Trading on news
Hi there!
A friend of mine told me today his yesterday trading story which I want to share.
“I was driving my car home and my pocket pc is on and MetaTrader, I was shorting 2 lots of EURUSD and longing 1 lot of USDJPY and waiting for the FOMC 29 June 2006 Meeting news.
I didn’t limit my orders because I do hate to use stop loss and I want to capture as profits as I can, so I didn’t set a take profit limit. 400 Pips in less than 1 hour were my loss, I hadn’t have the courage to hit the close button, indeed I was thinking it’s a joke and hoping it stops”
SHI Channel indicator
Hi there!
Our indicator today is not one of the popular indicators yet, but it’s growing popularity among the Forex traders in their forum; the SHI Channel indicator.
Channel trading in general is one of less use trading method, however it has its fan who trading the two methods of channels: Channel direction follower and Channel breakout.
The MetaTrader version of the SHI Channel indicator (SHI_Channel_true.zip) was created by Shurka & Kevin
How does the SHI Channel indicator work?
The SHI Channel indicator and as the all of the channel indicator uses the highest high and lowest low of the price to determine the upper and lower bands of the channel.
In the SHI Channel The channel is calculated according to the given period of calculation and the time frame of the used chart, and the channel is self-adjusted (Like the Bollinger Bands).
As you see in figure 1 there are two thick lines that indicates the upper and lower channel and a dashed center line.
The channel gives the overall direction of the price movement - up or down - and may change from time to time, specially if it used with a low timeframe (1, 5 and 5 minutes).
How to trade using the SHI Channel indicator?
Actually you can’t trade with the SHI Channel indicator alone, it will not tell you when to enter the trade neither when to exit, The SHI Channel indicator telling you the overall direction of the price trend and the channels with the middle line warn you how much the trend is strong or weak, however , you have to use another indicators to generate the entry/exit signals.
Some of SHI Channel indicator users recommend to use it with this set of indicators:
Juice indicator
LerGuerre indicator
I_Trend indicator
Perkyasctrend1
When the above four indicators give you the entry signal, it must to be in the same direction of the SHI Channel; if the signal was sell and the SHI Channel is sloping down we sell (Figure 2), conversely, if the signal of the three indicators was buy and the SHI Channel is sloping up we buy.
ATR indicator
Hi there!
We are going to talk today about an indicator that was created by Welles Wilder and introduced in his well known book “New Concepts in Technical Trading Systems”; the ATR indicator.
The ATR (Average True Range) is a volatility measuring indicator hence it indicates the strength or weakness trend , so the ATR is not signal generator and will not tell you when to enter the market. But it’s very important indicator that widely used in many of strategies to indicate the best entry point when the trend warm up and it used too to indicate the best time to exit trade when the trend lose its interest.
How does the ATR work?
The normal volatility formula that uses the high and low of the given period of the calculation didn’t fit Welles’s aspirations, That’s because the gaps and limited moves in the price are effecting the accuracy of the common formula.
To overcome this issue Welles started by defining TR as the greatest of the following values:
1- Current high - Current low
2- Absolute value of current high - previous close
3- Absolute value of current low - previous close
The ATR is the moving average of the TR for the giving period (typically 14 days) - Figure 1.
It advised as a general usage of the ATR indicator that low and high records indicate a potential reversal of the trend, however the best usage of the ATR indicator is using it in trailing stop your orders.
ATR Trailing Stop:
We’ve said that the best usage of the ATR - and the volatility measuring indicators - is determining the best time to exit the trade. This based in a simple fact “When the volatility go down the trend loss its interest”.
What are the trailing stops anyway?
Trailing stop is a line of the stop points that follows your trade, when you make profit the trail stop modify you stop loss value to protect your profit and if the price drop back to the stop loss level the position will exit.
The hard coded trailing stop number doesn’t respect the movement of the price and could prevent a potential profit.
Best time to trade Forex
Hi there!
The Forex market opens 24 hours, it on Sunday night (5 PM EST) and closes on Friday afternoon (4PM EST).When the Asian market closes its doors, the European market starts followed the US market then the Asian market open it doors again and etc.
During this period you have the freedom to trade in the Forex market anytime and whenever you want. This Time-Freedom-Trade is one of the characteristic that makes the popularity of trading Forex. However, not all the times are suitable for trading Forex that’s because the volatility of the market changes too much during the 24 hours according to the major countries (markets) opens, closes and overlaps.
So, the question “When to trade?” is a very important question for any trader seeks profit in the Forex market, whatever your trading style is.
World time:
Let’s talk about the world time to make sure that your hand-watch is accurate and you can convert easily the time of Forex market sessions to your local time.
There are two main world time systems that widely used:
GMT:
The GMT (Greenwich Meridian Time) is the time of Greenwich – England time and it considered the world standard time system!
The time of Greenwich is 0 and the countries are located in the east of Greenwich have positive GMT time (for example Tokyo time is GMT +9), while the countries located in the west of Greenwich have negative GMT time (for example Alaska time is GMT -10).
You have to note that the GMT time named too UTC (Coordinated Universal Time).
The GMT time will be named BST (British Summer Time) when the UK changes the clock (GMT+1) in the summer and that occures between the last Sunday in March and the last Sunday in October each year.
EST:
The EST (Eastern Standard Time) is the time of North America and it is GMT-5 (UTC-4 during daylight saving time and in this case called EDT).
The major Forex sessions:
There are three major sessions of the Forex market, in these sessions the volatility of the market is much higher in general and for specific currencies according to the session:
Asian session (7PM : 4AM EST):
The Asian session starts at 7 PM EST (12 AM GMT) and ends at 4 AM EST (9 PM GMT).
The most important countries work in this season is Tokyo followed by Hong Kong then Singapore.
The most trading currencies in this session are: GBP/JPY, GBP/CHF and USD/JPY; these three currencies can fluctuate up to 110 pips in this session.
The AUD/JPY, GBP/USD and USDCHF too are traded too much in this session and can fluctuate up to 60 pips.
U.S. session (8 AM : 5 PM EST):
The U.S. session starts at 8 AM EST (
Momentum Trading
Hi there!One of the most exciting aspect of the Forex market that makes it an unique trading experience is that you can make profits from the price rising and also from the price falling. I.e. when you buy a currency pair - say EURUSD - and when the price of this pair raises (which means the price of EUR raises against the USD) you make profit equal to this raising in the price. And when you sell the same pair - EURUSD and the price of EUR fails against the USD you make profit from this failing.
The price of any pair is between the raising and failing in a cycle mode and the opportunities of profit (and loss) are unlimited!
Our trade style today is how the trader benefits from the cycle movements of the currencies prices!
Three types of traders:
According to how long you are going to keep you opened position you are one of three traders:
1- Short-Term (Scalper) trader: The trader who holds the position from few seconds to few minutes trying to get his profits from the small price movements.
2- Mid-Term trader:
Pivot points trading
Hi there!
Today we are going to study a very know trading idea that has used for decades and still used successfully till now, the Pivot points trading.
What are the pivot points?
Pivot points calculation:
The main point in the pivot points and upon it all the other points will be calculated is the daily pivot or the pivot point (PP):
PP = (High + Low + Close) / 3
Where High is the highest price of yesterday, Low is the lowest price of yesterday and Close is the close price of yesterday.
The first support line (S1) is calculated with this formula:
S1 = (2*PP) - High
And the second support line (S2) is calculated with this formula:
S2 = PP - (High - Low)
To calculate the first resistance line (R1) use this formula:
R1 = (2*PP) - Low
And the second resistance line (R2) is calculated with this formula:
R2 = PP + (High - Low)
Note: The above pivot point formula ( PP= (H+L+C)/3 ) is the traditional one, however there are some other formulas for calculating pivot point:
PP = (High + Low + Close + Open of today) / 4
PP = (High + Low + Open of today) / 3
Forex trading strategies
Hi there!
We have studied a lot of indicators in the previous articles and I’ve tried to collect them from various indicators’ categories.
The only target of any indicator or analysis tool is to making profits from your Forex trading! right?
There’s no Holy Grail indicator that could be used alone to make this aimed profits. You have to combine two more indicators to achieve your target, combing indicators makes trading strategy!
What are trading strategies anyway?
Trading strategy is applying technical and fundamental analysis in a trading method, this method (strategy) have to document three things before we can call it strategy:
1- The chart setup.
2- Entry point.
3- Exit point.
Let’s look in these basic elements of any strategy:
1- Chart setup:
Any trading strategy have to start with information about the chart setup of the strategy which include:
- The indicators the strategy uses and their settings
- The time frame of the chart(s) to use.
- The currencies the strategy work with.
Some of strategies extends the basic requirements of the chart setup but it can be less than those three basics.
2- Entry point:
The strategy main approach is persuading you that if you entered the market now and at this point you will be a winner.
The entry points distinguishing between the strategies and it even between the same strategy but different versions or updates.
Some simple strategies requires less than two conditions to occur to trigger the Buy/Sell signals, for example the Moving Average strategy requires only crossing slow and fast moving average indicators.
Complex strategies requires more conditions for more accuracy, however it trades leaser than simple strategies.
3- Exit point:
Entering a trade at the good time is very important thing the strategy, however, exiting the trade is more important than entering the trade.
Ideas like “Let the profit run and cut losses earlier” and “Money Management” making the exiting is a strategy itself.
Exiting strategy have to care about the following points:
1- Stop loss level: When to exit the trade with the minimum loss.
2- Take profit level: When to exit the trade with the maximum profit you can take.
3- Close conditions: The strategy may provide point where the trade have to be close. For example in our simple moving average crossing strategy; if the open position was a result of an up cross of the fast to the slow moving average, the opened position have to be closed when in the cross reversal.
When to tell the strategy is a good one:
Introduction to Technical Indicators
Hi there!
In the this article we are going to introduce the concept of technical indicators by trying to answer some of questions that are roaming in the most of your minds.
Questions like: What are the technical indictors? What are they useful for? What are the kinds of technical indicators? How to use them to your benefits.
Let’s start where’s the beginning by defining the technical indicator!
What are the technical indicators?
At any given point on the price chart (Forex as an example) there are 6 pieces of data:
Open price, Close price, High price, Low price, Volume and Time (Figure 1).
Those pieces called price data, and they are the real representation of the market at a given point and the history of the market as well. The history of the market because any charting program saving the previous point with their data.
The technical indicator is a formula applied to some or all of the price data to generate another series of data points.
Those data point then are plotted in graphical form on the charting program (Figure 2).
As shown in figure two the RED line is the simple moving average indicator, this indicator simply calculate the moving average (the indicator formula) of the previous 20 period of data price then plot them on the chart above the price chart.
Some of indicators plot themselves on the price chart as the previous example, while the most of indicators use a separated window to plot their data points (Figure 3).
What are they useful for?
A technical indicator offers a different representation of the price data enabling you to analyze the price data and comparing its previous behavior and actions.
Every technical indicator’s formula giving a different picture of the price action with significant information about the market!
Every technical indicator has its own job, for example the simple moving average indicator (as showed in figure 2) helps in smoothing the price movement and filtering out the random noise of the price movement.
What are the kinds of technical indicators?
There are two kinds of technical indicators:
Leading indicators:
This type of indicators -as its name indicates- changes before the price changes therefore, they are predicting the future price movements. The most of the leading indicator are momentum oscillators, momentum oscillators are the indicators that measure the rate of price change.
Example of popular leading indicators: CCI (Commodity Channel Index) indicator, RSI (Relative Strength Index) indicator and Stochastic Oscillator.
Lagging indicators:
This type of indicators -as its name indicates- changes after the price changes so they are referred as trend-following indicators. They does not predict the price movement but they confirm the price movement (trend).
These indicators better work when the market develops a trend and they fail in sideway market.
Example of popular lagging indicators: Moving Average indicators and MACD.
CCI Indicator
Hi there!
We are going to study today one of the popular indicators, the CCI indicator.
The CCI - Commodity Channel Index - indicator was developed by Donald Lambert in the early of 80s and it based on an observation that the market moves in cyclical movements which means high and low of the price are coming in periodic intervals and in consecutive fashion. So, if we can detect those cycles we can detect the beginning and the ending of the trend.
The CCI designed upon this observation to represent the position of current price relative to the average of price over a recent period.
The CCI is an oscillator that oscillates around a zero line without upper and lower limit; but the formula of the CCI indicator insures that the must of the CCI values would fall between -100 and +100 (Figure 1).
Formula:
The first step of calculating the CCI is getting the typical price:
TP = (HIGH + LOW + CLOSE)/3
Then we calculate the simple moving average of the typical price:
SMATP = SMA(TP,N)
Where N is the period used with CCI calculation.
The third step is calculation the Mean Deviation which the calculation of the absolute value of the subtraction the last period SMATP and the typical price of the last calculation period. The previous values divided by the calculation period.
Finally the CCI is calculated by this formula:
CCI = (TP - SMATP) / (.015 x Mean Deviation)
How to trade using CCI indicator:
The main usage of the CCI indicator is to indicate the overbought and oversold market. So, the best trade is the reversal trend trade.
When the CCI go above +100 line it means it’s an overbought mood and the trader have to wait the reversal of the trend and the CCI must went to below +100 line in order to take short.
When the CCI go below -100 line it means it’s an oversold mood and the trader have to wait the reversal of the trend and the CCI must went to above -100 line in order to take long.
Some of CCI users like to add +75 and -75 lines and they use these lines to exit the trade, some of them advice:
Close the short position when the CCI indicator go below the +75 line , 0 line and -75 line then go above one of them again.
And close the long position when the CCI indicator go above the +75 line , 0 line and -75 line then go below one of them again.
I think you have to use your other indicators to confirm the buy/sell/close signals generated by CCI indicator.
Scalping strategy
Hi there!
We are not going to discuss an indicator or a trading system as usual in this article, but we are going to discuss a trading strategy or method, we are going to study Scalping!
What does Scalping mean?
Scalping is a trading strategy that the trader try to make many small profits with small price changes, the Scalper will place from dozens to hundreds trades in a single day because it’s believed that the small price moves are easier to catch than larger moves.
It based on an observation that the most of the price movements goes in the trader direction for a while of time before it goes in its trend direction!
In the Forex world a lot scalpers say “If I make a 20-25 pips per day by scalping the market and with a proper money management I might double my account balance every month”.
Theoretically, true! but what about the real? what about the risk of scalping the market?
Scalping risk:
While it seems profitable method when scalping the price movements, however the spread you pay when you open a trade makes the risk-reward more risky than the long term trading (trend trading).
For example if your broker charges you 5 pips spread for opening EURUSD position and your target is 10 pips and 10 pips stop loss; the price have to move 15 pips (5 pips of spread + 10 pips your target) to take the profit while it have to move only 5 pips ( 10 pips your stop loss - 5 pips of spread) and stop loss level will be reached.
So, the risk-reward ratio in this case is 2-1 which means a very dangerous and risky method to scalp!
Another risk in the Scalp is that one large loss could eliminate the many small gains that the trader has worked to obtain. So it needs a very good exit strategy to decrease this risk!
Why brokers hate scalping?
The most of brokers will not turn your trades with a market maker