Drawing Correct Trendlines

By Ahmad Hassam

Learning currency trading is like building a new car from scratch without an instruction manual for new traders. Many of them acquire quality parts like brakes, wheels, motors, seats, steering wheels etc to build the car.

In order to become a successful trader you need right parts with right instructions to put them together. After all, a part such as a $2.00 gasket can make a big difference and bring your car to a screeching halt.

You should understand that forex trading is very different from trading stocks. Companies can file for bankruptcies like GM or Goldman Sachs or Enron. Companies can go completely out of business taking their share value to zero in the stock markets. However in case of currencies, there is no threat of a country going bankrupt or doing out of existence in a few weeks.

Trade balances and budget deficits play a role in determining the price of a currency. What can happen is that trade balances and foreign capital inflows can cause severe economic pressures on a currency! This can create dramatic changes between the currency values relative to other currencies. When that happens, it can be an incredible financial opportunity for savvy, educated currency traders.

Before you enter the markets, you should learn how to find the current trend. For a skilled and educated trader, learning how to spot a trend is very important. A trend can last from a few hours, several days or several months. It can create an enormous financial return for the savvy.

Learn to always trade in the direction of the market. Fighting a trend is like swimming against the current and getting drowned. Traders make many mistakes and the biggest one is trading in the wrong direction.

Suppose you are an active trader. You should have the trading software that has the moving trend line indicator. If not then, you will need to learn the skill of drawing correct Trendlines. An incorrectly drawn trendline can be the difference between making and losing money in a trade.

There are three types of trend lines that you need to learn how to draw. 1) An Inner Trendline. 2) An Outer Trendline. 3) A Long Term Trendline. These three trendlines form on all time frames and in both uptrends and downtrends and you will need them in your trading.

Draw a straight line connecting support levels without penetrating bodies or wicks of a candle in any uptrend. Correctly drawn trendlines can predict future levels of potential support in an uptrend as well as future levels of resistance in a downtrend.

Draw inner up trendlines by finding the last two support levels. Draw the line from left to right. Draw the outer up trendline by starting at the far left of the chart. Move to the right and connect the majority of the support levels with a straight line.

Go on a larger time frame like daily or weekly. Draw the longerterm trendline by connecting the support levels starting from the far left of the chart moving forward. Instead of a support level, use the resistance level to draw trendlines in a downtrend. That means all the rules are the same but in the opposite direction. The market reacts the same way in a downtrend as an uptrend but in an opposite direction. - 23199

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Discover A Revolutionary New Forex Robot. Develop your own Forex Trading System.

System Trading - Do You Have a Trading System?

By Maclin Vestor

A trading system is a methodology of trading. An investor who uses one system and follows a specific set of guidelines when making a decision, follows system trading, and will usually never deviate. A trading system is only one method of trading, and usual requires no thinking. It is possible to have one system that is governed by multiple system.

For example, to have 10 different systems, and select only one stock from each system every month according to the main system's qualifications.

Someone that uses several Trading Systems is a multiple system trader. They have to either have an overall system that encompasses all of them, or make their own decision on which to follow. Doing so can be dangerous, as the purpose of system is to prevent human error. It is advised to be a system trader who trades one system at a time, or trade multiple systems within a larger core system, and avoid being a multiple systems trader.

Trading System - Trading can be awfully hectic without some kind of methodology. You can't expect to take on the best traders in the world who have teams and resources at their disposal just by throwing around money at will hoping that it works. You need an actually defined system in order to be able to trade effectively.

Many successful systems are based on earnings and high potential for growth. Stockbee's trading system often swings for the fences. As a result, it requires a solid degree of protection. Obviously you shouldn't limit yourself to someone else's system, you need to find one that is right for you.

There are two kinds of traders, technical traders, and fundamental traders, each has their own system. Of course there are some who use both.

Technical traders

Some system traders, are day traders. Others are swing traders. Still other people are more of a trend trader. Each will have it's unique system. The system will be based on the technicals. Is it volume that triggers the buy? Is it price movement? A combination of both? Or perhaps it's pattern trading.

Some people even have trading machines or robots that do the work for them. Others rely on pattern recognition done by a system. The method is to sign up for email alerts, or some form of alerts, then make a purchase based on the software's recommendation. There are some people that screen down a stock based on strong fundamentals, and only trade those stocks, but trade them based on the technical chart patterns and volume.

They will sell based on a trend break, or rules on when to take gains such as 20% gain according to their system. They will set a stop loss based on their system as well. It might be 4%, or 8%, or it may be a trailing stop.

Fundamental traders

Fundamental traders might do things a little differently. They are looking for improving fundamentals, or stocks that pass through a certain screener. Zacks.com is a great resource if you want to rely on fundamentals. Earnings is always a big part of a system, and the Zacks' ranking uses earnings revision to get in early when the earnings and company internals appear to be improving. Zacks' has several screens, and their software allows you to screen stocks according to many different options.

Regardless of your trading system, one thing remains important in every single system. Money Management and loss protection.

It doesn't matter what the upside is or win rate is, if you can't protect yourself from major declines, you shouldn't be trading. I don't care if your system is 90% effective (no system is and if they say they are, they're lying), and if the gain is 1,000%. If you put all your money on it repeatedly, eventually you will suffer a loss so catastrophic you will never be able to recover without borrowing money. By taking one loss, you hinder your ability to make money. That is more costly then the potential for greater gains that you would gain by taking additional risk.

Just to illustrate if your system causes you to take a 95% loss, you need a 2000% return just to make up for that loss. You cannot trade like this. No system is better then it's weakest link. That weak link unfortunately for many people is the ability to manage money. Fortunately, it is a skill that can be learned, and doing so will make you a better trader. Better yet, if you do not wish to be a better trader, you can simply follow the rules of a system that contains a methodology on how to manage money and how much to invest before placing a trade.

I recommend that you either have a trailing stop or a hard stop. You can also buy a protective put if you are afraid of a stock bottoming out overnight and plummeting through the stop. Protective puts are like owning insurance. Unfortunately, you have to continue to buy the insurance as it eventually expires if you don't use it. Don't trade options without learning everything about them.

Some puts are not good for some strategies. Longer term trades and Investments will require long-term equity anticipation securities, or LEAPs, where as you may not need to risk as much capital for short term protective puts. A trailing stop should be usually 20%, where a hard stop should be more like 7%. Different systems will require different stops so take this with a grain of salt.

A good investor or trader actually will rarely need to ever be fully invested. There are people that trade on complete margin for a few times the entire year, and the rest of the year they're on the sideline, but generally the best traders that have a career that lasts have lots of money on the side, even more so if they use options and are unhedged. If you are unhedged, that is only playing one side of the market, (all buys, or only playing one theme such as only playing inflation or only playing deflation), you need to have even more cash on the side.

The lower the win rate, the more money on the side you need, and the smaller your positions should be. Any good system won't require you to analyze. Having to do a lot of the thinking can cause you to panic and make incorrect decisions. Most people aren't cut out for that, and that's why it is a smart thing for many to use a trading system.

If you trade within a system, you have a much better chance at placing winning trades. A trading system will have a solid record of success, evidence that it works and has been working, an understanding of the decline and proper money management planning. If you trade within a system, you can estimate your results, and by doing so attain measurable success consistently with a trading system. - 23199

About the Author:

Maclin Vestor teaches about How To Buy Stock Online. You can even learn about virtual stock markets and advice on the Stock Market For Beginners at his blog.

Descending Triangles -Short Trading Strategy

By Jeff Cartridge

The descending triangle can be traded very successfully on the short side entering the trade as the stock breaks out of the pattern to the downside. The pattern forms when the two boundary lines that contain the price movement converge to a point. The top line slopes down toward the bottom line which is horizontal.

Descending Triangles, One Of The Best

Descending triangles are one of the most predictable patterns that are available to trade short. With 57% of the patterns breaking down descending triangles can deliver good returns when they do. The average gain is 0.92% in 9 days with about half of the breakouts (45%) being profitable. These results are good but selecting the right conditions can make trading descending triangles very attractive.

Refine Your Entries

Short breakouts work better in falling markets which is clear from the results that were achieved in 2002 and 2008, so the market should be falling or consolidating. The best results are achieved trading descending triangles when the sector is falling. For some reason the trend of the sector at the start of the pattern is more important than the trend of the sector prior to the breakout.

Breakouts can occur anywhere along the length of the descending triangle pattern. Another key to picking successful short breakouts from descending triangles is to look for a turning point up from the lower boundary that fails to reach the upper boundary and then falls away.

If the volume supports the breakout the results are better. Supportive volume means the volume on the way down is higher than the volume on the way up.

Descending Triangles, Profitable When the Markets Is Not

You can improve your trading results by using a series of simple filters that have been outlined here. This select group of descending triangles delivers an average profit of 2.55% in 10 days and is profitable on 48% of the trades. Overall this makes descending triangles extremely attractive to trade.

Note: Statistics for this article have been provided by Patterns Trader after analyzing over 60,000 chart patterns on the Australian market from 2000 - 2008. - 23199

About the Author:

Jeff Cartridge is a private trader and created the website LearnCFDs.com Discover Patterns of Success

Forex Trade

By Bart Icles

One popular business investment market that is pulling in so many people to invest in is the Forex Trade. It has become an alternative source for additional income for many new and experienced traders today. Although branded as high risk investment option, all one needs to correct this is to gain enough knowledge of various risk management strategies and techniques and apply this to his every day trading transactions.

Initially starting in Forex Trade, it demands for one to have a determined and concentrated mindset that involves understanding and memorizing important Forex terms. A lot of reading, researching, memorizing, and understanding new and difficult technical words and concepts related to the Forex market must be done. These can be found in the Internet in the form of e-books, free software or trial packages, forums, and blogs.

Majority of Forex Trade is an exercise in accurate and timely prediction of the currencies' exchange rate values, and what proper course of actions to take such as buying, selling or staying with the current trade deal involved. It demands a much detailed approach like reading and analyzing charts, their present and past patterns, and other basing its behaviors on other external, influencing factors.

Forex Trade is fast becoming a common subject that in its current set up, anyone willing to invest their finances and time to it, and learn its basic foundation can make money, or lose it in some cases. There are some easy terms that you can understand easily and some other technical languages that you have to strive hard to learn more about. If this overwhelms you at the beginning, then you always buy an account from a certified Forex Broker and leave all the transactions to them. The disadvantage, though, is that the broker will have the initiative to make all trade decisions for you.

Although great pains have been taken to create the most advanced and best methods to help make Forex trading easier and convenient, these by no means are perfect and fool proof methods. Like all business ventures, it is has upsides and downsides where anything can happen no matter how well the plan was not executed, nor how much data was collected on a trade transaction. Some days one may win big, on other days it might be the exact opposite. Just keep in mind not to get greedy or careless, and that there is no universal strategy or software that can always predict the end result of a highly volatile and fairly unpredictable market. - 23199

About the Author:

Forex trading pips start with a desire to learn and a drive to become a great trader. Even forex trading made easy takes dedication and a good teacher. But once you learn how to trade and do so successfully your life will change and you have options and financial resources you never had before.

The Forex Market During This Recession

By Michael Fredericks

We want to find out how the shape of the economy is affecting the Forex markets performance. The currency market is hanging in there, and so Forex seems to be holding its own as well.

Though it is impossible for traders not to be worried in such a questionable time. It is hard to determine what might happen in this current market situation, and like any other companies, the Forex market may be affected negatively. It is difficult to determine what we should do and when it should be done.

Experience in the Forex market does offer some insight, though, because Forex trading is the pure market mechanism at work. The longer one has been trading, the more you will understand that those who make the initial efforts and take the bigger risks reap the bigger rewards.

Of course no one could predict the world-wide recession, or that the US dollar would lose so much worth after the market crash in September 2008. True, Forex market is affected by the occurrences to other markets, but in no means are we helpless.

Last year saw a succession of collapse similar to dominos. The value of the dollar was not fluctuating. The market gave no hint that the large firms and banks on The Street would soon be revealed as so many naked emperors. When all was revealed, overseas investors had grave doubts about any investment on any timeline, now or going forward, and the heavy downward skidding began.

What happens now? Normally, Asian markets are recommended because of mass production of produce and the world will be demanding these necessities. This will cause the Asian currencies and interests to strengthen as investors flock towards this economy. Now we begin the predictable struggle between countries as the US dollar continues to decline.

There's also the question some are asking, which is what's going on with the Swiss? Things have not bottomed out, most people believe, and in fact some places are just in the early stages of the downturn and could take any number of turns. Is Swiss currency the safe harbor some traders are looking for?

But Asian markets have a reputation for strength in the face of crisis, because such a large market will always have demands for certain commodities. Forex forecasts is aware of the economy shifts taking place and plans to focus more on changing regions, vying to be currency investors and keeping our heads high. - 23199

About the Author:

For more information about price action trading, then you can check out this website: Forex Trading Tutorial