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Monday, December 10, 2012

Forex Chart Pattern


An Introduction

Chart Pattern theory has been around since the early 1930’s and deals with forecasting market movements through analysis of market psychology. In chart pattern theory, market psychology is defined as the movement of a price graph between support and resistance levels.

 Theory has is that support and resistance lines define levels at which the market believes the price of a financial instrument is undervalued or overvalued. It is  widely believed that a price movement through either the support or resistance level is indicative of a trend that is top follow. Although Chart Pattern theory does not provide strict entry and exit levels, it does provide an indicationof the level to which a financial instrument is headed
Even if you are not a technical analyst it is important to learn how to read forex charts. The fact of the matter is that it is virtually impossible to get a proper assessment of the value of the forex market without knowledge of chart patterns.

There are numerous chart types used in forex market analysis, but in a lot of them the following patterns often emerge. As a trader, it is to your advantage to learn their meaning and relation to price movement and market direction.
Technical analysis assumes that:
a) prices discount everything, 
b) prices moves in trends and 
c) history repeats itself.

Assuming the above tenets are true, charts can be used to formulate trading signals and can even be the only tool a trader utilizes. There are two types of patterns in this area of technical analysis:

  1. Reversal: A reversal pattern signals that a prior trend will reverse on completion of the pattern.
  2. Continuation: a continuation pattern indicates that the prior trend will continue onward upon the pattern's completion.


The difficulty in identifying chart patterns and their subsequent signals is that chart use is not an exact science. In fact, it's often viewed as more of an art than a science. While there is a general idea and components to every chart pattern, the price movement does not necessarily correspond to the pattern suggested by the chart. This should not discourage potential users of charts - once the basics of charting are understood, the quality of chart patterns can be enhanced by looking at volume (In my opinion, i believe we cannot use volume in forex market because there is no central market like others financial instrument) and secondary indicators.

Here are several concepts that need to be understood before reading about specific chart patterns. The first is a trendline, which is a line drawn on a chart to signal a level of support or resistance for the price of the security. Support trendlines are the levels at which prices have difficulty falling below. Conversely, a resistance trendline illustrates the level at which prices have a hard time going above. These trendlines can be constant price levels, or rise or fall in the direction of the trend as time goes on.

Here's the different patterns used by chartists that we're going to cover:

  1. Ascending Triangle
  2. Descending Triangle
  3. Channel Down
  4. Channel Up
  5. Double Bottom
  6. Double Top
  7. Falling Wedge
  8. Rising Wedge
  9. Head and Shoulders
  10. Inverse Head and Shoulders
  11. Flag
  12. Pennant
  13. Rectangle
  14. Triangle
  15. Triple Bottom
  16. Triple Top

Friday, December 7, 2012

Video- Multiple Time Frame Analysis

Maximize Profitable Trades Using Multiple Time Frames





James Chen - Multiple Time Frame Trading in the Forex Market






Summary : Multiple Time Frame Analysis


Here are a few tips you should remember:

You have to decide what the correct time frame is for YOU. This comes from trying different time frames out through different market environments, recording your results, and analyzing those results to find what works for you.

Once you've found your preferred time frame, go up to the next higher time frame. Then make a strategic decision to go long or short based on the direction of the trend. You would then return to your preferred time frame (or lower) to make tactical decisions about where to enter and exit (place stop and profit target).

Adding the dimension of time to your analysis gives you an edge over the other tunnel vision traders who only trade off on only one time frame.
Make it a habit to look at multiple time frames when trading.

Make sure you practice! You don't wanna get caught up in the heat of trading not knowing where the time frame button is! Make sure you know how to shift quickly between them. Heck, you should even practice having chart containing multiple time frames up at the same time!

Choose a set of time frames that you are going to watch, and only concentrate on those time frames. Learn all you can about how the market works during those time frames.

Don't look at too many time frames, you'll be overloaded with too much information and your brain will explode. And you'll end up with a messy desk since there will be blood splattered everywhere. Stick to two or three time frames. Any more than that is overkill.

We can't repeat this enough: Get a bird's eye view. Using multiple time frames resolves contradictions between indicators and time frames. Always begin your market analysis by stepping back from the markets and looking at the big picture.

Thursday, December 6, 2012

Don’t Use Multiple Time Frame Analysis without Proper Chart Time Frame Alignment





Most traders find themselves analyzing a currency pair for trading purposes on a single time frame. While that is all well and good, a much more in depth analysis can be accomplished by consulting several time frames on the same pair. Think of it as trying to “size up” a person based on meeting them on one occasion versus meeting them several times. You will have more insight regarding both the person and the trade if you view them from more than one vantage point.

Since a currency pair is moving through multiple time frames at the same time, it is beneficial for a trader to examine several of those time frames to determine where the pair is in it “trading cycle” on each time frame. Ideally a trader will want to postpone their entry until momentum in each time frame is aligned…all bullish for an uptrend or all bearish for a downtrend.
The entire process regarding trading in general and Multiple Timeframe Analysis (MTFA) specifically begins by identifying the trend…the direction in which the market has been moving the currency pair in question over time. 


Many traders will employ some aspect of Multiple Time Frame Analysis in their trading.

A question that comes up quite frequently regarding MTFA is how far apart the time frames should be from one another. Here is an example of a question on this topic from a recent webinar: “If I use the Daily, 4 hour and 1 hour charts, could I then move down to the 5 minute chart for a scalp?”
While Multiple Time Frame Analysis can be used in a wide variety of trading strategies from shorter term to longer term, it is important to be sure that the “spacing” of the chart time frames relate to each other.
For example, while using the Daily chart to determine the trend on a pair and then executing the trade from the 4 hour or the 1 hour chart, makes sense, throwing a 5 minute chart into that mix is simply too much of a disconnect from the other time frames.

The Daily and the 4 hour frames of reference are simply too far removed from a 5 minute frame of reference. For example, there are 288 individual 5 minute time periods in a 24 hour period. So we would be looking at a day’s worth of trading data and trying to carve out 1/288th of that time period to determine our entry. The 1 hour is closer to our objective but even then some might argue that it still is a bit removed for our purposes.

Ideally you want to achieve a balance so that the time frames of the charts are neither too close nor too far apart from one another. We want them to be close enough so that one time frame does have an impact on the others being used, yet not so close that each time frame is a virtual clone of the others.
For example, a Monthly, 6 hour, 5 minute chart array would simply have too much separation and none of those time frames really have any direct impact on the other. At the opposite extreme, a 30 minute, 29 minute, 28 minute chart array would not be of any value either since each of the charts is a virtual duplicate of the other. Consequently, the whole purpose of MTFA would be lost.

What we teach is to space the time frames using roughly a 4:1 or 6:1 ratio. Notice how this Daily, 4 hour, 1 hour scenario breaks down: a 4 hour chart is 1/6th of a Daily chart and 1 hour chart is 1/4th of a 4 hour chart.


You can use any time frame you like as long as there is enough time difference between them to see a difference in their movement.

You might use:

Base            Minor                      Major


1-minute     5-minute               30-minute
5-minute     30-minute              4-hour
15-minute   1-hour                   4-hour
1-hour         4-hour                  daily
4-hour         daily                    weekly
and so on.






Multiple Time Frames Can Multiply Returns




In order to consistently make money in the markets, traders need to learn how to identify an underlying trend and trade around it accordingly. Common clich├ęs include: "trade with the trend", "don't fight the tape" and "the trend is your friend".

Trends can be classified as primary, intermediate and short term. However, markets exist in several time frames simultaneously. As such, there can be conflicting trends within a particular currency pair depending on the time frame being considered. It is not out of the ordinary for a currency pair to be in a primary uptrend while being mired in intermediate and short-term downtrends.

Typically, beginning or novice traders lock in on a specific time frame, ignoring the more powerful primary trend. Alternately, traders may be trading the primary trend but underestimating the importance of refining their entries in an ideal short-term time frame

In the table below  we've highlighted some of the basic time frames and the differences between each.



You also have to consider the amount of capital you have to trade.

Shorter time frames allow you to make better use of margin and have tighter stop losses.

Larger time frames require bigger stops, thus a bigger account, so you can handle the market swings without facing a margin call.
The most important thing to remember is that whatever time frame you choose to trade, it should naturally fit your personality.

If you feel a little uptight like you're undies are loose or your pants are little too short, then maybe it's just not the right fit.

This is why we suggest demo trading on several time frames for a while to find your comfort zone. This will help you determine the best fit for you to make the best trading decisions you can.

When you finally decide on your preferred time frame, that's when the fun begins. This is when you start looking at multiple time frames to help you analyze the market.

Trading using multiple time frames has probably kept us out of more losing trades than any other one thing alone. It will allow you to stay in a trade longer because you're able to identify where you are relative to the big picture.

Most beginners look at only one time frame. They grab a single time frame, apply their indicators and ignore other time frames.

The problem is that a new trend, coming from another time frame, often hurts traders who don't look at the big picture.

Fibonacci Trader-Law of Multiple Time-Frame


The patterns common to time frames are easily compared with fractals; within each time frame is another time frame with very similar patterns, reacting in much the same way. You cannot have an hourly chart without a 15-minute chart, because the longer time period is composed of shorter periods; and, if the geometry holds, then characteristics that work in one time frame, such as support and resistance, should work in shorter and longer time frames. Within each time frame there are unique levels of support and resistance; when they converge, the chance of success is increased. The relationships between price levels and profit targets are woven with Fibonacci ratios and the principles of Gann.

One primary advantage of using multiple time frames is that you can see a pattern develop sooner. A trend that appears on a weekly chart could have been seen first on the daily chart. The same logic follows for other chart formations. Similarly, the application of patterns, such as support and resistance, is the same within each time frame. When a support line appears at about the same level in hourly, daily, and weekly charts, it gains importance.

LAWS OF MULTIPLE TIME FRAMES

1. Every time frame has its own structure.
2. The higher time frames overrule the lower time frames.
3. Prices in the lower time frame structure tend to respect the energy points of the higher time frame structure.
4. The energy points of support/resistance created by the higher time frame's vibration (prices) can be validated by the action of lower time periods.
5. The trend created by the next time period enables us to define the tradable trend.
6. What appears to be chaos in one time period can be order in another time period.

What Is Multiple Time-Frame Analysis?


Most technical traders in the foreign exchange market, whether they are novices or seasoned pros, have come across the concept of multiple time frame analysis in their market educations. However, this well-founded means of reading charts and developing strategies is often the first level of analysis to be forgotten when a trader pursues an edge over the market.

In specializing as a day trader, momentum trader, breakout trader or event risk trader, among other styles, many market participants lose sight of the larger trend, miss clear levels of support and resistance and overlook high probability entry and stop levels. In this article, we will describe what multiple time frame analysis is and how to choose the various periods and how to put it all together.

What Is Multiple Time-Frame Analysis?
Multiple time-frame analysis involves monitoring the same currency pair across different frequencies (or time compressions). While there is no real limit as to how many frequencies can be monitored or which specific ones to choose, there are general guidelines that most practitioners will follow.

Typically, using three different periods gives a broad enough reading on the market - using fewer than this can result in a considerable loss of data, while using more typically provides redundant analysis. When choosing the three time frequencies, a simple strategy can be to follow a "rule of four." This means that a medium-term period should first be determined and it should represent a standard as to how long the average trade is held. From there, a shorter term time frame should be chosen and it should be at least one-fourth the intermediate period (for example, a 15-minute chart for the short-term time frame and 60-minute chart for the medium or intermediate time frame). Through the same calculation, the long-term time frame should be at least four times greater than the intermediate one (so, keeping with the previous example, the 240-minute, or four-hour, chart would round out the three time frequencies).

It is imperative to select the correct time frame when choosing the range of the three periods. Clearly, a long-term trader who holds positions for months will find little use for a 15-minute, 60-minute and 240-minute combination. At the same time, a day trader who holds positions for hours and rarely longer than a day would find little advantage in daily, weekly and monthly arrangements. This is not to say that the long-term trader would not benefit from keeping an eye on the 240-minute chart or the short-term trader from keeping a daily chart in the repertoire, but these should come at the extremes rather than anchoring the entire range.


Video Creating Trading Plan


Tim Racette: Creating a Trading Plan - Step by Step




How To Create A Day Trading Plan That Consistently Generates Profits



Creating a Trading Plan for Part-Time Traders Webinar



Summary: Developing a Trading Plan




The difference between making money and losing money can be as simple as trading with a plan or trading without one. A trading plan is an organized approach to executing a trading system that you've developed based on your market analysis and outlook while factoring in risk management and personal psychology.

No matter how good your trading plan is, it won't work if you don't follow it.

Traders who follow a disciplined approach are the ones who survive year after year after year. They can even have more losing trades than winning ones and still be profitable because they follow a disciplined approach.

Here is a summary of what the key benefits are:

Trading that is simpler with a plan than it is without one.
Reduced stress which means better health.
Ability to gauge your performance, identify problems, and make corrections.

  • A trading plan helps to prevent many psychological issues from taking root.
  • A trading plan that is adhered to strictly will reduce the number of bad trades.
  • A trading plan will help prevent irrational behavior in the heat of the moment.
  • A trading plan enables you to control the only thing you can control... yourself!
  • A trading plan will instill a large measure of discipline into your trading. Gamblers lack both discipline and a trading plan.
  • A plan will enable you to trade outside your comfort zone. How many times have you let a loss run and cut a profit short because it was the comfortable thing to do? A plan, executed with discipline, will help to prevent this from happening.

A plan is your GPS which will enable you to get from wherever you are now to wherever you want to be: consistent profitability.
Your trading plan is designed in such a way that if you do take a "wrong turn", you will know about it very quickly and have the opportunity to correct the problem before losses spiral out of control.

Always remember that the trading plan is a work in progress.

As things change, the trading plan must change, too. Assess your trading plan and processes periodically, especially when you have changes in your financial or life situation. Also, as your research leads to changes in your trading system or methods, be sure to reflect those adjustments in your trading plan.

"Adapt and survive!"

Remember, the main purpose of the trading plan is to keep you on task, and to operate in an effective and efficient manner to make good trading decisions. It is, however, only as good as you make it, and it is completely useless if it is not applied in practice.

Wednesday, December 5, 2012

Stick to the Plan


A trading plan is only effective if it's followed. You have to stick to it. It sounds simple to do. It is really just common sense but most traders still can't do it. Why, oh, why?

Trader incompatibility. A trading plan should be a personalized plan for you, a plan that fits your own goals, risk tolerances, and individual lifestyle. You must develop each component on an individual basis, never losing sight of the fact that it must be custom tailored to YOU and YOUR needs.

Not your girlfriend's. Not your boyfriend's. Not your basketball coach's. Not even Ronald, your weirdo best friend whose head is shaped like a hamburger who likes to wear pink polka dot pants and is an aspiring rapper.


Your trading plan must be made based on reality, not on hope. If you're simply trying to copy somebody else's trading plan or yours is based on false assumptions, then you will not be compatible with it and will have trouble following it.

Solution: Be honest with yourself. Then revise your trading plan.

Trading plans are intended to be long-term. Many traders give up on their trading plan, or often more specifically, the trading system in the trading plan, after suffering a string of losses rather than sticking it out through the inevitable rough times.

Solution: Be patient!

No discipline: Trading according to a plan requires sticking to it through thick and thin. That takes discipline. Rock solid discipline. Traders lacking discipline do not stick to their trading plans. You need to be disciplined. Rock solid. Does it sound like we're beating a dead horse? Well, good.

Solution: Stay disciplined!

Self-destructive behavior: Some traders have deeply ingrained psychological issues that will sabotage them. This can be resolved with hard work on one's self, but the trader must be self-aware of such issues first. You can't figure out a solution if you don't know the root problem.

Solution: Look in the mirror. Hopefully you don't turn to stone.


If you're personally having trouble sticking to your trading plan, most likely it's one of the reasons above. If it is, refer to the solution below it.

Weapons of Choice


What software, hardware, and other tools will you use?
What "toys" will you use for your trading profession?

Write down the hardware, software, data feeds, and internet access that will comprise your "trading desk."

Don't forget backups! Make sure you have a backup plan for everything just in case your main tools fail while you're in a trade. What if your computer crashes and doesn't boot back up? What if your internet connection goes down? What if your electricity goes out? (Laptop and aircard. Bam!) What if the Taylor Swift CD you always listen to while trading keeps skipping? (Oh nooo! Not that!)

Finally, don't get suckered by all the razzle-dazzle trading vendors (cough *scammers!* cough) try to lure you with. Do you really need that $5,000 chart pattern recognition software that displays in 3D IMAX? Didn't think so. Save your money and use it for capital instead.

What broker/platform will you use?

Where will you execute your trades? It's not like you can call the bank and say, "I want go long EUR/USD." Okay fine, you could have done this in the past, but we're living in the 21st century now - time to get up to speed and use those online platforms!

But it isn't that simple. Make sure you know the ins and outs of broker you choose from executing orders to depositing and withdraw money (hopefully profits, right?). 

Tuesday, December 4, 2012

Daily Pre-Market Routine


What activities will you do BEFORE you start trading?

We don't mean showering and brushing your teeth (although you should always take a shower and brush your teeth.

Your routine should help you accomplish the following tasks:

Reviewing any open positions and making any necessary adjustments
Reviewing yesterday's trades
Getting yourself "up to speed" on the market
Identifying any upcoming news that could cause volatility
Being ready to trade when the next trading session opens
Determine what the overall market sentiment is for the day, review yesterday's trades and how the previous trading session finished, and maybe identify key market areas like support and resistance.


Now it's time to start trading your system!

Your pre-market routine will be critical to your success as a trader. It will help you plan your day so that you are not spending time during market hours scrambling trying to figure out what news or data will be coming out, and what to do if the market does something you didn't expect.

You want to start your trading session feeling calm, relaxed, and prepared for whatever the market throws at you.

Expectations

Which kind of returns do you expect to make?
Ahhh. Of course, anybody who's interested in trading certainly has ambitions of raking in some dough. It make sense - trading involves risk, and we expect to be compensated for those risks.

There's no doubt that every trader expects to make profit.


The question that you should ask yourself though is this:

What kind of returns do you expect to make?

Your answer to this question will play a huge role in determining what kind of trading style you will implement, what currency pairs and times you will trade, and most importantly, the risks involved in achieving your goals.

Let's look at an example to help explain this better. Let's say there are two traders, Bruce and Mike. Bruce is looking to score 10% a year while Mike is a little more ambitious - he wants to DOUBLE his account and make 100% returns

As you can imagine, a trader like Mike, who is looking to double his account, is in a very different situation.

It is very likely that Mike will have to take a lot more trades and/or risk more than Bruce. He will have to expose himself to more potential losses if he ever wants to achieve his goal of 100% returns.
Traders will also have to take into consideration drawdowns.

A drawdown is normally calculated as the distance from the highest value of your account to next lowest point. (We'll explain this a little bit more in a following lesson. For now, pay attention in class!)

Each trader must decide how big of a drawdown he or she can accept in order to hit their profit target goals.

On the one hand, there are traders who are risk averse and would rather have small drawdowns. The tradeoff is that this will also limit potential reward.

On the other hand, there are traders who are comfortable with large drawdowns, just as long as their system also yields huge returns.

You will also have to take into consideration how much time you can dedicate to trading. If you can't dedicate a significant amount of time working on your system, reading up on the markets and learning new trading techniques, recording/reviewing your journal, then we can guarantee you that you will have a difficult time hitting your goals.

If you can't make this time commitment, you may have to readjust your expectations as to how much you can make your account grow.

In the end, just know that success depends on YOU.

Do you have the discipline to grind it out consistently to tweak your skills and gain the experience needed to navigate the markets?

If you don't, then expect inconsistent returns, if any at all, over the long term.

Lifestyle Considerations


How much time each day/week/month (whichever is most appropriate) can you dedicate to the various requirements of trading and managing a trading system?

Your time availability will determine your trading style.

The shorter the timeframe you are trading, the more time you need in front of the charts.

If you're a day trader, since you're entering and exiting trades throughout the day, you need to be glued to the screen the whole time.

The longer the timeframe you trade, the less you have to watch the market. You can simply check your trade from time to time.

Don't forget about distractions!

When you say you can trade for 8 hours a day, does that mean 8 hours of your undivided attention staring at charts and analyzing economic data releases OR does that mean 8 hours of staring at charts, analyzing economic data release, cooking your Honeybun some breakfast, juggling knives, playing with your kids, watching Justin Bieber on YouTube, following Lady Gaga on Twitter, stalking someone on Facebook, and saving the world from the forces of evil?

Because if you were a scalper, you'd probably missed a lot of entries and exits, and end up instead scalping your own head due to your many losses or missed winning opportunities.

You also need to dedicate time to developing AND tweaking your trading system. Trading your system will require you stare at charts looking for possible entries. Once you're in a trade, you then need to manage it.

After you exit, you need time to review your trade and look for ways to improve. And then you need time to write everything you felt and did in your trading journal.

How much time you'll need to accomplish all of this will depend on your trading system.

Naturally, your trading system needs to factor in how much time you can dedicate.

This is all assuming you only have ONE trading system.

You should repeat this process for every trading system you wish to trade.

Whatever "operating hours" you decide, just make sure you're able to commit to it consistently.

Risk capital

What is your risk capital? How much money can you trade with and afford to lose all of it?
You need to determine if you can even afford to trade.

Trading should only be done with risk capital.

Risk capital is money that you can lose.

This is the kind of money that if you lost, you wouldn't lose your home, car, spouse, limbs, electricity, etc.

Don't risk what you can't afford to lose!

If you're playing with money that you need to pay the bills, it will have a huge negative impact on your ability to make objective trading decisions.

Imagine how stressed you'll be while your trade is open knowing you might not be able to put on the food on the table if you get stopped out.

Every time a pip goes against you, you'll be thinking, "There goes tomorrow's lunch!"

You don't want to end up starving, homeless, and broke now do you?

Unless you do.

In that case, go ahead and risk all your hard-earned money in forex.

Motivation and Goal Setting


What motivates you to be a trader?

Is it to become filthy rich? Is it for the thrill? Is it because you want to do something challenging and exciting? Is it because the girl you like trades currencies and you want to impress her?

It is important to know what your true motivation is, or whether you should even be trading at all. Traders who aren't serious or committed to the craft will be quickly eliminated by the market.

For example, seeking thrills and seeking consistent profits don't go together. You might enjoy the thrill of putting on a humungous "I'm betting the farm" position, but believe us, you won't be smiling once your trade blows up in your face.

If thrills are what you seek, go to the casino, jump out of a plane or try driving an F1 racing car.

Better yet, if you want a real thrill, drive an F1 racing car out of a plane and land in a casino. Now that's a real thrill! And you might even lose less money than if you were trading.

What have you determined to be your goal(s) for trading?

This can be expressed monetarily using a profit goal (either in currency or percent return) per unit of time. For example, you might choose a goal like making $4,223,834,145.53 per month, or achieving a 529% return every week.



This doesn't necessarily have anything to do with money. Like "My goal for trading is be able to buy them new Space Jam Jordan 11s so I can impress my lady crush and she can fall in love with me and we can live happily ever after."

Or "My goal is to have enough money to have plastic surgery so that I can look like Halle Berry and have everyone eating out of my hands."

Okay.

We lied.

Everything has to do with money.
Whatever you decide, just make sure it's specific and measurable. Set trading goals that will help you develop as a trader.

It can't be vague like "I want to be rich". Changing it to "I want to be super rich." does not count.

Be specific!

"I want to make 1% every week."

"I want to be winning 50% of the time by the end of this year."

"I want to double my account in six months."

"I don't want to make any trading mistakes for the day."

By making your goals specific and measurable, not only will you know what you really want, but you'll be able to monitor your progress and see whether you are improving or not.


Getting to Know Yourself


The first step in building a trading plan is to realistically take a holistic view of yourself.

The foundation of your trading plan starts with your self-reflection because you will be the only one using it. This self-reflection will reveal your trader profile, which is basically who you are as a trader.

Who you are as a trader will define what kind of method suits you. Strategies, systems, and methods which aren't compatible with your profile and style will drastically lower your chances of success.

While most traders want to immediately jump into creating or finding trading systems and strategies, they won't know which ones match their personality and unique situation if they don't spend some time on self-reflection first.
Before you think about clicking the Buy or Sell button on your trading platform, there are some questions you should ask yourself so that you can better form your trading plan. While you're at it, you should write down these answers. Writing down your answers will help remind you of what you're going to do and help make sure you stick to the plan.