Forex Scalping

Forex Scalping can also be called a quick trading. It is a method where traders allow their positions to last only for a matter of seconds, to a full minute and rarely longer than that.
(As a rule if a trader holds to a position for more than a minute or two it is considered no longer a scalping, but rather a regular trading.)

The purpose of scalping is making small profits while exposing a trading account to a very limited risk, which is due to a quick open/close trading mode.

There wouldn’t be any point in scalping for many traders if they weren’t offered to trade with highly leveraged accounts. Only ability to operate with large funds of, actually, still virtual money, empowers traders to profit from even a 2-3 pip move.

How do they do it? Suppose a scalper opens a trading position of 100 000 units with EUR/USD. For each pip he will now earn $10… Closing in with only a 3 pip profit brings it up to $30 — not bad for less than a minute of work.

Now, you would probably ask what Forex brokers think about it, because if a scalper constantly wins, the broker would obviously sustain some losses.
That is why the other popular discussion topic is always at scalpers’ attention: What Forex broker would allow you to scalp the market?

Obviously, dealing desk brokers would not agree with scalpers’ trading style and most likely will ask a trader to change his/her trading habits or to find another broker. But, even if a scalper stays in, there is another method to slow scalper's performance down and it is to set delays between an initiation of the order and its actual filling. The reason behind it is that dealing desk brokers need time to countertrade/process each order to prevent own losses in case a trader closes in profit.

The broker that will not object to scalping is the one that has the best trades processing automated platform. Using straight through processing there is no intervention between a trader and a market maker — the software is taking care of the whole business process. So, it’s more likely a broker with a “slow” business processing platform would object to scalper’s trading style.

Related Posts :

1. Tips and Facts about Scalping in Forex

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1. Forex Scalping | by Edward Revy on April 22, 2007 - 09:28.

Tips and Facts about Scalping in Forex

The only way to make small account big in a short period of time is through the use of really high leverage. But wait, do not jump of the cliff right away. Start with reasonable leverage for scalping, for example 20:1 or at most 50:1, then move on as you see scalping skills improve. But even before that do not be lazy to demo trade your scalping system – make sure it will not disappoint you later.

The only way to trade with high leverage without risking blowing up an entire account in only 10-15 trades is by trading with a tight stop loss. Trading without stop loss will "kill" your investment in no time.

It is wise to decide on the size of the trading lot and exposed risk in advance. Do a simple math: calculate the worst possible situation, e.g. 10 consecutive losses in a row; then see if your account will survive and if there be something left to move on. And, although 10 losses in a row is a very unlikely scenario, you cannot deny it.

Although Forex is active 24/7, not every hour is suitable for scalping. No scalper wants to sit in front of the monitor for numerous hours bored and disappointed with the "sleeping" price as it literally moves nowhere.Scalpers hunt for volatile, liquid market. There are 4 major market sessions: London, New York, Sydney and Tokyo session. To trade effectively scalper needs to learn behavior of a chosen currency pair and define most active sessions, even particular hours for this pair to be able to catch good price moves.

Another thing to keep in mind is spread which brokers charge for different currencies. The higher the spread the harder it will be to collect desired pips (because once trading position is opened, trader must cover spread cost – earn pips for broker first – and only then collect own pips). And, of course, the lower the spread the easier/faster it is to accumulate pips.

Another factor to consider is an average daily range of the price for chosen currency. The wider it is the more realistic is an opportunity to profit from price moves. One of the scalpers’ favorite currency pair is EUR/USD with its low spread and good daily price range.

While using high leverage combined with high frequency trading, scalpers should be very cautious about the cost of actual trading, as each pip here makes a dramatic difference after a large number of trades. This means being very careful with entries and exits, stops and limit orders, and also be very realistic about profit targets.

Once in the trade, scalpers should manage trading risks by:

1. Moving stops to break-even as soon as situation permits;
2. Taking profits at a logical levels: at round market price numbers: 00, 10, 20, 50 etc., at previous support/resistance levels, at Fibonacci levels etc.
3. Getting out of the trade if the price freezes for longer time than expected.
   

Scalp-trading is very demanding and requires a lot of concentration, constant monitoring of the price and very quick decision making. Also, short time frames used in scalping strategies, require a good grasp of trading complemented with sound technical analysis skills. It is not a place where beginners feel very comfortable as it demands from traders a good chunk of experience.

Scalping involves substantial risks
A lot of beginners have common problem when trading highly leveraged accounts – they tend to maximize profits by trading with full capital at once. Do not do that! Maximizing chances for higher profits goes hand in hand with maximizing risks! The size of positions opened must be calculated very accurately so that your entire account will not be wiped out with just one(!) very unfortunate trade.

Another factor that increases risks for scalpers is the spread traders pay when open a trade.
Each time a new trade is open, the spread cost is paid to the broker, thus opening 10 small trades instead of 1 long term trade increases the cost of trading in 10 times. If to measure risk/reward ratio of such scalping activity it may show very risky and potentially losing trading.

Example:
With GBP/USD currency pair a scalper sets profit target of 10 pips and stop loss of 10 pips. So far it is 1:1 risk/reward ratio.In the next step, when the spread is added, the picture changes. For example, the spread his broker charges for GBP/USD is 4 pips.When scalper opens a position he is -4 pips (the spread has been charged). Now in order for him to reach the target of 10 pips profit, the price has to move +4 and +10 pips = 14 pips. On the other hand, in order to trigger his stop loss the price should move -4 is already in place. So, only -6 pips and he will be stopped at total of -10 pips, the risk-reward ratio has changed in over 2:1, not very promising situation indeed.

To understand the full challenge of scalping as a trading style, consider this: hard work and small gains accumulated over a decent period of time could easily be wiped out with one large loss. Finding a balance between profit levels and size of acceptable losses presents the most difficult challenge to scalper’s strategy.


Sources :

1. Tips and Facts about Scalping in Forex | by Edward Revy on April 22, 2007 - 11:49.

Trend Following Forex - 3 Simple Steps to Catching Big Profits

If you want to catch the big profits in forex trading you need to trend follow forex trends which are longer term. Here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every major forex trend and lead you to long term currency trading success.

Most novice traders don't bother trying to trend following forex longer term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profits however as most short term moves are random, this leads to equity wipe out.

The other choices are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long term trends that last for months or years. These moves can and do yield big profits - here we will outline a simple method to catch them.

Breakouts

By far the best way of catching the big moves is to use a forex trading strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most major moves start from new highs or lows.

While it might appear that you are not buying or selling at the best level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The reason for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is broken, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the wider the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout continues and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your trading signal.

These indicators give you an idea of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the best are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop levels are easy with breakouts - Simply behind the breakout point.

If you have a big trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a big move, trailing stops should be held a long way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a big back, as that's the nature of trading forex. Keep in mind if you got 50% of every major trend you would be very rich. When you are long term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend follow forex and catch the high odds moves that yield the big profits. If you are learning forex trading and want a simple method that is robust and will help you catch every major move, then you should base your Trading on the above method.

Related Posts :

1. Support and Resistance Level
2. How To Identify Forex Market Trends
   

Sources :

1. Trend Following Forex - 3 Simple Steps to Catching Big Profits

Reading Price Action

Reading Price Action means different things to different traders, just like “going long” means different things to a trader than a porn star. Price action can talk in several layers (like onions, not everyone likes onions, cake! .. everyone likes cake! .. cakes have layers). The talk comes from the macro level of price patterns and formations, to the micro level of single bars or candlesticks. Looking at what micro level price action is telling you gives you hints on when macro level patterns might play out.

Reviewing each type of macro pattern is beyond the scope of this article (and beyond the knowledge of this author), but some specific patterns will be addressed in later articles. Instead we can look at the micro level from a days action on the currency markets.

The concept for me for micro analysis is quite simple. Look for where buyers are, where buyers were and vice versa. A chart is nothing more than a story of buyers and sellers battling it out for supremacy, with their blood trails left behind for us all to see.

I will caveat this analysis with one thing, when it comes to forex analysis, single candle analysis (note not candle formations) on a daily or a four hour chart is pointless. The currency market is a market with no daily close except for the friday weekend close, which even in itself is slightly different for all.

A daily close is essentially invented by which session we deem most important, but this can change between markets and between currencies depending on the happenings at the time.

A four hour candle depends entirely on when your broker starts the day off for you. Mine might open Monday markets at 7am Sydney time, your at 8am, that would mean my four hour candles close and hour before yours, how can we tell which close means what?

So why not exclude the hourly or the weekly from this single candle analysis? The weekly close does make sense, the retail currency market across the globe closes at approximately the same time on a Friday, so a weekly candle close has some significance. True it is approximate, but in a weekly context it is certainly close enough.

An hourly chart also makes sense. An hour is an hour is an hour, doesn’t matter if it is the 3pm or 10am, it is still the end of an hour everywhere, so everyone is seeing a close of an hourly candle at the same time, giving it some meaning.

An example of one days action on a 15 minute chart is below. This is one I prepared a few days ago (when I originally intended to write this article) on the EURJPY spot currency cross (click to enlarge):


There is an aweful lot of annotations there I know, so I will let the picture do most of the talking. There are a couple of things to note however.

Firstly, trader pain is important, sellers and buyers out of the money are going to look to close at break even more often than not, especially those that get caught out by strong moves with no stops. So watch for a sign of buyers or sellers being reversed upon quickly, chances are they are in panic mode and wanting to close.

The next thing is to ignore colours, in this chart a black candle is one with a lower close than open, a white candle with a higher close than open. They should not be called bull or bear candles based on their colour. The close vs open relationship does not necessarily indicate whether that period was dominated by the bulls or the bears. A candle with a long upper wick yet a slightly higher close (doji) is a bearish candle not a bullish one. It is why the old timers always seem to have better price reading skills (I am talking the pre-computer old-timers). They had to hand draw charts, and so colour was not necessarily a factor and they didn’t have technology to make them lazy.

Don’t let the convenience of technology make you forget that there is a story being told. It is too easy with automated systems, computer generated indicators and complex charting techniques to forget that we are still trading the discrepancy between supply and demand, nothing more.

To be a professional trader, you need to work out how to take money from the ametuer traders, as there is not enough to go around for everyone. If you learn (from yourself and others) what the ametuer trader would do (i.e. no stops, late buying and selling, panic and elation) then you can take advantage of those reactions when reading the charts and refining your entries. Be the exception, not the norm.

Related Posts :

1. Buyers vs Sellers
2. Trading Support and Resistance
   

Sources :

1. Reading Price Action | Written by Akuma99, October 31st, 2008 at 10:26 am.

Buyers vs Sellers

In the land of the squiggly line, it is becoming easier to find someone who thinks George Bush is intelligent than it is to find traders online who read price action for a living. I preface it with the online because I know there are still many professionals out there who trade with minimal or no indicators, but the are usually too busy making copious amounts of money to be hanging around the online world.

A recent article in Technical Analysis of Stocks & Commodities featured an interview with Jack Broz. Jack is a member of the Chicago Board of Trade (CBOT), and trades Bonds and Dow futures in the pits, and from the screen. In this interview he made some interesting observations of floor traders, but it was this paragraph that warmed my heart:

"… The bias of the floor. Are the floor traders trying to buy dips, or are they trying to sell rallies? Are they bullish or do they want to buy strength? What levels are they using? One thing I have noticed as I trade more is that nobody in the pit uses indicators."

Nobody uses indicators in the pit, which of course seems obvious in hindsight considering the chaos that is the pit of CBOT:


Not really a place for the squiggly line is it. The speed and frantic nature of the pits ensure that trading is done with the minimum of frosting.

What I think is forgotten at times is we are trading financial markets. It is called a market for a reason, it is no different than your local farmers market or super market, it is still a place for someone to either buy a product they need from someone who want to sell it to them, or vise versa. It doesn’t matter if you are buying an apple, shoes or gold, either way the process is the same, you buy from someone who wants to sell.

The most successful technical traders are those that know what this might look like on chart. If you have a long bias on an instrument, i.e. looking to buy, who are you buying from? Sellers, stating the obvious I know, however the amount of traders I have worked with that seem to forget this simple fact indicates that perhaps it is not as obvious as it seems.

If you are at a market, that market has fruit and vegetable stalls, arts and craft stalls and hardware stalls and you want an apple, chances are you are going to look for the physical characteristics of someone selling an apple. You might be looking for a Greek man with an apron, a fruit van or other similar products in the general genre of apples. If someone has a stall with pears, chances are their are apples there as well. Certainly a much better chance than if they were selling hammers.

Back to our buying idea, there are two things we need for price to go in our direction:

1. Someone to buy from (sellers)
2. Other buyers to support the purchase (momentum)
   

Knowing where new buyers are can be difficult to spot. In the majority of cases they are the silent minority, they have left little or no footprints as they are not in the market as yet. In fact, you, as a potential buyer, are one of those exact buyers.

Potential sellers however have left tracks, they are already in the market, and so spending your time looking for where they were could be a much more productive use of your charting time. The most desperate sellers are those that are feeling the pain of a losing position. We all know the feeling, when we are holding a losing position and are going through the “if it just comes back to break even” game.

This scenario is most commonly called reverse polarity. This is where support becomes resistance and resistance becomes support. Visually this usually looks like:


So if we are buying, looking for sellers at previous resistance (i.e. where sellers last came into the market), in this instance looks like a fantastically easy way to find who you are going to buy from. Naturally things aren’t always that clear cut, for example:


While there was one polarity change here, we had a couple of turns that seem to turn in mid air. Some might put it down to a mysterious ratio found in the ancient pyramids, sunflowers and the patterns in the hair on my left arm (you know who you are). While others might look for reasons in price itself.

The theory of sellers in a panic wanting to offload them to buyers can take a different visual form. To the left is a close-up of one scenario. Here we have six blue candles, which at first glance makes you think six bullish candles.

Candle three however is anything but a bullish candle. It’s long upper wick indicates this is very much a bearish candle, with heavy selling coming in at the top of the range. Another instance of reverse colour blindness.

The next three candles however returned to strong bullish candles. There must have been a strong reason to be going short in an uptrend. After the close of candle three, those sellers would be feeling rather chuffed at their intelligence, thinking they have picked the top. The next three candles reverse those feelings quickly, and that comfort now turns to panic, and they are now more than happy to offload their positions to anyone wanting to buy.

Let’s go back to the previous chart with this in mind and look at those mysterious turns again:


Not so mysterious .. certainly no ancient mathematics involved in these cases. You can see in the zoomed in versions that each case this time had sellers being reversed on quickly, providing some very eager sellers looking for others wanting to buy what they have (see the link to the farmers market … knew I would get there).

There are many variations on the theme, but breaking things down to the core of market behavior; buyers and sellers, can sometimes clear the brain enough for you to make some money. Have other visual representations of this scenario? Let us know.

Related Posts :

1. Trading Support and Resistance

Sources :

1. Buyers vs Sellers | Written by Akuma99, December 16th, 2008 at 10:05 pm.

10 Tips For Beginner Traders

Since I have started posting here I have received quite a few questions from readers, fans and enemies (or is that frenemies) regarding how they can make their million dollars a day. I usually tell them if they want easy money, then there is a vacancy at the Happy Ending Massage Parlour down the road, just send me your resume, im sure things will work out. Trading is not about fast money, gambling is, nor is it supposed to be easy.

The potential for enormous wealth is there granted. Look at the pure mathematics of compound interest, the most powerful force in the world (Einstein). But usually things don’t turn out that way. We are after all emotional beings with (hopefully) a life other than trading, things just don’t turn out as cleanly as the columns on an excel spreadsheet. Humans are mistake riddled beings, it’s just some know how to hide them better than others.

"You make money when you exit,
not when you enter."

As hard as it may be to believe, despite consistent trading for close to a decade, I am not a billionaire just yet. I make some nice monthly percentages, I trade actively around two hours a night, and I have a gorgeous wife, a cute child, a hairy chest and a wooden leg. I still do some programming work (my trade) and will retire (from 9-5) a month before my 35th birthday. I started with $53.60, trading will make that my retirement income.

I don’t however like being (too) rude to those starting out, and so after they strangely decline the alternate job offer, I usually provide the following 10 tips for the beginner trader;

1. There is nothing price doesn’t say, we just don’t like to listen.
2. Common sense makes uncommon cents.
3. “Most technical analysts were originally fundamental analysts, I’ve never heard of anyone who made the journey in the opposite direction.” (Brian Marber)
4. You make money when you exit, not when you enter.
5. The trend is your friend if your friend is the trend.
6. Insert the word “hopefully” before every instance of “will” in your trade idea.
7. Get out when your reason for getting in no longer exists.
8. You do not know what the market will do, the quicker you realise that, the richer you will be.
9. Most people on trading forums are there for the same reason as you.
10. Respect your trading elders (not necessarily with the first name of Alexander).
    

I could go on with more terrible proes but I will spare you the pain, there are many more that one day I may post, but let us know if you have some of your own trading laws.


Sources :

1. 10 Tips For Beginner Traders | Written by Akuma99, October 27th, 2008 at 9:47 am.

Trading Support And Resistance

Do you think you could earn your fortune from one horizontal line? If that horizontal line was a conga line of rich millionaires with holes in their pockets, then certainly you are a big chance. Throw on a Hawaiian shirt, fire up some Beach Boys and you are on your way. For those not fortunate enough to be invited to the last Donald Trump Bar Mitzvah, there could be another way (although granted the first way sounds much more fun).

The theory behind Support and Resistance is really very simple, when price turns and doesn’t return to it at the point of observation, that is resistance or support.


When you see a bounce off support like we did at the closing hour of the SP500 yesterday, trading these levels seems splendidly easy. Of course, as is everything else to do with trading, it isn’t as easy as first glance. Here is the counter-argument for trading Support and Resistance on the SP500.


Six identified support are resistance areas, six failures, not such a good method at all then is it. Recently while getting my thai strethcing massage and a pedicure, I printed out ten years worth of data on the AUDUSD spot currency pair. On it I marked the clear weekly support and resistance levels. I then tested how many of them held for at least one retracement, an attempt to be realistic with real time trading practices.

The result from this study was that clearly many others don’t do the same due diligence. The results were not pretty, well below 50% success. Taking these levels at face value obviously isn’t going to cut it in the age of the smooth equity curve.

Clearly something else is needed to help identify those that hold, so I took advice from the most experience market expert in the business, who has been telling traders what to do for centuries, price. Let’s go back to the chart of ugliness, the six out of six loser chart and see where price told us that a support or resistance level was going to hold :

1. A strong bar up with a close at it’s absolute high, next bar gapped slightly and closed up, certainly no indication there of a reversal.
2. A consistent run up into resistance, even an aggressive trailing entry behind each low would not have got you in here, again no sign.
3. The only one that gave a hint of a turn, a small reversal bar with a lower close bar to follow, the stronger move up compared to the smaller move down either side of the pivot might have hinted of a lack of follow through, but really that is hindsight analysis, so a loser there.
4. A very small pause bar at support, looking for confirmation next bar gave us a strong momentum bar below support, no signal there.
5. Finaly another strong bar up intro resistance, no low was taken out, so no signal until the high right at the top of shot.
   

Six levels, only one of them gave even a hint that it was going to hold. Simply listening to what price is telling you would have kept you on the sidelines avoiding the carnage that the blind traders had to endure. Now to look at the opposite scenario, when price does hold, this time on the Dow Jones.

1. This is the kind of thing authors eyes get attracted to, it is also what cause sweeping statements about trading support and resistance in public forums. This time price gives us a sign, a move to support, an inside bar to indicate indecision, and a nice momentum bar with a lower tail to indicate the bulls are in control.
2. Not so effective, but a signal none the less, a move to resistance, and nice big long doji bar, and a small move down off resistance. Not a retirement trade, but certainly a chance to lock in break even.
   

It is clear when trading support and resistance it’s just as important to listen to price as it is to have your fly done up. If you don’t, you are in for some embarrassment in hindsight. Listening to price can give you hints about whether a level will hold, whether you apply it to support and resistance, fibonacci (don’t get me started), or any other mathematical bullocks you like.

Listen to price as though the Greater Power is speaking directly to you, as the market too is bigger than all of us, it just speaks to us a little more often.

Related Posts :

1. Buyers vs Sellers
2. Reading Price Action
   

Sources :

1. Trading Support And Resistance | Written by Akuma99, October 24th, 2008 at 4:19 pm.

Timing is Everything With Forex Trading

The most challenging part of getting started with Forex trading is to learn this innovative way of trading. Many potential investors that try to navigate the Forex system unaided end up being frustrated and financially intimidated. There are very simple strategies to becoming successful using the foreign exchange trading system but the first step is gathering all of the necessary information surrounding this type of trading specialty. Securing a reliable Forex trading broker is likely the first and most pivotal step after learning the initial principles.

Unlike many types of trading and futures, foreign exchange trading is not designed to make the client rich quickly. Many people are frightened off by the word that Forex trading is a get rich quick scheme that in large part, doesn't work. This is a financial myth despite all the hype surrounding the foreign exchange trading system. There are steps and gains to be taken in order to secure a future in successful trading. Expect to dedicate a large portion of time to researching and understanding the market in general before setting out with your pocket book ready to invest. Learn all you can about the Forex market in the beginning in order to make the Forex trading path a smooth and triumphant one.

There is no doubt that there are numerous types of orders that can be utilized in order to open and close trades and becoming familiar with them is a must. In the foreign exchange trading business there are charts, graphs and other visuals to help you effectively analyze trends in currency trading. These charts and graphs will assist in making well-informed decisions on what currency to sell. Timing is everything and it goes without saying that when experiencing with the Forex trading system, knowing when to trade can be the pivotal difference between success and failure. Understanding the analysis tools and how to use them efficiently will put any investor on the right track.

As well as proficient trading tools, it is an absolute necessity when using the foreign exchange trading system to understand how to use the software to perform actual trades. The only way to become comfortable with using Forex trading software is to use it and learn how to plot a course through the process. Selecting a good trader is the most imperative tip at this stage because an established trader can help you with the services required as well as giving you in depth tutorials using the foreign exchange trading system.

The most critical tool that will be utilized in the Forex trading system is patience and discipline. As mentioned earlier, foreign exchange trading is not a get rich quick proposal so learning patience and discipline can help you to become profitable in a timely fashion without losing money. Most brokers offer a demo account that can be used to practice and learn the foreign exchange trading system that mimics the real account with the exception of real money being traded. This gives a client insight into the market and its behaviors before actual money is invested. Learn how to make a profit using paper trading on a regular basis before risking your capital with Forex trading.

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Troy Degarnham is the author and webmaster of http://www.forex-trading-brokers.info an informative website about Forex Trading Brokers. Extensive help and tips on systems, software, signals, forex trading, forex brokers, courses, and other secrets to help you gain financial freedom.


Sources :

1. Timing is Everything With Forex Trading | Troy Degarnham

How to Identify Forex Market Trends

There are basically three major factors that influence and affect forex market trends - economy, political conditions and market psychology.

1. Economy
Economic factors are the most basic things that create changes in a country's currency. When such economic conditions as a budget deficit or surplus is present within a country, there will surely be reactions in the market and values will be reflected on currencies. Other conditions may also include inflation trends, and the general economic growth of the country.

The more prosperous a country's economy is, the more investors will be able to adhere to doing trade in a more positive attitude. Such indicators as a growth in a nation's gross domestic product (GDP), employment levels and retail sales among others will basically attract more investors and that nation's currency value will likely go up.

2. Political Conditions
Another very important factor that influence trends in Forex, are the conditions of a country's political sector. This is because political instability or turmoil can generally create negative fluctuations to an economy. But if such instances occur wherein a country may rise above political obstacles, the opposite may occur and the economy may improve.

Events in a region can surely create negative or positive interest among investors for a nation's currency. And so, such conditions surely influence the trends for demands and prices of a certain currency.

3. Market Psychology
Of course, the perception of traders and investors will greatly influence the Foreign Exchange market in so many ways. After all, the market is highly dependent on whether or not people would want to invest on a country's economy in order to determine whether currency prices will go up or down.

For example, such conditions wherein unsettling international events may happen, people would generally want to look for a safe haven for their investments. Whenever there is a greater demand for a certain country's economy, then a higher price will be given to buyers and the currency's value will go up and become stronger.

Other events that contribute to traders perceptions may be long-term trends where people invest based on what they have seen for a long period and time, and even economic numbers where people may base their investments depending on what numbers show a greater value.

The market in Foreign Exchange is often unpredictable and fluctuating. Therefore if you are interested in doing trades in this market, make sure that you take the time to be knowledgeable about good strategies that can help you play the game.

But more importantly, keep in updating yourself with the different economic trends in the international scene. After all, this currency market would greatly revolve upon events that would occur in the different countries. Familiarizing yourself with the factors that affect the Forex will surely help you make better decisions.

How to Identify Forex Market Trends

Trend is simply the overall direction in which prices are moving - UP, DOWN, OR FLAT.

Chart Courtesy Forex Yard

Types of Trends

The direction of the trend is absolutely essential to trading and analyzing the market. In the Foreign Exchange (FX) Market, it is possible to profit from both UP and Down movements, because the buying and selling of one currency is always linked to another currency e.g. BUY US Dollar SELL Japanese Yen (USD/JPY).

Chart Courtesy Forex Yard

Up Trend. As the trend moves upwards the US Dollar is appreciating in value.

Chart Courtesy Forex Yard

Down Trend. As the trend moves downwards the US Dollar is depreciating in value.

Chart Courtesy Forex Yard

Sideways Trend. Prices are moving within a narrow range (The currencies are neither appreciating nor depreciating).

Trend Classifications

Chart Courtesy Forex Yard

Information About Trendlines

The basic trendline is one of the simplest technical tools employed by the trader, and is also one of the most valuable in any type of technical trading. For an up trendline to be drawn, there must be at least two low points in the graph, where the 2nd low point is higher than the first. A price low is the lowest price reached during a counter trend move.

Chart Courtesy Forex Yard

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Trend Analysis and Timing

Markets don't move straight up and down. The direction of any market at any given time is either Bullish (Up), Bearish (Down), or Neutral (Sideways). Within those trends, markets have countertrend (backing & filling) movements. In a general sense "Markets move in waves", and in order to make money, a trader must catch the wave at the right time.

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Drawing Trendlines

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Trendlines I

Drawing Trendlines will help to determine when a trend is changing

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Trendlines II

Trendlines show support boundaries under prices. These boundaries may be used as buying areas.

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Trendlines III

Temporary trendline penetrations are not as significant as a close beyond the trendline.

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Channel Lines

When prices remain within two parallel trendlines they form a Channel. When prices hit the bottom trendline this may be used as a buying area. Similarly, when prices hit the upper trendline this may be used as a selling area.

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Find Price Support Levels

Price supports are price areas where traders find it is difficult for market prices to penetrate any lower. Buying interest in the dollar is strong enough to overcome Selling interest in the dollar, keeping prices at a sustained level.

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Finding Price Resistance Levels

Resistanceis the opposite of support, representing a price level where Selling Interest overcomes Buying interest and advancing prices are turning back.

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50% Retracements

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33% and 66% Retracements

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Sources :

1. Paul Hata: Factors That Influence Forex Market Trends
2. Technical Analysis: What is Market Trend?

Guide to Using Fibonacci Retracements Level

The Fibonacci retracements pattern can be useful for swing traders to identify reversals on a forex chart. On this page we will look at the Fibonacci sequence and show some examples of how you can identify this pattern.

Fibonacci Retracement Levels are:
0.382, 0.500, 0.618 — three the most important levels
Fibonacci retracement levels are used as support and resistance levels.

Fibonacci Extension Levels are:
0.618, 1.000, 1.618 — three the most important levels
Fibonacci extension levels are used as profit taking levels.

To set up Fibonacci on the chart we need to find out:

1. Is it uptrend or downtrend?
2. Highest and lowest swings in the chart formation (A, B points). And go with the trend!
   

We have an uptrend. A — our lowest swing, B — our highest swing. So, we will look to BUY some lots at the good lowest price and go up with the trend.

So, what we are expecting is next: the price should retrace (go down) from point B to some point C, and then continue up in the direction of the trend. Those three dotted lines (0.618, 0.500, 0.382) at the bottom on our picture shows three Fibonacci retracement levels where we expect the price to take a U-turn and go up again. There we will place our BUY order.

The best situation would be to buy at the lowest level — 0.618 — point C. And on practice the price usually gives us this chance. However, 0.500 is also a good level to place a BUY order.


Same steps will also apply to downtrend price movement.

Forex will often pull back or retrace a percentage of the previous move before reversing. These Fibonacci retracements often occur at three levels – 38.2%, 50%, and 61.8%. Actually, the 50% level really does not have anything to do with Fibonacci, but traders use this level because of the tendency of forex to reverse after retracing half of the previous move. Here is an example using a graphic explaining the retracement pattern.

This picture shows a graphical representation of the reversal points for forex in an uptrend.

After a forex makes a move to the upside (A), it can then retrace a part of that move (B), before moving on again in the desired direction (C). These retracements or pullbacks are what you as a swing trader want to watch for when initiating long or short positions.

Once the forex begins to pull back (retrace), then you can plot these retracement levels on a chart to look for signs of a reversal. You do not automatically buy the forex just because it is at a common retracement level! Wait, and look for candlestick patterns to develop at the 38.2% area. If you do not see any signs of a reversal, then it may go down to the 50% area. Look for a reversal there. You do not know if or when the forex will reverse at a Fibonacci level! You just mark these areas on a chart and wait for signal to go long or short.

Just remember...
Price is king. Wait for signs of a reversal before you initiate a trade!


Sources :

1. Fibonacci method in Forex charts.
2. How To Use Fibonacci Retracements.

How to Profit from Fibonacci Retracements in Forex

Fibonacci Retracements are probability points where a currency, or stock will "bounce back" to, after a large move, and then continue in the original direction. Think of Retracements in terms of Newton's Laws of Motion: "For every action there is an equal and opposite reaction."

Within this understanding, trading carries some of the same principals. However, I would like to add that after a large move, the opposite reaction loses energy quickly, and thus, is often why the 'reactive move' after a large move, is often less than the large move itself.

Ironically, Leonardo Fibonacci lived in the 13th century, while Newton worked in the 17th century. Perhaps Fibonacci unknowingly uncovered truth behind Newton's laws, centuries before Newton even came up with them.

Fibonacci in Nature

If you're not familiar with Fibonacci ratios and numbers the concepts are directly derived from nature and are found in virtually all organic sciences today. Basically, Fibonacci numbers are resultant from adding the previous together to find the next. For example 1+1=2, 2+1=3, 3+2=5, 5+3=8 and so on. The Fibonacci string would look like: 0,1,1,2,3,5,8,13,21,34,55,89,144,233...

In nature, the spiral of seeds in a sunflower are exactly ordered in Fibonacci sequence, as with many occurrences in organic life.

Fibonacci ratios are also derived from the numerical sequence. For example, if you take any eighth number in the sequence and divide it by the number following it in the sequence (dividing the eight by the ninth), the answer will ALWAYS be 61.8. In the above string, if we divide the eighth number (21) by the ninth (34), we get 61.76, or 61.8 rounded up.

It just is, that's why.

Market quants hold that Fibonacci is not only true in organic matter, but within the market itself, and Fibonacci ratios, more often than not, lay out of a map for retracement levels, after a significant move. Thus, perhaps Newton's Law of Motion that says, "For every action there is an equal and opposite reaction" failed to take into account the loss of energy in reaction, something that may be solved with Fibonacci ratios. I believe there would be another factor involved though, which may be overcome combining the founder of quantum physics Max Karl Ernst Ludwig Planck's formula, where "energy is and absorbed in quantities divisible by discrete 'energy elements'" and simple Fibonacci.

Perhaps someday I will make an attempt to prove my instincts in math. Before I get sidetracked (which is way too easy) any further though, let's look into how you can - very simply - use Fibonacci Retracements in Forex trading.

Fibonacci in Forex - The Self Fulfilling Prophecy

All of the magical math in the world will never make Fibonacci retracements true 100% of the time. Period. Thus, a little common sense goes a long way when using any type of mathematical, or technical indicator to trade from. If the market is showing something different than the indicator, enough people believe in something different that the indicator is wrong. Fibonacci retracements are only good so long as enough people are watching and acting on the same information that the collective whole makes the occurrence a self-fulfilling prophecy. What I'm saying is that even if you've opened a trade based on Fibonacci retracement expectations, be prepared to close the position, should common sense warrant such.

With the aforementioned in mind, Fibonacci Retracements work on both short and long-term time frames for all types of traders. For this article, we will only look at short-term trading with 4-hour charts.

First, before we even consider a Fibonacci retracements, you need to be able to spot when a move has occurred that would warrant using Fibonacci Retracements. This can be as simple as looking at a chart, and visually seeing that a large move has transpired - and capitulated. What I mean by this is, if when looking at a chart you're expecting to see empirical proof that a move has stalled, you will never be able to do so. You will see some signs, like MACD or Stochastics bottoming out, or a candlestick pattern like a hammer bottom, but you will never know for sure. One way to have a slight bit of assurance though, is to look for candlestick confirmation, something I recently covered in my article Why Confirmation Counts.

Regardless, only countless hours of pouring over charts will give you 'the feel'. Once you are able to infer a move is over, you can begin to apply Fibonacci retracements for profit targets points if you are trying to trade the rebound, or for new entries, if you are waiting to get back into the currency, for a continued move in the same direction, as the previous 'large move.'

The below chart shows a significant move that recently occurred when the U.S. dollar sold off against the Swiss franc. Based on this chart, many traders were likely looking for a retracement. Some turned the dollar long, others waited for key retracement levels to be hit before taking positions.


Now, let me show you how you can trade a 'reversal' using Fibonacci, after a large move.

In the below chart, you will see a large downward move, where the Australian dollar declined significantly against the New Zealand dollar. Several indicator (not shown) displayed that a reversal was looming, thus perceptive traders would have taken a long position in the Australian dollar, using the low of the range as a stop. The AUD quickly rebounded, touching the 38.2 retracement within 12 hours of the low. However, it sold off again (twice actually) before making another run at the 50% retracement. Jittery traders would have been shaken out for sure; however, those with steadfast stops just below the low of the original moves would have not. (You must decide for you whether you will trade for larger moves, or quickly scalp profits any time the market makes a sudden moves. It is my experience that traders who take small profit after small profit and cannot hold for larger wins, eventually get killed when they take a bigger loss. Truly great traders know one of the keys to success is: little loss, little loss, big win, not vice versa.)


Regardless, those who were able to hold, would have seen the AUD/NZD briefly pop above the 50% retracement a few days after the initial move occurred. Here's one way to solve the problem previously shown by failure at the 38.2% retracement. When trading a reversal, set your stop as soon as you make the trade. Then, set a sell order for one quarter of your position at the 38.2% Fibonacci retracement, so if the trade fails, you will have a small buffer when your stop is hit on the downside. (You will need to adjust the position size in your stop, if the 38.2% retracement is hit, accounting for the 25% of your position you just sold for a profit.) At the same time you made the initial trade, set a sell order for 50% of the total initial position at the 50% retracement. In the case of AUD/NZD, when the pair first hit the 50% retracement, you would have taken even more off the table…and would need to adjust your stop order accordingly, as you will now only have 25% of the original position. Then, with the remaining 25%, you can set another order to sell at the 61.8% retracement, or let it ride. FYI, from my experience trading Forex, the 50% retracement mark seems to hold the most weight, If a pair does not reverse the bounce after the large move, and you see a 4-hour bar close above the 50% retracement, there's a good chance the pair will retrace the whole move. I'm not sure why, but from what I've seen the 61.8% retracement seems to hold less weight than the 50% retracement, at least when using 4-hour charts.

Regardless, the retracements serve as profit targets for reversal trades.

For traders who think the pair will continue the original move, you can place your orders at the Fibonacci retracement points, where you hope to reenter in the direction of the big-move trend. One way to do so is place an order for 25% of your total predetermined size at the 38.2% mark, 50% at the 50% mark and 25% at the 61.8% mark… This way, you've allowed yourself 'wiggle room' if the 38.2% and 50% retracements do not hold. It's important to note though, that if the 61.8% retracement is breached, the pair will likely retrace the entire move, something that happens often in Forex trading. The best rule of thumb in this case is as simple as the old market saying: When in doubt, get out.


Sources :

1. How to Profit from Fibonacci Retracements in Forex Trading

By:
Mark Whistler is the founder of www.WallStreetRockStar.com and is the author of multiple books on trading. Mark's newest book, The Swing Trader's Bible - co-authored with CNBC/Fox News regular guest Matt McCall - will be on shelves in late summer, 2008. In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.

So why does Fibonacci work in the Forex market?

Because Fibonacci ratios are a deeply ingrained part of the Forex culture. Big banks, hedge funds, and individual traders alike all pay close attention to these ratios, and frequently place their orders at Fibonacci retracement levels.

If enough orders accumulate at a particular level, the combined power of these orders can actually change the direction of the exchange rate when that level is achieved. This is the essence of the self-fulfilling prophecy that we discussed in last week's newletter.

If my assumption is correct that Fibonacci works in the Forex market not because of magic but due to a self-fulfilling prophecy, then there are certain conclusions that we can extrapolate from this premise:

Fibonacci Is More Effective on Longer-Term Charts
If we truly believe that Fibonacci is a self-fulfilling prophecy, then we should live by the credo, "the more, the merrier." In other words, the more orders that are placed at a particular level, the more likely it becomes that the level will hold as support or resistance.

What can improve the chances that there will be a large quantity of orders at a particular Fib level? Visibility is the key. If the other players can't see the Fib level, they can't place their orders accordingly.

For example, if a Fibonacci level forms on a five-minute chart during the Asian trading session, any opportunity to place a trade based on this retracement is likely to come and go before European and American traders have wiped the sleep from their eyes. Since many of these traders will never observe this opportunity, there will be fewer orders placed at that level. This makes it less likely that the level will hold when the price reaches that area.

However, if the same scenario occurs on the daily chart, traders all around the world will have the time and the opportunity to place their orders accordingly. Since Forex is truly an international market, with traders located on every part of the globe, this aspect of Fibonacci trading takes on added significance.

Fibonacci Is More Effective on Commonly Used Retracement Levels
The most commonly used Fibonacci ratios are 38.2%, 50%, and 61.8%. However, 23.6%, 78.6% and 100% are also legitimate Fib levels. Some traders even use Fibonacci "extensions" that go beyond 100%, such as a 161.8% retracement. There are also Fibonacci Arcs, Fibonacci Fans, and Fibonacci Time Zones.

Which of these techniques will be the most effective? If we truly believe that a sizable quantity of orders (or a quantity of sizable orders) will make the difference, then we must give more weight to the levels that garner the most attention - the 38.2%, 50%, and 61.8% levels. In Fibonacci, as in many aspects of trading, sometimes it's better to keep things simple.

Improving your trading by thinking less

Analysis paralysis. We’ll all heard of it. Have we all experienced it? I know I have.

My personal tendency in all aspects of life is to be very analytic. That has some nice advantages, but it also as some nasty drawbacks at times as well. I’ve been told on more than one occasion that I think too much, and while it was not normally meant to be a deragatory thing, it is indicative. I do think alot, and probably would be considered by many an intellectual - for better or worse.

The "worse" part is something I became aware of many years ago, early in my professional career as an analyst. My job required me to product commentary quite frequently. It was actually too frequently in many respects because I found that by being forced to revisit the price action I wasn’t able to allow the market moves I had previously outlined to properly develop. I was instead coming up with new analysis at each point, often to the detriment of producing quality trading ideas.

This is something which has from time to time carried over into my trading as well. There have been spells where I have allowed myself to get sucked way into the fine details of things. Sometimes I catch myself before much damage is done, but often it ends up becoming a hindsight sort of thing. Basically, the more I think about trading, the less well I tend to do, which is definitely part of why I’ve tended to perform better taking longer-term positions where the decision-making is more spread out and less at risk of turning into over-thinking.

The funny aspect to this whole situation is a bit of a paradox. I find that my gut generally gives me the right read, but if I consciously check my gut it nullifies things. In other words, I can’t think about what my gut is telling me. I just have to accept it’s influence when it chooses to speak up.

And by the way, the gut thing is something I definitely believe to be reflective of experience. It’s not something people are just born with. It’s a question of having seen the patterns of how the markets move many, many times such that your waking mind doesn’t even have to register them at all. This tends to go along the lines with how expertise comes from frequency of repetition, not time.

My point in sharing these things is to encourage you to look at your own work in the market to see whether you might be over-thinking things to your detriment at times.


Sources :

1. John Forman - The Essentials of Trading author (Improving your trading by thinking less)

Seven Big Things Professors Won't Teach You (But You Should Know)

Are you studying finance? If so, then terms like present and future value, efficient market theory, capital budgeting, arbitrage pricing and a whole slew of other exciting phrases are becoming part of your vocabulary. And if you’re thinking about studying finance in college or graduate school, be prepared to be lectured on those topics and more during your coursework. This is all well and good. If you plan on a future in finance, you’ll need a grounding in financial theory. Here’s the problem, though. Your instructors won’t teach you the good stuff, the stuff that can really help you excel in your job or make money in the markets. That all falls under the umbrella of “practical knowledge” which is not what college curricula are generally designed to pass along to young, eager minds looking to learn.

Have no fear, though! This report will help fill in the gaps. While it’s impossible to cover everything you could possibly want to learn in this brief space, here you will be given seven specific areas of focus. It is my intent to provide you with something of a guide to help you go beyond your text books and take your financial education to another level. From there you’ll be able truly accelerate your growth at a rapid pace, allowing you the opportunity to have more success. Ready? Let’s go.

#1 You Really Can Make Loads of Money in the Markets
Have you ever had an instructor talk about all the money there is out there to be had trading the financial markets? Unless you’ve had the great fortune of having one of those rare professors who actually has experience doing just that (and there are a few), the answer is most likely, “No”. This is because most finance faculty have had the efficient market theory drilled in to their heads for years. After all, every bit of research they have ever seen says you cannot make “excess profits”. Well, that simply is not true.

If you want to trade the markets, or even think you might want to, then these three books by Jack Schwager are a must read: Market Wizards, The New Market Wizards, and Stock Market Wizards. These books are all essentially a collection of interviews in which the great money managers, investors, and traders or our time share their experiences with Schwager, a respected professional in his own right. These men and women have literally made billions in the markets. You get direct insight from these market luminaries, and Schwager also provides tons of educational content in his own right through glossaries, discussions of market topics, and outstanding summaries of the knowledge and understanding the interviews impart. Belief that you can achieve awesome results is the first component to being successful, and the Market Wizard series will definitely make you believe! There are other books with a similar concept, but Schwager’s works are by far the worth owning. You will absolutely read them again and again, and they will more than pay for themselves.

#2 The Stock Market is Not the Only Market
If you read the Market Wizards books noted in the previous section, you will quickly realized that there is money to be made in all sorts of different markets: stocks, bonds, currencies, commodities, futures, options. In fact, the equity markets are really a minor player in the realm of modern global finance. This is not something that gets a lot of play in the classroom, though. Why? Because of the focuses on portfolio theory, capital budgeting, and other subjects which end up have relatively little importance to the average financial professional. In particular, you should explore currencies and fixed income in more detail than what you will probably get in your classes.

The currency market (also known as foreign exchange, forex, or FX) is by far the largest. Currencies are usually discussed in an international finance type of course which provides a cursory coverage at best. Yes, the triangular arbitrage is important, but even with the advent of many so called “trading rooms” in business schools across the country, students are not being taught the real practicalities of forex trading and the impact of foreign exchange market movements on the rest of the financial system. The fact of the matter is that currency trading is now even easier than is the case for stocks. You can do it on-line, 24-hours per day. Those interested in learn more on the topic, or taking the plunge in to foreign exchange trading would do well to start with Cornelius Luca’s excellent book Trading in the Global Currency Markets. It is a good introduction to the market, including the terminology and analytic methods one needs to talk the talk and walk the walk. For those with an interest in learning how some of the real currency superstars think, Investment Biker and Adventure Capitalist by Jim Rogers and Soros on Soros and The Alchemy of Finance by George Soros are well worth the read. Rogers is a well known investor and commentator and just the name “Soros” in and of itself has the power to move markets.

Perhaps even more important than foreign exchange, if smaller in actual trading volume, is the fixed income market. Fixed income encompasses tradable instruments ranging from very short term paper such as T-Bills, Eurodollars, and Commercial Paper out to long-term debt in the form of Treasury and Corporate Bonds, not to mention mortgage and asset backed instruments. Fixed Income securities are issued by governments, government agencies, municipalities and companies all over the world. The sad thing is how little coverage this topic gets in financial education. This despite the fact that the basis of fixed income is cash flow, which is also the core of most valuation methods currently taught in college business programs. Interest rates drive everything, from the action of the stock market to fluctuations in currency exchange rates. That is why even the slightest little comment from folks like Alan Greenspan and other similar monetary authorities around the globe is analyzed for its meaning and potential impact. An understanding of the fixed income markets will benefit you enormously, regardless of what area of finance you specialize it. To that end, The Bond Market by Christina Ray is a worthwhile reference. Ray breaks down the intricacies of fixed income securities in a very easy to understand fashion. Of course there is also Fabozzi’s The Handbook of Fixed Income Securities, which can probably be found on every trading desk. The Fabozzi book is comprehensive in nature, where as the Ray book covers fewer topics, but breaks them down in a more manageable, practical way.

There are, of course, many other markets and tradables beyond these. The point I want to reinforce here, however, is that as a financial professional you need to be aware of what is happening in currencies and interest rates. Failure to do so means you will have an incomplete market picture for your analysis.

#3 The Mind is More Important than the Tools
In finance class we learn all sorts of things, like how to calculate present and future values and how to price securities. Finance is all about numbers, formulae, and analysis, right? Wrong! We are given all sorts of tools to use, but there is something very important missing - an understanding of the human mind and its impact on how those tools get applied, misapplied, or not applied at all. It would behoove anyone with an eye on the market activity to take a few psychology classes along the way.

The financial markets, no matter how they may be characterized otherwise, are a collection of individuals interacting with each other. As such, it is important for us to understand the impact of collective psychology. You merely have to watch the markets to see the impact of group think. The bubble in internet stocks that burst in 2000 is a perfect example. Clear-headed market analysis went out the window as everyone jumped on the bandwagon thinking that there was no way to lose. Then, on the downside it was the exact opposite. The no one wanted anything to do with stocks in certain sectors, not because of any legitimate evaluation, but because they had been burned before. This sort of thing happens to greater or lesser degrees all the time, in all time frames. A very good book on the topic is Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay and Bernard M. Baruch. It explores the whole topic of manias, especially where it relates to the financial arena, and should give you an excellent view in to mob mentality.

But we should not just think about the market when we think about psychology. If you want to be a successful trader or investor, you need to understand what’s going on inside your own head as well. Being able to produce sustained above average returns takes more than luck. It takes a major mental commitment and knowledge of the pitfalls we can create for ourselves without even knowing it. We can have the best trading system in the world, but if we cannot stick to the methodology because we allow our mind to override the signals or analysis, what good is it? Dr. Van K Tharp, who is profiled in Market Wizards and has worked with a great many traders, put together an excellent work on the subject. Trade Your Way to Financial Freedom is a good follow-on to the Market Wizards series. Another good mental book is The Way of the Warrior Trader by Richard D. McCall, and Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude by Mark Douglas is a popular title on the subject as well. Be sure to take seriously the psychology of trading. It really can make the difference between success and failure.

#4 Technical Analysis is Respected
The weak form of the Efficient Market Hypothesis essentially tells us technical analysis, which focuses a lot on historical price movements, is worthless because it has already been factored in to the market price. As such, technical analysis has been widely looked down upon in academia for years. Well, the real word of trading and market analysis takes another view. It is true that technicians were once a rare and misunderstood breed. Over the past decade or so, however, the discipline has become increasingly valued as a legitimate methodology. Academics still raise their eyebrows at the mere idea that one could make money looking at charts, but practitioners are paid to get results and many use technicals to do just that. As such, technical analysis should be seen as a legitimate analytic tool for your own work in the markets.

Here’s the thing, though. Technical Analysis covers a vast array of techniques and methods. Some folks are chartists. Others use calculated indicators. Still others use astrology and other more esoteric methods. As suggested above, in a wide definition, technical analysis is the use of past market action to determine likely future action. The idea is that markets will react somewhat predictably to certain occurrences. Underlying that notion is the fact that people react somewhat predictably to stimuli, and the market is nothing more than a collection of people. Ah, ha! Psychology comes back again. I told you in the last section it was important.

I am not here to advocate technical analysis, though. It is merely one of many available tools. Some folks prefer it. Others are more fundamentally oriented, using earnings, economic conditions, etc. to determine valuation. A lot of it comes down to personality and interests. You learn the basics of fundamental analysis (pro forma earning projections, growth rates, discounting future earnings, etc) in your finance classes. If you learn technicals at all, is probably only in passing. It is up to you to explore the topic on your own. There are several very worthwhile resources at your disposal in that regard. Tops among them is John Murphy’s Technical Analysis of the Financial Markets. This book is widely considered the bible of technical analysis and will give you an outstanding overview of the topic. The Steve Nison books on candlestick charting, starting with Japanese Candlestick Charting, are excellent as well. Mind over Markets by Eric T. Jones discusses the “Market Profile” technique, which is not widely known in academia but has many adherents in the markets.

Perhaps the best book on combining technical and fundamental analysis is How to Make Money in Stocks by William J. O’Neil. Among titles to consider about developing trading systems there are Campaign Trading by John Sweeney, Street Smarts by Laurence A. Connors and Linda Bradford Raschke, Long-Term Secrets to Short-Term Trading by Larry Williams, and Trading Systems That Work by Thomas Stridsman.

Anyone seriously considering the pursuit of technical analysis, personally or professionally, should consider joining the Market Technicians Association. The MTA provides a certification and other educational programs, and is a good way to meet technicians from around the world. Also, Stocks & Commodities magazine is the industry standard for the discussion of technical analysis and trading system design.

#5 You Can Trade Real Estate
You know all that accounting you have to learn, and all those finance basics they make you take before you get to the good stuff? Well, you can put that education to use in the real estate market right now. The most advanced topic one needs to understand to play the real estate market is that of leverage, or to put it another way, how to use other people’s money (OPM). Property can be bought and sold just like any other asset. You can trade it, which basically means buying a property and selling it shortly thereafter, preferably at a higher price, oftentimes after doing some fix-up work. You can also invest in real estate by going for longer-term price appreciation and/or cash flow from rents. The best part is, anyone can do it, regardless of income or education.

Analyzing a potential real estate purchase is much like doing fundamental analysis on a stock you might like to buy, and oftentimes with similar time frames in mind. You try to determine a fair market value, see what kind of returns you can generate, etc. Obviously, owning property does not provide the same liquidity, nor does it have the same kind of potential for that trading rush, but there are advantages. You can buy property for very little down, sometimes with nothing at all down. Can’t do that with stocks where at a minimum you have to have 50% for the margin requirements. That means your potential returns in real estate can be truly exceptional.

With all this in mind, you would do well to learn all you can about real estate, and there is certainly a lot of information out there. If there is a class available to you, take it. Talk to people you might know in the business - realtors, bankers, attorneys, investors. It is not necessary for you to have loads of money, great credit, or any of what we normally get told are the requirements for buying real estate. Creativity, persistence, and a strong desire to succeed are more important. A couple of books that will help you learn some great techniques for building a real estate investment program are Nothing Down for the 2000s and Creating Wealth by Robert Allen, the man who put the concept of little or no money down on the map. Another worthwhile addition to your library would be Ira Wealth: Revolutionary Strategies for Real Estate Investment by Patrick W. Rice, Jennifer Dirks. This book provides a good discussion of how IRA accounts can be used to invest in real estate, despite what you might have been told by banks and brokers. Real Estate is a fantastic way to build wealth, and the best part is the tax code actually works in your favor! Make sure to take a look in to it for yourself.

#6 Study Personal Finance
Some colleges actually have personal finance courses available, but oftentimes business students consider such classes beneath them. I should know. I was one of them. It isn’t high finance. There’s no glamour in managing your checking account, and insurance can put one to sleep. Wrong attitude! A good understanding or personal finance will go a long, long way in life. In fact, it will probably be more valuable to you in the grand scheme of things than all the stuff in your finance course text books. Personal finance covers a wide array of topics. I will briefly touch on some of the bigger ones.

Savings and investment is probably what most people think of when we talk about personal finance. In short, it is what you do with the income you have above and beyond your normal living expense, commonly referred to as discretionary income or funds. Obviously, retirement savings is a hot topic. You need to be fully educated on whatever program your employer provides, if any, and what options you have outside that. Make the best use of what’s available to you. The more funds you can get to work early, the better for the long term situation thanks to the magic of compound interest. At the same time, you should be putting money aside in a rainy day fund. You will hear different experts recommend anything from a month to a year worth of salary as a reserve against loss of income, emergencies, etc. Your situation will dictate what is right for you, but something should definitely be set aside in a secure, easily accessible place. Of course if it’s your ambition to trade, you’ll want a program in place to build up a sufficient bankroll for that purpose. In most cases, $5000 is the recommended minimum. Starting much lower than that will make transactions costs significant, plus you will have fewer options in terms of working within a risk structure suitable to your needs.

A very important area of personal finance, and one that needs more focus, is debt use and management. We are a society fueled by debt. That has its plusses and minuses. Borrowing, when handled properly, allows us to do things we would not have been able to do otherwise: buy a car or a house, pay for our education, fund investments, etc. Unfortunately, too many people misuse debt, especially credit card debt, and get themselves in trouble. A lot of these problems can be remedied through discipline. Do you really need those DVDs? Are you dining out more than your budget allows? Remember, you are going to have a hard time building up investment capital if you have to pay all your excess earnings out to the credit card companies. Moreover, you do not ever want to put yourself in a potential bankruptcy situation? It takes a long time to recover from that kind of filing.

The last big personal finance topic we will cover is estate planning. For a young person that sounds like something way off in the future. True, it is, but that does not mean there are not things you need to be looking at now. Do you have a will? Not everyone really needs one, but if you have assets you would like to make sure go to those you want receiving them should anything ever happen, you should put something together. The process is not that difficult. Do you have life insurance? Again, you may not need it. Many single people do not, whereas most folks with a family should probably have a policy. It’s a topic a lot of folks hate even think about, but it is well worth the time.

There are a lot of things related to personal finance you can do now, or at a minimum learn about, that can help you throughout your life. For example, taxes will be an ever present part of your life. Understanding them, even if you never do your own returns, cannot help but provide benefits. Take that view with the whole arena of personal finance. Make it a habit to explore something new all the time. You never know when it could come in very handy. Maybe you’ll even do it for a living!

A very useful tool for improving your personal finance acumen is Cashflow® , a game you can play in board version, or on your computer. The game covers a wide range of topics in a fun, entertaining fashion.

#7 Beware of the Experts
Thinking for yourself is a good thing. Learn to do your own due diligence when it comes to your money. There are lots of so called experts out there. They get quoted in the media all the time. Be careful what you read in to that, though. Newspaper columnists, for example, want something to keep the reader’s attention, make them come back again. Sometimes that means people get quoted, even though they really do not have much to say. An expert is born! I speak from experience on this topic. Myself and my former colleagues often had inane comments not even intended to be serious analysis find their way in to major columns. We’re talking significant business media, not to mention getting picked up by the wires and local papers across the country. Reporters also have favorite interview sources. That can be great if the source is good, but if not the interviews and quotes will give credibility to one who may not deserve it. For that reason, you should really take anything you hear or read with a grain of salt. People have a lot of different perspectives which will not always match your interests.

There’s also the fact that sometimes even the best and the brightest can really mess up royally. We need look no further than Long Term Capital Management (LTCM) to see that. A group of very smart, very successful traders did quite well for a while. Then, it all fell apart and forced some major action by the monetary authorities to prevent what could have been a global financial market disaster. You can learn more about LTCM by reading Roger Lowenstein’s well titled book When Genius Failed, which documents the rise and fall of the firm and its major figures. There was also a PBS documentary you can get on video called Trillion Dollar Bet which covers mostly the same topic.

The bottom line is that you need to make sure of the value you are getting from these so-called experts. Use your own education, experience and basic common sense, mixed in with a good dose of research, to see if what they have to offer is a) credible and b) worthy of your attention. Even then, once you have decided that they can help your toward your goals, make sure any recommendations you receive fit in with your situation.

By the way, this goes for you too. Do not allow yourself to get big in the head once you have achieved some success and set yourself up for a major reversal. The old saying “Pride goeth before the fall” is very true. If you are not careful, you can lose track of what made you successful and find yourself suffering a major set-back. Refer to some of the interviews in the Market Wizards books noted earlier to examples.

Hopefully you have at least started the process of expanding your financial awareness beyond the narrow bounds of what college finance programs provide. The finance industry and markets can be both incredibly rewarding and highly frustrating. If you take the contents of this report to heart and use it to guide your own personal education, I think you will find yourself experiencing more of the reward and less of the frustration.

I was never the best student growing up. Homework wasn’t something I focused on a whole lot as a kid, especially when I could just get it done in homeroom! We’re not kids anymore, though. If you haven’t already, you will come to find that homework is an important part of life. I refer not to bringing work home from the office, however. Instead, I mean being prepared. Whether it’s an interview, a meeting, a class, a trade or investment, or just life in general, it always is best to go in prepared. Consider the topics addressed in this report, and do your homework.


Sources :

1. fxstreet.com:Seven Big Things Professors Won't Teach You (But You Should Know)