Posts Tagged ‘day trading’

More on Technical Indicators

August 14th, 2009
by Ahmad Hassam

Moving Average Convergence Divergence (MACD) is the difference between the 26 day and 12 day exponential moving average. A 9 day exponential moving average called the signal or a trigger is plotted on top of MACD to show buy sell opportunities.

You can use MACD in three ways: Crossover, overbought/oversold conditions and divergences. In wide swinging markets, MACD proves most effective. When MACD falls below the signal line, the basic rule is to sell. Similarly, when MACD rises above the signal line and cuts it from below, it is a buy signal.

When the shorter moving average pulls away from the longer moving average, it is likely the price is overextended itself. This indicates, it will comeback to the realistic levels soon. MACD is also very useful tool in telling whether the market is overbought or oversold.

An indication that an end to the current trend may occur soon is when MACD diverges from the currency pair. A bearish divergence occurs when MACD is making new lows and the currency price fails to reach those lows. Similarly, a bullish divergence occurs when the MACD is making new highs but the currency price fails to reach those highs.

Momentum is an oscillator that indicates the rate of price change not the actual price level and it is the net difference between the currency pair closing price and the oldest closing price from the predetermined period. The signal is triggered when the oscillator crosses the zero line. The more responsive the momentum oscillator will be to the short term price fluctuations, the shorter the number of days included in the calculations.

Another important technical indicator is the Relative Strength Index (RSI). It indicates a markets current strength or weaknesses depending on where the prices close during a given period. RSI is plotted on a scale of 01-100. A buy signal is triggered when RSI moves up from the lower band above 30. Similarly, a sell signal is triggered when RSI moves down from the upper band and comes down below a level usually set at 70.

Rate of Change (ROC) is another version of momentum oscillator sometimes used. Instead of subtracting the oldest closing price from the current closing price, the ROC formula divides the current closing price with the oldest closing price.

One of the most popular indictors is the Volume Indicator. It is used to show the strength of an up or down movement. A movement accompanied by an increasing volume is more likely to continue strongly than a movement accompanied with decreasing volume.

Many traders use volume indicator as their only tool in trading. Others use it in conjunction with charts, economic news and geopolitical news. The Volume Indicator is a great source of confirmation, entry and exit signals and overall trading decisions. Learn to use these technical indicators. Become comfortable in using them and discerning trends on different currency pairs and time intervals.

About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading and swing trading stocks and currencies. Trade Dow Futures. Learn Forex Trading.

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Where To Place Stop Losses?

April 23rd, 2009
by Hass67

The intra day forex market is full of noise that it becomes difficult for new traders to understand where to put the stop loss. There is so much noise in the forex markets in the short run that prices tend to jump 10-20 pips for no apparent reason.

This becomes frustrating for many new day traders. Most constantly find their stop losses being tripped due to noise even when the rates are going in the anticipated direction.

Many new forex traders develop the habit of using a static 10-20 pip stop loss. This is an arbitrary decision. Many also try using a trailing stop loss. However, if placed too close; your stop hits too early. And if placed too far; you will have to forgo potential profits if the price retraces later on.

You should place your stop loss on dynamic levels. Most of the professional traders do use stop loss but mostly place it on their computers making them invisible to their brokers.

Because if brokers find many stop losses at a particular price level they can easily trip them using a momentary blip in their price feeds. You cant do anything. It was a momentary spike during to a sudden large transaction in the market. This is known as Stop Hunting.

Do you know this many professional forex traders only use a stop loss in their mind. They plan entry/exit for each position. Keep on monitoring it changing, the stop loss in their mind as the rate fluctuates. When they reach the desired outcome, they close the position. With experience, you will also learn to do the same.

Dynamic stop losses can be easily placed using Moving Averages, Bollinger Bands, SARs etc. Using a dynamic stop loss is a good way to manage your risk while letting the currency markets do what it wants.

With more experience, you will learn that placing fixed stop losses actually harms more. Rather than helping, using a fixed stop loss can hurt you more emotionally, psychologically and profit wise.

Try not to trade just before or after a major economic news release. Try not to place stop loss close to/at round numbers. And try not trade in times of thin liquidity in the currency markets.

You should understand that your broker can and will use stop hunting to take out your positions using noise in the market as an excuse. Forex trading and casinos have many things in common. You should learn how to beat the markets and the brokers only then you will become a successful forex trader.

About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in investing; options and forex trading. Discover a revolutionary new broker buster Forex Robot. Learn Forex Trading!

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More On Forex Brokers Scams

April 22nd, 2009
by Hass67

You as a retail forex trader need to understand that forex brokers are in the end above all marketing machines. Since more than 90% of the new traders dont survive long and give up trading after losing their hard earned money, forex brokers need a constant flow of new clients.

To entice new traders, vast sums of money are spent on advertising. Just Google, any keyword related to forex and you will find so many ads by forex brokers giving you so many incentives to start trading forex.

Forex brokers want you to trade more. They use many methods as incentives to make you do that. One of the methods is to hold a Forex Trading Contest by announcing cash prizes of $2000, $1000 and $500 for the top three.

In order to win, many small traders get wiped out losing their money. This is just a trick forex brokers use to make you trade more. The more you trade, the more money your broker makes. This trick is similar to a lottery.

There is no check on the forex brokers. They can quote any rate to you. Forex brokers do this by adding 2 3 or even more pips to the interbank market pip spread

Just imagine by acting only as middlemen between the interbank market and retail forex trader, forex brokers make risk free profits of 3 to 4 pips on a round trip trade.

There is a practice used by forex brokers called Price Shading. For example, if the broker is convinced that Euro is on an uptrend and its price is going to rise, the broker will shade his price quote slightly higher to take advantage of the likely increase in Euro price.

If the broker sees that many traders have placed stop orders at a certain price level, he will mount a sudden attack to take out all the stop order by momentarily spiking his price feed.

You cant do anything. It was a momentary spike, so small that it only tripped the stop losses.

Since, there is no central exchange to compare moment by moment prices, your broker can offer any excuse like there was sudden large order in the market or the broker feed is much faster and reflects true interbank rates.

About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in investing, stock and forex trading. Discover a revolutionary new broker buster Forex Robot. Read about Semi Automatic Forex Engine.

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Are Great Traders Made?

April 13th, 2009
by Hass67

The question is can anyone become a winning forex trader? Yes anyone can in my opinion. The only thing that is required is a winning trading plan. If you have not developed a good trading plan than dont enter the forex market. First develop one. Forex markets are not going anywhere. These markets will be there next year and after that. Enter only when you are prepared.

Let me tell you about a great experiment in history. This experiment is a perfect example of developing and then implementing a winning trading plan. This experiment was known as Turtle Traders Experiment.

Richard Dennis and Bill Eckhardt were two great traders and partners who were arguing one day on whether great traders are born or made. This was the year 1983. Both were commodities speculators.

Bill was saying that great traders could only be born and not made. Richard had the opinion that great traders could be made through good training. To settle the argument, both agreed to select and then train a few traders to see the trading results after training.

An advertisement was placed in New York Times, Barrons and The Wall Street Journal. 1000 applications were received in response to that advertisement. The Turtle Trading Experiment had started.

Only 13 applicants were selected after shortlisting and interviewing 80. Those selected were known as Turtles.

The turtles were given training and a complete trading plan based on rules on how to apply it. Richard would always emphasize to the turtles that he could give these rules to anyone but these rules were useless unless they were applied consistently.

So, the actual success in trading whether forex, stocks, commodities or futures lies in having a good trading plan; You need to have a trading plan that is exact. In other words is mechanical and ruled based does not depend on your emotions. Learn to control your emotions in trading.

In the end, it is discipline and consistency that will make you a winning forex trader in applying your trading plan. Who says, you cannot become a Great Trader!

About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in Options, Futures and Forex Trading. Download Turtle Trading Rules.

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How Scalping Works in Forex Trading?

April 12th, 2009
by Hass67

Forex trading can be done short term or long term. Most of the day traders are short term traders who open positions each day and close those positions before the close of the day. Some traders use fundamental analysis as a trading strategy. They are usually long term traders opening a trade for a few weeks or a few months.

Most of the day traders are short term traders. Day traders love scalping. A position is opened and closed within minutes making a few pips per trade.

Scalping means making 2-5 pips per trade; it is based on the fact that most of the time the markets are consolidating. In other words most of the time there are no significant movement in the markets.

When the market is consolidating and ranging best suits the scalpers. For example between the close of the US market and the open of the European market, forex markets tend to be ranging for hours. This is the best time for scalpers.

But scalpers have to make more pips per trade than the pip spread offered by brokers in order to break even. For example if the broker is giving a 4 pips spread to you than you will have to make more than 4 pips per trade to start making profits. Dont forget the spread is your cost of trading.

In order to become successful at scalping you need thorough understanding of technical analysis. You should have an idea of how to determine over/under brought, support and resistance levels, trendlines, trading channels etc before entering into a trade.

Most of the forex brokers dont like scalpers. Many will try to ban you if you are found scalping, since the brokers are most of the time trading against you, a successful scalper can take profits away from the brokers.

In order to make profit with scalping, you need to scalp many times in a day. At the end of the day, the pips made should be more than the pips lost.

Since scalpers are looking for capitalizing on very small gains like a few pips per trade, the profits obtained per trade are small. So scalping requires you to use high leverage.

Leverage can be dangerous. Leverage will work as long as you are beating the markets. But it will wipe you out if you ever get caught on the wrong side of the market. Understand leverage before you use it.

About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in investing especially stock and Forex trading. Discover a revolutionary new Forex Robot!

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