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).

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

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

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

Trend Classifications

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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.

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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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Chart Courtesy Forex Yard

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.