markets. If  you go about chasing after the hottest trading bot or fancy indicator you are going to be sorely disappointed You should rather be focusing on cultivating a positive mindset and managing your trades and emotions properly. If you fail to do these two things you will just be chasing the shadows of the market and you will hemorrhage  a ton of money too.

The first question we need to ask ourself is:

Why Do Most Forex Traders Lose Money?

The answer is very simple. Most forex traders have this weird fantasy of making millions overnight.T  Consequently they  lose  all their money, leaving a nuclear-sized crater in their trading accounts. This mindset comes about as a result of unbearable pressure the put on themselves to  make these huge profits. And when you start out trading this way, you react with your emotions instead of thinking logically. Naturally youb end up blowing your trading account.

The next question you need to ask yourself is

What Emotions Should You Avoid While Trading?

Here are some toxic emotions you need to avoid like  the plague while trading.

First off:

Greed

If you act like a greedy price you will in all likelihood lose your money. The greed comes in when you don’t take your profits  Don’t make th costly mistake of not taking the profits because you think  the trade is going to run forever in your favor. The forex market  can do a 360 on you at any time. That’s why   the take profit option is there for you to make the exit when you price hits your target.

Another habit you should avoid is adding to your trading position simply because the market has moved in your favor. You only add to your trading position if it’s founded on price action logic. Anything else is just pure greed. Of course risking too much on one trade is also born out of greed. Too much greed will most certainly blow up your account.

Next up is :

Fear

Fear can hit you two ways. First it can hit you if you are just entering the forex market for the first time and have not yet developed a trading strategy on which you place your trades. Even worse, fear can also grip you when you lose successive trades or when you  sustain a loss so large that you suffer a humongous emotional breakdown, h

Now I can hear someone asking”How do I overcome those demons lingering in my head?”First of make sure  you decide how much you can afford to part company with in the event that you lose a trade. This is very important because the losses are going to happen. Just make sure you get that through your head. Once you get that sorted out you are able to move on when you lose a trade. There is one thing you need to understand about fear. Fear causes you to miss out on great trading opportunities. If  you want to take advantage of these trading opportunities, get rid of those demons in your head.

Revenge

How many times have you said to yourself”I’m going to get back at you guys for blowing up my trade?” Listen,  don’t blame it on the forex market. The thing is there are no guarantees that every trade that you enter in will be a winning trade. This why you need to develop a trading edge. If your trading edge doesn’t exist don’t trade. It’s a simple formula most traders just don’t seem to apply. Now don’t ask me why because I have no idea either.

Also revenge is also borne out of a need to jump back into the market to make  for what you lost on the market. Of course this will result into a loss more humongous than the previous loss, a loss largely based on emotional rather than logical trading.

Next up is:

Euphoria

Dont get me wrong! I have nothing against Euphoria. In fact euphoria is a good thing. But it can also work against you especially when you make a huge profit or you chalk consecutive winning trades. Overconfidence kicks in and all of a sudden you become swollen headed , thinking that you are the biggest thing since corn bread. Then all of a sudden, you experience back to back losses  and you are like “Hey what’s going on here.”

Of course you are tempted to jump  back into the market to make up for your losses(See a pattern developing here?). That’s your emotions going into whiplash mode after suffering those humongous  losses. You are so overconfident you fail to see the red flags  teling you that any trade can be lost. Like I mentioned earlier if you have your high probability trading edge, you should be able to make a fair amount of profit in the long term. Just make sure you apply discipline and patience. To borrow a line of a m song by legendary R&B group Midnight Star, Don’t force it. Just chill out and let it flow.

Now that we’ve gotten the emotional cancers out of the way, it’s off to the question of the day. Which is

How Do I cultivate The Right Trading Mindset?

The first thing you need to do is:

Know Your Trading Edge and Master It

You need to know your trading edge like the back of your hand. Your trading edge is your set of conditions that have to be present on the market for you to part with your money. That gives you that mental edge over the other traders. You can’t be sitting there waiting for the market to part the the Red sea before you make your entry.

Here is a very simple  piece of advice a veteran trader gave me  a few months ago.  She simply said “If your trading edge is not present on the market don’t trade.” It’s as simple as that.

Next up is:

Manage Your Risk Properly

If you value your cash you’d do well to manage your risk properly. If you do not control your risk on all your trades emotions take over your brain. And when that happens you know disaster starts knocking on your door. What’s so scary about emotional trading is that you are don’t even realize your emotions are kicking in. It’s like  an adrenaline flood. You’re just gambling instead of making use of  a well thought out trading strategy.

So how do you avoid trading emotionally? Only risk money you can afford to part company with per each trade.  Go into the trade with the mindset that you could lose on a given trade given what you know about the forex market. When  you get that sorted in your mind you won’t cry over spilt milk that often.

Next up is

Do Not Over-Trade

I cannnot stress this enough. over-trading will most certainly destroy your trading account. Like I mentioned a few minutes ago, only trade when your trading edge is present. Don’t trade when you feel like it or when you are only 50% sure your trading edge is present on the market. If your mind starts wavering, the market will most certainly make you pay for your uncertainty.

Once your emotions kick in they are hard to stop. It’s like an onrushing flood. Just apply  logic and your emotions will leave you alone.

Get Yourself Organized

If you want to prosper as a forex trader you absolutely have to get yourself organized. You need to develop a trading plan and apply religiously. Treat t forex trading as a business instead of a Las Vegas Casino. There should be a method to every trade that you place on the market. Even more important, stay calm. Don’t get carried away with your emotions.  Every trade must be thought out before you make your entry. Once you accomplish that, the demons will stay out of your way.

That’s  a wrap for ”How To Cultivate The Right Mindset For Forex Trading .”  You absolutely need  a solid mindset to succeed as a forex trader. You cannot approach forex trading with a gambler’s mentality or else you’ll lose heavily. Forex trading is a business just like any other enterprise. You must be calculating in all your trades. You must  be purposeful with every trade rather letting the  chips fall where they may. It could be the difference between prosperity and poverty.

Til next time take care

Open Live  Forex Trading Account 

If you’re looking to open a live trading account sign with EasyMarkets


Six Retracement Entry Types You Must Know For Your Own Good

Hello and welcome to another edition of the bulls vs the bears. Last time we looked at five support and resistance types you absolutely must know Today we are going  take a look at six retracement entry types  you have to know for your own good. It’s absolutely important that you know these powerful patterns....

Hello and welcome to another edition of the bulls vs the bears. Last time we looked at five support and resistance types you absolutely must know Today we are going  take a look at six retracement entry types  you have to know for your own good. It’s absolutely important that you know these powerful patterns. Why? Because they are like shooting stars. IF you miss them, you may never see them again.

If you truly are a forex trader you should have come across the term retracement entry, Retracement entries are absolutely so important it will be in your best interests to take advantage of these powerful chart patterns. But if you haven’t come across retracement  patterns don’t worry. By  the end of this post your understanding of these patterns would have been so illuminating that there is no way you are going to pass up on profiting from these entries. I guess the question most of you are dying to ask is:

What is a Retracement Pattern?

Well  a retracement pattern is   when price pulls back on a recent move, be it up or down. Ever found  your in a situation where you’ve lost keys and had to retrace your steps to establish where you last saw them? It’s the ame concept here in that the retracement entry is the reversal of a recent price move.

 Why are Retracements Important?

Well they represent the greatest opportunity ever to enter the market at a decent price. Even more importand retracement entries make room for the all important stop loss, better risk reward and much more. A retrace entry is more conservatiove compared to your typical market entry and is a much safer bet.

So your objective as a forex trader is get the best entry price and manage your risk as best as you can. At the same time time you must also aim towards humongous returns. The retracement entry will most certainly help you accomplish these tree objective. However, let me sound a note of caution. There are pros and cont so tusing these retracement entries. So we’ll look at both sides starting with the

Pros of Retracement Trading

High Probability Trades

One exciting benefit of trading retracements is the possibility of catching high probability signals. These high probability signals  occurr right after the end of  theretracement entries. You absolutely have to take advantage of these high probability signals because they can go for weeks sometimes months if you get the direction right.

Markets usually  go back to the average price over and over again. This becomes much clearer after you have looked at the price charts for a few minutes. So when you see the retrace repeating itself over and over again,  your mind should tell you”This looks like a high probability signal. Get ready to make your entry.”

Flexible Stop Loss Placement

Retracement trades allows  for flexible stop loss placement.  Just make sure you place the stop loss as far away as possible from any where in the chart that is likely to suffer a humongous hit. If you want your piece of mind keep your stop loss away from areas such as key levels, moving averages, or  pin bar high or low. Keeping your stop placement further away from these even areas will give your trade a greater chance of sending profits in your direction.

Improved Risk Rewards

Probably the best part of retracement trading is that you  get improved risk rewards.  with risk rewards you can place a tighter stop loss as you get closer to a key level or a pin bar 50% level. If you place a 100 pip stop loss and a 200 pip profit target, you can turn it into a 50  pip stop and 250 pip profit. How about that?

However, if you are entertaining plans of increasing your risk reward. how about using a standard stop loss instead of a tighter stop loss. With a standard loss in this scenario, you give your trade more oxygyen to breath instead of  hanging a tight stop loss noose around your neck. In this case a 100 pip stop loss and a 200  pip  profit target  could translate into a 200 pip stop loss and a 250 pip profit target. I can hear somebody asking “How come? Well that’s because your standard stop loss  gives the retrace entry the oxygyen it needed to run in your direction due to the price pulling back  compared to you making your entry at a terrible price. Had you entered with a terrible price, you would have suffered a nuclear-sized loss.Re

Now  let’s get to the dreaded cons of Retraced Trading. Start with

Missing Out On Trades

One annoying fact about waiting for a retracement is that while you wait, a good trade getsaway. This can get on your last nerve, not to mention challenge your trading mindset. Then again missing out on juicy trades may not necessarily be a bad thing. At least it’s a whole lot better than over-trading. I can hear somebody with a thick frown on his face  asking”Are you crazy?”

Not only is retracement trading doubly frustrating , but it takes incredible focus to stalk sit and wait for that high probability signal to show up. However, if you master sitting and waiting long enough you will be well ahead of the losing pack. So regardless of  the entry method you are deploying, you must cultivate the discipline in order to prosper as a fore trader.

Placing A Stop Loss Wrongly Can Get You Knocked Out Of A Trade

The last thing you want to do is place your stop loss at the wrong place. Do that and you will  get knocked out Mike Tyson style out of a trade. What makes it so painful is that you are absolutely spot on about this trade. But because you decided to put a tight noose around your stop loss you got blown off the bridge.There is a solution to this problem. Just learn to wait for retracements or pull backs because not only will you find a high probability signal when you wait, but you can put your stop loss at a safer spot on the market.

I know I know. Getting your stop loss knocked out of a trade can downright sap your enthusiasm. Not only that but  the knockout can take you out of your trade before the trade even gets started. Fortunately the retracement trade shows you the way out by allowing you to put the stop loss at a safer if not wider spot and allows you to make some much needed cash in the process.

You need to understand that when a market retraces or pulls back, it’s basically telling you”Put your stop loss at a place where it’s less likely to suffer a cold blooded knockout.” Now most retracements occur at support and resistance levels. So you’d be better off placing your stop loss below that level to avoid the Mike Tyson left hook knock out I mentioned earlier.

Less Trades In Occurrence

Wanna know why  you don’t see more of market retracements on the charts? That’s because the  forex market  does not  retrace that much. Normally when a retracement occurs, a pullback follows suit. Unfortunately that is not always the case. Consequently  the number of trades drop considerably. So what  you get is the market creating minimal retracements. This suggests that opportunities to trade in this scenario are very slim.

Of course this will make any trader pull his hair out. But you must keep your discipline or else you end up in the losing pack of naive traders. If you are able to maintain your composure you will be laughing all the way to the bank. Please note that just because there are a few disadvantages to trading retracements does not mean you shouldn’t do retracement trading. The pros definitely outweigh the cons. So  knock yourself out with the  retracements.

Okay enough of the depressing cons!Let’s get down to more exciting stuff such as:

Examples of Different  Types of Retracements

Let’s take a lake a look at some examples of retracement types so we get a clear idea of what they look like when we come face to face with them on the charts.

Starting with:

Retrace Entry Without Price Action Signal

On the left side of the pic are retracements without a price action signal in an uptrend. The sky blue shaded areas represent the retracements. In each of these shaded areas you have price retracing or pulling back to the key levles as shown in the chart. We dont see any obvious price signals, But we can see that price  barely pushing aove these levels.

If you are smart you on a tie sensing  humongous risk reward opportunities. That’s assuming you get in on a tight stop loss

Retrace to Key Level With Price Action Confluence

Herr you have considerable action happening along all the key levels.   You also have three price action signals forming along these levels.  Now these signals came about as a result of price retracing up or down to key levels on the chart(labelled thick green).

How do we anticipate these signals? Just wait for price to pull back and then watch the price signals take shape along the key levels. This is probably the highest probability trade out there. Looked up Something Called Price Confluence.  It will most certainly add to your understanding of this tutorial.

Next up is

50% Area Retracements

1268053946-clip-11kb

Now the 50% retracement is a very popular occurence on forex charts. Here we have price retracing 50% of it advancement, as indicated by the 50% zone. Watch out for these pull backs to these 50% areas as they he perfect platform for price to break through

Consequently price moves back in the direction of the initial move. Like I said earlier, 50% doesnt happen often. But they are a very useful to have in your trading tool box.

Next up is

Retrace of Signal Bar or Signal Area

 

Here we’ll be looking for a 50% pin bar retrace. This is slightly different from what we covered in the last section. In this scenario, this often occurs along long-tailed pin bars where price retraces halfway towards its march form high to low of the signal bar. This gives you the opportunity to enter at a stronger price, equipped with a standard or tighter stop loss.

We’ll look at two examples of this scenario

How to Calculate Risk/Reward Like a Pro - My Trading Skills

 

Here  we see the various risk reward levels. Notice how each risk reward level is attained by waiting for the retrace and entering at the pin bar’s 50% level(or half the size of the pin bar). This should be your approach with this type of retracement.

Let’s take a look at example 2

03-use-fibonacci-extension-risk-reward-levels - Forex Training Group

Here you attain the 2r profit margin by waiting for the retrace and entering at the fakey pattern’s 50% area as indicated by the red arrow.

For more information on risk rewards, look up The Phenomenon of Risk Rewards in Forex Trading

And Finally

Retracement Back To Price Event Area Or Prior Price Signal

A Closer Look At Price Action Event Zones And Support & Resistance ...

Now this is a high probability area to look for trades- the type of trades that run for weeks.  As you can see price retraces back to an existing area where a bullish pin bar forms. It then forms a bearish pin bar before the bears start a major sell-off breaking through the resistance level.

For more information price event areas, look up Price Event Zones and Support and Resistance Levels

That’s  a wrap for ”Six Retracement Entry Types You Must Know For Your Own Good .” I hope you have a solid grasp of what retracement trading is all about. This post should give you a solid foundation and provide you extra tools to with which to work with in your trading routine week in week out.

Til next time take care

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Five Support and Resistance Types You Absolutely Must Know

Hello and welcome to another episode of the the bulls vs the bears. I know we’ve already covered  support and resistance levels in the past. But today we are going to look at five support and resistance types you absolutely must know .The forex market can be every unpredictable. It goes up and down, and...

Hello and welcome to another episode of the the bulls vs the bears. I know we’ve already covered  support and resistance levels in the past. But today we are going to look at five support and resistance types you absolutely must know .The forex market can be every unpredictable. It goes up and down, and sometimes it veers sideways.

Some of you may think ‘ hmmm..support and resistance is too complicated. Well support and resistance levels is the backbone of price action analysis.. And they help form the basis for understanding the forex market. Through price action trading, support and resistance levels help us decide where we are going to place our stop loss and take profit targets. More importantly, support markets helps us understand three things:What;s happening on the market, what has happened on the market, and what is going to happen on the market.

So what are we going to do?We are going to look at how to use the seven support and resistance levels.

First off:

Swings Highs and Lows

One support and resistance level that you absolutely must know  is the traditional swing highs and lows.  You find these levels by zooming in to a longer time frame such as the weekly chart or even monthly chart.  It’s been said you get a broader view of the market and the flash points within the market. What you want to do is simply identify obvious levels where price either reverse higher or lower or lower and draw horizontal lines at them.

Mind you, these lines don’t have to be perfect. They may either intersect candlesticks or be mere event zones.  You absolutely have to do this when analyzing any chart. That should be the first step on your analysis itinerary. Let’s take a look at an illustration using the GBP/USD pair

This is the bird’s eye view that I was referring to. See the entire cocktail here – support and resistance levels, trends, and sideway markets. They immediately jump out at you in this time frame. You cant miss them.

Now let’s take a look at the daily  chart(or time frame) to get a clearer picture

Here you see short term levels that you don’t see in the weekly chart. As you can see price finds support at 1.4000 level. Take a look at the two  huge  bullish candlesticks.  The first one has a huge shadow and the second one resembles a very bullish reverse candle. The buyers keep pushing for the hills.  The previous day’s candle looks huge to set a strong tone in the day’s trade.

The buyers now have the option of taking a breather(consolidate ) and  create another huge candle and go long in this trade. This should cause price to surge further upwards and hit the resistance barrier around the 1.27500 level. So as you can see there are shor term levels in the daily chart that you don’t see in the weekly chart.

Next up is:

Swing Point Level In Trends

Swing point levels in trends reminds me of this popular forex saying. And it goes like this?”Old support becomes new support, and old resistance becomes new resistance.”  This phrase refers to the scenario where the market creates higher highs and higher lows or lower highs and lower lows.

If  I were you, I’d take note of the formation of these landmarks.  Some one is probably asking “Why should I do that?” Well the market breaks up or down through these levels, that will be your cue  trade temporary retracements also known as pullbacks back to these levels. With pullbacks you are dealing with temporary reversal of the prevailing trend, whether it’s charging up or nosediving down. When you see these landmarks form, get your trade ready.

Now let’s take a look at this phenomenon using the GBP/USD PAIR.

Identify-Pullback-Reversal-Area

This is the classic illustration of the swing phenomenon we were talking about. You have resistance turning into support. Here GBPUSD pair twice run into strong resistance along the 1.750 mark twice. Once price breaks through this level we see the first pullback along the level of support.

Also these old support and resistance levels provide the perfect opportunity to place your limit orders on either side of the trend. You could place a  buy limit order above the old resistance to align yourself in the direction of the breakout with a handsome risk to reward ratio so long as the pullback does not penetrate below the pivot line.

Next up is:

Swing Point Levels in Containment and Risk Management

Swing point levels are very useful as far as containment and risk management goes.  You can look to buy or sell at swing points even if they are not part of  a trend. One such instance is when the market goes into consolidation or the market goes sideways.Just use your most recent swing high or low as your entry point.

Let’s look at an an illustration of swing point levels using the EURUSD pair

Swing point levels as containment and risk management

The image  above shows a sideways market stuck between the support and resistance  levels. This happens after price broke through the support(formerly resistance) at the bottom end of the chart. The additional support level in the middle of the range . Look to buy at the level of support and sell at the level of resistance wherever you see those swing points. And you use these swing points as your profit targets.

Next up is:

Dynamic Support and Resistance Levels

Dynamic support and resistance levels are probably the most exciting patterns of all the support and resistance levels.  They can pull back and find support or resistance without the need to stay horizontalThey change from period to period. I have this saying that dynamic support and resistance levels travel at the speed of light in that changes on the charts happen at lightning speed.

One tool that epitomizes dynamic support and resistance levels is the one and only moving averages. They help smooth out price fluctuations by helping you distinguish between price noise and actual trend direction When we mention moving average we are referring to the average price of a currency pair for a specific number of periods.  Let’s see what dynamic support and resistance levels look like

price movements

See those squiggly lines? They reflect  the moving averages. They reflect specific periods on the charts, One popular tool used to measure moving averages is exponential moving average(EMA for short. This moving average focuses on the most recent trading data.

See those three EMA tolls in different colors in the bottom right corner? They are three of the most popular EMA’s for measuring moving averages. 200 EMA looks at trading data covering 200 days, 100 EMA  looks at 100 days of trading while 50 EMA touches on  50 days of trading data.

Now the 200 EMA is considered the most popular moving average. I can hear somebody asking “Why should I care?” Well they say the 200 EMA is where all the action is as far as trading activity is. And the small red circles reflect the way price reacts when the EMA’s  approaches it. Sometimes price may steer clear of the 200 EMA. And when that happens it’s best to switch to a higher time frame to get a clear picture of where the price is in relation to the 200 EMA.

For more information on moving averages look up We’re Moving  Averages Part I and  II

Next up is

Trading Range Support and Resistance Levels

Trading range(or sideway markets) support and resistance levels offer numerous high probability trades if you keep your eyes open for these opportunities. The trading range is just price bouncing between two paralle levels on the markets. Just keep an eye out for the trading range and then look out for price signals at those levels.

This is a much better option than just buying on a support breakout or sell on a resistance breakout. Because the last thing you want is to suffer continuos whiplash trying to buy or sell at these breakout levels. Just get confirmation through the signals that a breakout has taken place before you start trading them. Let’s take a look at what life on a trading range support and resistance levels look like

typical trade in a ranging market

Here we have a ranging market with four sell opportunities at resistance level and two buy opportunities at the support level. Just place your stop loss orders just above the resistance level and below the level of support. Please don;t even try going long at resistance or short at the support. You’ll burn your trading account that way.

Notice the way price has broken through the lower support line and the upper resistance line. This creates false breakout signals only to return to the trading range. All this action is in the 5 minute time frame, and you want to forget that in a hurry. Focus on the long term time frames such as the h4 or daily.

For more information on trading ranges look up Forex Market Goes Sideways

That’s a wrap for “ Six Support and Resistance Types You Absolutely Must Know.” I hope  you ‘ve understood how the above types of support and resistance levels work. Basically you use support and resistance levels to do the following: as indications of the state of the market, decide which levels to buy or sell from,  how to define risk, and as a basis to understand what the market has done, what it’s doing, and what it’s about to do next.

When you combine a clear understanding of support and resistance levels together with price action and market trends you have what is known as T.L.S – Trend, Level, and Support.

Til next time take care.

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You Need A Forex Trading Plan

Believe it or not, you do need a forex trading plan if want to succeed as a forex trader. The process of developing a trading plan revolves around creating a trading strategy (We’ll get to that at another time) and will serve as a template as to what you need to each time you decide...

Believe it or not, you do need a forex trading plan if want to succeed as a forex trader. The process of developing a trading plan revolves around creating a trading strategy (We’ll get to that at another time) and will serve as a template as to what you need to each time you decide to enter a trade on the market. .Having a trading plan also helps you keep your discipline and patience as a trader over the long term. So now that we’ve cleared the air, let’s dig into how to develop a trading plan.

Develop A Routine and Check List
If you want to have consistency in your trades, you need to develop a routine. And a checklist Failure to develop these two features could have you running around like a chicken with its head cut off as you search for trade sups. Also Cultivate discipline in your routine, and while you’re it, look out only for the most profitable trade setups…It’s a waste of time searching for trades that don’t exist.
Along With developing your routine you most definitely need to develop a checklist featuring things that you look for in the market and what you want to see before entering a trade. If you are able to tick all the boxes, it means it’s time to enter the trade. If not, then you hold your horses, until the conditions are favorable for entering a trade. Or, to make life less complicated for you, you could turn your checklist into a trading plan. This makes for a smooth format, allowing you to recognize potential trades that appear on the charts.

Create Trading Guide Lines
As part of your trading plan, you should create written trading  guidelines, describing what you plan on doing in the markets. Also create visuals as a way of reminding yourself what your trade set ups should look like. Once you stick to following your guidelines and visuals, these two elements will be etched in your mind such that they’ll help you l recognize trading opportunities more quickly and build your confidence as a trader.

Plan your Trades In Advance
Plan your trades in advance as this will help you make profits in the long term. By planning your trades in advance you’re not easily swayed by market variables. In so doing, you’re guided by your objectivity rather than your emotions as a forex trader.

Be Patient
Who ever said patience is a virtue was onto something. That person is absolutely spot on because you need to be patient to be a successful trader. You can’t be gambling as if you’re rolling the dice in a Las Vegas casino. You need to know what you’re looking for and wait for the right trade set ups appear before you execute a trade. Having a patient posture helps cut down on losing trades which come about as a consequence of emotional trading. If you don’t wait for the rig trade set up you end up emptying your trade account. Instead of trading, you’ll be gambling.
Make patience the centerpiece of your trading plan. This way you’re reminded of the importance of holding your horses and waiting for the right trade setup.

That’s a wrap for” You Need a Forex Trading Plan.” If you have any questions or a comment, drop it in the comment box. Till next time, take care.

 

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How To Master The Metatrader Platform Placing Different Types of Trades

Hello and welcome to another edition of the bulls vs the bears.  A while back we did a two part series on Metarader 4 – Part I andPart II. This time we are going to dig into how to really master the master the metatrader platform. In case some of you don’t know, Metatrader is...

Hello and welcome to another edition of the bulls vs the bears.  A while back we did a two part series on Metarader 4 – Part I andPart II. This time we are going to dig into how to really master the master the metatrader platform. In case some of you don’t know, Metatrader is the one and only platform for forex traders. Not only that metatrader is the  most popular trading platform in the industry.

If you are a rookie trader it will be in your best interests to read this post. However, if you are an experienced trader it wont hurt to refresh your memory by reading this post also. So basically we are going to learn how to use different trade entry order types  and how to  set up the perfect trade.

First off:

Market Execution and Pending Orders

There are two categories of order types in the forex trading business. They are market execution and pending orders. Let me break these two categories down gently starting with:

Market Execution

Market execution is an order which is executed at the  next available market price. So the moment you place your order, your order is filled at whatever price is available at the time you place your order.

Pending Order

A pending order is where you place an order that will be filled at a later time after price moves up or down to the price level where you’ve set the order at. Pending orders include limit orders and stop orders.  Let me break these two terms down so you understand.

Limit orders  are placed to buy below the market price or sell above the market price. Let’s say the EURUSD pair is trading at 1.3200 and you want to sell it if it reaches 1.3250. You can fill a request for a sell limit order if prices touches 1.3250 it registers as a sell or ‘short. So the limit sell  order is placed above the current price.

However, if you want to buy the EURUSD pair at 1.3050 and the market is trading at 1.3100, you places your limit buy order at 1.3050. If the price hits that level, your order will be registered as long. In other words, your market order is placed BELOW market price.

and finally:

Stop Entry Order

A stop entry order is placed above or below the current price. For example if you want to go(or trade) long , but you want to make your entry on a breakout of a resistance area, you place your buy stop just above the resistance area. And if price touches your buy stop order, your buy stop is activated.

However, it’s the complete opposite when placing a sell stop order. You place you sell stop just below the resistance area. When price touches your sell stop order, your order gets activated.

Stop Loss Order

A stop loss order is paced for the purposes of preventing further losses when price moves beyond your specified price level. I can hear somebody asking”Why a stop loss order?” Well the stop loss allows you to control your risk and limit losses.  This order stays activated until you decided to tweak or cancel your stop loss order.

Now that we are done with the market orders, let touch on

Long vs Short

When you say you are going long, it basically means you want to buy the market. You want the market price to rise so that you sell back your trading position at a higher price.  I can hear somebody asking”Well, what does this mean?” Basically you will be buying the first currency and then selling the second. so if you buy the EURUSD pair and the euro gains strength relative to the dollar, you got yourself a profitable trade.

The scenario is slightly different when going short.  When you go short you want to sell you want the market to dip so you can buy back your trading position at a lower price than you traded it for. So you will buy the first currency in the pair and sell the second. If you sell the GBPUSD pair and the British pound is weak relative to the dollar, you stand to make a healthy profit.

Now that we’ve gotten the explanations out of the way, I guess the question on everybody’s mind is:

How Do I Place market order in Metatrader?

Let’s say we want to place a trade for the AUDUSD pair. We are looking to  buy at the most current price because we believe price is going high.

open-trades-3

To execute the market order, first click  on the ‘New Order’ button. You should see it in the top going left. When you click it produces the pop up right in front of you.  Once the pop uup, pops on your screen you then select  ‘Market Execution’ under ‘Type.’  After selecting ‘market execution, you then select  ‘Buy by Market'(labelled in pink’ since you want to buy. If you  want to sell, you select ‘Sell by Market.'(labelled in sky blue)

I need to sound off a few warnings though. First off, select the Volume of trade before selecting market execution. By that I mean the number of lots you are trading. Failure to do that and your request will be rejected outright.

Second, market orders are risky and dangerous than most orders. I can hear somebody”But you just asked us to select”Market Execution.” Sure I did. However, The price you selected for your market order may not necessarily be the price prevailing on the market.

Next up is:

How do I place A Stop Order?

Basically you want to enter the market as  price moves up or down into your preferred price. If you enter price on a buy stop entry order you anticipate price to move higher. In that case you place your  buy stop above current price. If price move in your direction, it will fill your buy stop order.

Also make sure your stop order is bigger than the current spread your are trading. It cannot be within the spread. Let’s say the price of EUR/USD  is 1,1240/22, it should be  outside of the current price spread. Most MT4 platforms have a distance of 20 pips. And if the market is closed, forget it. You can’t place your order after office hours.

Let’s take a look at an illustration of how a stop order is done

new order

First you select  ‘New Order in order in order to execute the  stop order. Immediately the popup window for your entry  shows up on  your screen. Let’s take a look at this popup screen in our next graphic

 

pending order types

This is what the popup window looks like when you hit the ‘New Order’ button.  Make sure you set your order to ‘Pending Order’. You then select ‘Buy Stop’ and then set the price for the trade you want to enter in. Just make sure its above the current price and outside the spread.

But what if you want to sell? Just select ‘Sell Stop’ and  place your order below the current market price and outside the spread.

Next up is:

How Do I Place A Limit Order?

Well you use  a limit order when you you plan on making a retracement entry into the market. Say you want to sell at resistance because of a strong downtrend, and you want to join that trend on   temporary strength(or pullback). You can then choose to place a limit order at resistance, so long as price is below that level. If price rotates to that level, your limit order gets filled.

Let’s first take a look at sell limit order in action using the EURJPY pair

Mt4 Order types sell limit order example

Here we place a sell limit order along the level of resistance.  Now why are we doing this? We are doing this because we anticipate a lower move if price got back up to the key level at the 130.152 level. If price moved up to that level, then your sell limit order will be filled, and you can take the profit without hassle.

Now let’s see how to fill sell limit  order on MT4

new order

Just like any other order you click ‘New Order.”

pending order types

Right after you you click ‘New Order, this pop up window shows up on  your screen. First you set the order ‘Type to “Pending Order.” Next you select ‘Sell Limit’ and then set our entry price. Just make sure the entry price is above the current price.

But what if you want to do a buy limit? You select ‘Buy Limit’, which is the next order after ;Sell Limit’ on the menu. Just make sure the  price for the buy limit order is below the current price, in anticipation that the price will pull back to it hit your order, and climb  even higher up the charts.

And Finally:

How Do I Place Stop Losses and Profit Targets on MetaTrader 4?

Some of you may not like doing this but you really need to set stop losses. Failure to do that and you will end up creating a nuclear-sized crater in your trading account. In the same vein you al wan to set a take profit because the last thing you want is the market  U-turning on your trading position and you losing  all your hard-earned profits. So how do this?

First off:

new order

Select ‘ New Order’

And then you fill in your stop loss and take profit orders. If you are selling, you click ‘Sell’. And if you are buying you click ‘Buy. So whenever you want to place a trade, Don’t forget to fill your stop loss and take profit. Failure to do that and you will be digging your own grave.

Before you enter your trade, do me a favor. Make sure you have selected your currency and your trading volume before hitting the sell or buy buttons. We don’t  want to be laughing at the wrong ends of our mouth do we?

That’s a wrap for “How To Master The Metatrader Platform Placing Different Types of Trades.”  I hope you’ve learnt that there are so many different trades you can place on metatrader 4. If you want to know how to set up Metatrader4, look up Metatrader4 Part I – How to Download Metatrader 4 and Set It Up For Price Action Trading

Til next time take care.

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