There Are No Secrets Forex Experts share their trading tips
prices
currencies
A special report by FXstreet.com
Prologue There are no hidden skills in currency trading – just things that lie much deeper than what most people can see. In the past I would have disagreed with this statement and talked about some secret strategies, or market insights. Today, while I won’t disagree with the idea of the existence of “inner circle” inuences, I think all the information one needs to obtain monetary gains and trading expertise is - more than ever with the internet - in plain sight. Things were certainly different in the times of Wyckoff or Gartley, Gartley, just to mention two great technicians whose theories helped to turn the uninformed public into informed market participants. If so many trading techniques or money management methods are accessible, what is it that locks our hidden power as traders? I hope the answer won’t disappoint you. The one and only secret to trading is: practice! We just like the idea of something else being there. Something secretive and hidden. Nope. Just practice. As you will see with the experts´ tips shared in this collection, there are no hidden skills. Just ideas that aren’t easily accepted as good enough to lead you to the skills you’d gain with dedicated practice. It’s true the skills themselves are not common, but the ideas, the concepts which lead to a high-level skill, are readily available.
Prologue There are no hidden skills in currency trading – just things that lie much deeper than what most people can see. In the past I would have disagreed with this statement and talked about some secret strategies, or market insights. Today, while I won’t disagree with the idea of the existence of “inner circle” inuences, I think all the information one needs to obtain monetary gains and trading expertise is - more than ever with the internet - in plain sight. Things were certainly different in the times of Wyckoff or Gartley, Gartley, just to mention two great technicians whose theories helped to turn the uninformed public into informed market participants. If so many trading techniques or money management methods are accessible, what is it that locks our hidden power as traders? I hope the answer won’t disappoint you. The one and only secret to trading is: practice! We just like the idea of something else being there. Something secretive and hidden. Nope. Just practice. As you will see with the experts´ tips shared in this collection, there are no hidden skills. Just ideas that aren’t easily accepted as good enough to lead you to the skills you’d gain with dedicated practice. It’s true the skills themselves are not common, but the ideas, the concepts which lead to a high-level skill, are readily available.
Don’t think a good idea or concept when shared will lose its effect, because in reality what happens is that most aspiring traders might hear them and see them, but will not value them. So don’t worry if you see good tips being published. In fact, so many people who want to beat the markets are either too unrealistic about the potential gains or just too afraid of what might happen if they lose money, money, that they don’t accept what is being taught. So sit down and while you read this eBook, remember: don’t force your learning curve and take it a bit more easy. easy. No one believes that just by taking things easy, easy, amazing things can happen. If there was a secret, that that would be one. one. And yet another: investing in losses. This doesn’t mean to just go where the market wants you to, and therefore continuously lose. l ose. In reality it means give up your current beliefs, listen to what the experts are telling you and how you can “win” the next time. Don’t give up the idea of winning but don’t be greedy. greedy. That is not investing in losses, that is actually losing. When it comes to mastering anything it’s true that there aren’t any secret hidden ways of doing it, you just have to do it well enough until it becomes natural.
Gonçalo Moreira, Author of FXstreet.com of FXstreet.com Learning Learning Center
INDEX Technical Catalysts Fundamental Catalysts Risk Control Market Behavior & Psychology Trend Following
Technical Catalysts
6
n e d i e S m a S
“Focus On The Lowest Trading Activity”
n e h C s e m a J
“Knowing The Strength / Weakness Statuses Of Single Currencies”
When identifying where the next turn in the market will be, most traders focus on where the most trading activity took place on a chart. This is also what everyone is taught to do. I don’t. I focus on the opposite, where the least amount of trades took place because this is where supply and demand is most out of balance and that’s where prices turn.
Trading currencies is vastly different from trading other nancial instruments. The key differentiator: currencies are traded exclusively as relative, rather than absolute, entities. Although all forex traders should be well aware of this, it warrants further emphasis that currencies are traded in pairs. What this really means is that currencies are not traded in isolation, but rather in terms of their relative values against other currencies. If the dollar is weak, one should ask what exactly it is weak against. Is it weak across the board, or just against Canadian dollar, or Swiss franc, etc.? Is it strong against euro while weak against yen? When a signicant bearish move occurs in EUR/ GBP, was it a bearish EUR move, or a bullish GBP move, or both? These are crucial questions that all Forex traders should
7
ask, and answer. Knowing the strength/weakness statuses of SINGLE currencies, instead of just currency PAIRS, is key to understanding currency pair movements and inter-currency relationships. Pairing strongest currencies against weakest currencies is a high-probability approach. It is essential that traders knows at all times the relative strengths and/or weaknesses of all the single currencies that are being considered for potential trades.
n e s o R m a d A
“Time Of Day - Less Is More...”
The most signicant economic data focuses around a number of basic themes including ination, employment, growth, or lack thereof. News of this nature is typically released during the rst few hours of each respective trading session. As traders react to the news, markets tend to enjoy periods of greater volatility and volume during these morning hours which are commonly known as the “active market hours”. Active Market Hours: EUR 3: am – 5: am EST. USD 8: am – 10: am EST. JPY 7: pm – 9: pm EST. The EUR/USD (5-minute) displayed with the Bollinger Bands indicator clearly shows the most signicant trend began and lasted during the rst 2-hours of the trading day. A ‘trendtrader’ anticipating a breakout to the upside would have been handsomely rewarded by looking for that ‘higher-high’ that did in fact occur early in the US-trading session.
8
a g a e c i e L . B r a s é C
“Trading with Pivot Points” I’ve found as a determining tool to apply in the foreign exchange markets, both daily and weekly pivot points.
Some basic principals frst to trading with pivots: - They act as support and resistance. - If prices accelerate and hold above its pivot point, market participants will look to buy or turn bullish. - If prices trade below a pivot point, traders will be looking to sell or short conrming the sentiment has turned bearish. Rules I apply to trade trends with pivot points - In Uptrends: Buy dips to the pivot point and add to the position in S1 and S2. Use S3 to place a stop loss order. Use R1,R2, R3 as prot targets. - In Downtrends: Sell rallies to the pivot point and add to the position in R1 and R2. Use R3 to place a stop loss order. Use S1,S2 and S3 as prot targets. - In Ranges: Range low: Buy in S1 or S2. Stop S3 and target the daily pivot point. Range top: Sell in R1 or R2. Stop in R3 and target the daily pivot point. It is important to remember that these techniques applying pivot points best work in liquid pairs or majors: EUR/USD, USD/CHF, USD/JPY and GBP/USD.
9
a t i h s a m a Y s s o R
“Scan Smarter – Not Harder” When studying Elliott Wave or any other wave pattern recognition theory, so many traders put too much emphasis on what the wave count is with regards to the current market.
Rather than getting so caught up in where the market is in the count, I scan the markets for only 4 “high probability” patterns – Impulse, Zig Zag, Ending Diagonal and Contracting Triangles. Certain aspects of these 4 high probability patterns have shown high levels of probable outcomes and they all can be fairly easy to see, even without Elliott Wave indicators or software. I trade primarily 14 currency pairs and I scan all my charts within minutes. Once I see any potential high probability patterns, I then investigate further with more analysis. I’m not suggesting people should disregard all that Elliott Wave Theory has to offer – as a full understanding will help you in your trading. But ask yourself – Why am I trading? I, for one, enjoy trading and the challenges and excitement that come with it. However, the bottom line is, we’re all here to make money. So, put the odds in your favor and search for the high probability patterns.
10
k i r a n d e B a i r e l a V
“Market volume with no technical indi- cators”
Determining market volume could be critical when it comes to forex trading, as we understand that technical signals have higher probabilities of success when they come along with the right volume. For example, the break of the neckline of a gure, or a support or resistance level, are always considered reliable if volume is high, while pullbacks to those areas should show a lower volume, to give our signal further support. However, not everyone realizes that volume indicators tend to be tricky: several of those are just providing information about the volume traded in the broker/platform that we are using to work; they can’t measure the volume of the whole market. So how can we easily determine whether there is high or low volume at a certain moment? The easiest way for me is mostly a visual trick: I turn to my 1 hour chart, or even 30 minutes one, when I see something that could be understood as a break or a sign. If that particular candle is at least twice as long as the average that the pair moves in that particular time frame, I understand there is high volume favoring my signal. For example, if the EUR/USD moves 25 pips per hour on average, the candle that triggers the signal should be at least of 50 pips (double the 25) or more. Easy, clean, and with no extra indicators to mess our trading strategy.
Fundamental Catalysts
12
n i a s s u H r a m a A
“Adapt and Overcome”
u o a l i r a h C s i r a h C
“You have to focus on the main story... everything else is just noise”
Always be willing and ready to adapt to the market. (a) Daily Ranges, (b) Volume and (c) Fundamentals, all provide key information and clues as to which technical analysis and trading strategies will work best in a particular environment. NO strategy or analysis method will work in all environments. If you keep a close eye on the abc and make copious notes and observations how changes in each effect market dynamics you will be able to ascertain which methods and strategies are most suited to each environment. Data and Evolution are Key.
Markets are constantly moving and media try to publish as much information as possible in order to gain credibility and expand audiences. However, not all information is equal. You need to be able to screen out most of the news and focus on the main story. This is the only way to understand the Market and become efcient in any trading style. There is always a main story concerning a war, a political state, an economical point of view etc. This is what the market focuses on and this is what creates a trend. Everything else is just noise.
13
r e t h g i l k c i K n h o J
“Know What Moves Your Trade”
t î o T u D k r i D
“You need a fundamental view. You need a chief market strategist.”
One of the most valuable lessons I have learned trading in the past few years is to rst identify what fundamental driver or drivers the market deems most important for a particular currency or the market as a whole. It’s easy to get caught up in reviewing all the economic indicators or headlines that cross the wires and then trying to assess what kind of impact it could have on price action. Yet, if for example yield expectations are the market’s sole concern, we shouldn’t waste time monitoring growth numbers and potentially confusing an otherwise straightforward forecast. Furthermore, when looking for that primary catalyst, it is important to remember that the market always boils down to the equilibrium of risk and reward in one way or another.
If you use technical analysis you base your whole trading system on this principle: “The last price contains all information about price valuation”.
A series of such “last prices” is a pattern and a pattern is predictive of future moves. The problem very short term minded traders experience is that the Big Players as a rule ignore their “last prices”. They don’t even consider an intra day price as important. It is completely irrelevant to them that that price you think is
14
a high probability indicator exists!Institutions pay armies of analysts to determine what is the “content of last prices”. What have been “factored in” in relation to a house “fundamental view”. Institutions do technical analysis under the continuous guidance of a fundamental view. If you know what is really in the price, your technical analysis becomes really predictive because you can judgethe potential action of traders with a larger time horizon and outlook than yours. Simple technical systems become effective and protable as part of a proper fundamental view. Ignore the fundamentals at your own risk! (And please, don’t confuse economic data releases with the real drivers behind currency prices.)
Risk Control
16
y r o g e r G h t e b a z i l E
“Plan the trade, then trade the plan”
What usually hurts novice traders is poor risk management; choosing wildly optimistic prot targets in order to justify cripplingly painful stops and staying in losing trades far beyond the original plan. It’s human nature to take prot on winning positions too early for fear of losing small accrued prots and to hold onto losing positions (and worse, doubling down!) in the vain hope that the market must surely reverse soon. One of the best ways to enforce good discipline is to ensure that when entering any trade, there are always predetermined stop and take prot orders entered and that the amount of capital you risk is AT LEAST as much as you aim to win. The ONLY adjustments that should be made after that should be to trail the stop tighter (to minimize losses/guarantee profits) while extending the prot target. Once the action starts, you can be sure the trade will succeed or fail within the reasonable risk-reward criteria that was decided with a cool head. What’s more, when relying on orders and not staring xedly at every tick on open positions, trading becomes a much less stressful and emotional experience.
17
z o ñ u M o t r e b l A
“Risk/Reward Ratio vs Investment Horizon”
m a l E y a h o Y
“Never risk more than 2% of your ac- count at once”
My main discovery about trading in the last months is that risk/reward ratio should be directly proportional to your investment horizon. That is, when you’re trading in very short time frames, scalping for a few pips, then you’re risk/reward ratio should be low, even lower than 1. The concept behind this is that it makes no sense to hold a position too much time waiting for a prot which is twice the stop loss: it won’t work as the market noise will probably hit our tight stop. On the other hand, when trading on higher time frames (i.e. daily) risk/reward ratios should be high, above 2 or more, as we have time enough to reach our target.
As with anything new, you’re likely to make mistakes, learn from them, and then improve. Many new traders risk too much of their account, and burn it out before learning anything.
Money management is the “secret” to avoiding this fate. This abstract idea can go down to the 2% rule. Making 2% an overriding priority means no stop loss movements, using lower leverage, making a bigger initial deposit, having higher spreads, or anything, else that will keep the losses limited. Some things are more comfortable to do than others, but keeping this rule
18
will likely yield in better results for newbies in the long run keep them away from burning their account.
g n i l l e h c S n o R
“Never use more than 2% equity risk when I place stops.”
I am in trading since 1983, a time that there was no computer or real-time data, just a phone ! Data came in by telex and I draw the charts by hand, actually the best training I ever got. Today we have almost everything for free, real-time data, online brokerage, real-time charts etc. Still most traders make no money, at least not constant. I am happy to survive it so far and maybe this comes from discipline I learned in aviation to y aircraft using strictly checklist for each part of the ight. The best trading tip I can give you and which helped me to survive > 25 years of trading is as follows: “Never use more than 2% equity risk when I place stops.” For example, if I have 4 positions and all stopped out, I will lose max. 2% of clients account. So the stop level is important and so the number of contracts . If there is high volatility and a high daily range, than my number of contracts are smaller. If there is low volatility and smaller daily ranges, than my number of contracts are bigger. At any time, being stopped out in all positions, I will lose max. 2% on equity.
19
Market Behavior & Psychology
20
k r o Y n a g a e K
“Head not Heart!”
i n a s i v e r T h p e s o J
“Be modest in your condence and thankful in your prots”
It is always hard to take a loss. However, the rst rule that needs to be adhered to by a novice trader is that positions can and will go against you and that stop losses are an important part of any trading strategy. I have been in the position where I have gotten emotionally attached to a position and didn’t trade with my head. On occasion, things ended up working out. However, more often than not, I ended up losing more money. In these situations, not only do you lose money but you also end up missing out on better opportunities because your ability to trade is compromised by the funding the losing position. So remember think with your head, not your heart and make the tough call!
When our trades lose money, whatever our logic, we can be sure we were not alone. But we can equally be sure that we were in the minority. Had we been in the majority the market would have performed as anticipated. The market decision process is that simple. It is a matter of putting our behavior in line with the majority as often as we can. The most effective tool to achieve that is our own empirically tested market psychology. We are the market, if only we can let ourselves mimic the mind of the market and not permit individuality to rule our decisions.
21
l l e w o P n w a h S
“Count to ten rule”
n a m a r a v i S r D
“Pay attention to quick, false and inten- tional moves”
If you are in that much of a hurry, you probably haven’t done your analysis or you might be chasing a move. Do you know your stop and take prot levels? One quick review, count to ten and then take the trade.
1.Quick moves are false moves in the market – use such moves to do counter trades once the new low or high is not breached for 30 min in a session. 2. False moves may be seen before the data release and the intentional move may be seen after the data – a drop before we may initiate buy and a rise before data we can initiate sell to quickly close in or keep stop at entry in in rst 30 min of entry.
22
y e r F k e r e D
“Don’t think you can predict the fu- ture... because nobody can”
The biggest thing that got me from a losing trader to a winning trader was the realization that I did not have to know the future to be successful. Many new traders think that trading is all about know what is coming next, but of course no one can really predict the future. So for me realizing that this business is all about playing the odds rather than knowing the future was the single biggest epiphany that got me over the hump. I now focus on Harmonics and the statistical edge that they provide. If you don’t know what your edge is, you don’t have one!
Trend Following
24
i k s w o l a h c i M g e r G
“Three’s a Crowd” Most people know the old saying “Two’s Company. Three’s a Crowd”. I use that easily remembered saying, to help dene a nontrending forex market that is likely to transition into a trending market.
I can use the Three’s Company setup on a 5 minute, hourly or daily chart. The “two” in my trade are two moving averages. Specically, I use the 100 and 200 bar Simple Moving Average. The “three” in my trade is the current price. When the 100 and 200 bar MA converge with the price, it says to me it is time for the price - the third wheel in the group - to move away. Traders should simply look for a price break and go with the break. Risk is initially dened by using the 100 bar moving average. Should the price move back over the 100 bar MA look to exit the trade. The bonus is traders who recognize the setup, should also have condence to stay with the trend. The reason is if you can anticipate a trend move, focus is condently on the trend. Also risk is dened and limited. Traders can use a cross over the 38.2% Fibonacci retracement as an exit, or simply wait for the price to cross back over the 100 bar MA. Often because the setup starts a trend, the price will reach a support level, tire and rest. This provides the trader with a number of options for a graceful exit.
25
r e e b s I d e m m a h o M
“Never go against the general trend”
Identifying the general trend whether on the short/medium/long term is the most essential, and when you gure it out, you stay with the trend. You buy on dips or sell on rallies according whether it’s a down or up trend, but you never bet on a correction against the general trend. Committing to this rule will protect you from sudden and huge losses, as well as guarantees that you will be able to gain the most from a trend when the right moves happen.
n e i L y h t a K
“Stick With the Trend: Tops and Bot- toms are Only Evident in Hindsight”
The trend is your friend may be one of the oldest maxims in trading but it is also one of the most important when it comes to the forex market. Trends in currencies can last for days, weeks and sometimes even months. Currencies are typically seen as little condence indicators for a country and the outlook for a country usually gets progressively better or worse. Also, due to the signicant amount of participation and speculation in the forex market, when sentiment turns in one direction, it can be very strong and lead to sharp moves in currency values. As a result, I have generally found far greater success going with a trend than fading it. Tops and bottoms are only evident in hindsight and it is much better to wait for conrmation that a trend has ended than
26
to arbitrarily pick a top or bottom. The biggest fear of many traders is that they buy the top or sell the low. To avoid this, I prefer to join a trend at value. There are many ways to identify the value points through the use of my Double Bollinger Band Strategy or retrace to a Moving Average.
r e n r o H e e h g a R
“Don’t Fight the Daily Market Trend”
Over the years I have been using the daily timeframe for what I call Directional Bias. The reason for this is because I don’t want to ght the larger, more dominant trend - it’s like swimming upstream otherwise - much more effort it needed. The dominant trend reects the psychology of the market. Remember that all those candles or bars on your chart are simply graphing human emotions: fear, greed, confusion, anticipation. The daily chart will also assist me in determining whether my intraday set ups are trend-following or counter-trend. If I am going to enter a market in a direction that is opposite the daily’s Directional Bias I want to be sure it’s on a short-term time frame like a ve, 15, or 30-minute so in this was I am not dependent on longer-term counter-trend movement. I think many traders would benet from starting their analysis with the daily - not necessarily to trade that time frame - but the understand the dominant psychology at work in the market.
27
l l e n o D c M e n y a W
“Trade Trading: How I use multiple time frames to trade forex” I always start my trade planning by looking at Daily chart.
On the Daily chart I look to see where price is in relation to short-term moving averages. I like to trade in the direction of the trend. This means that I’m either trading at/near the moving averages and cautious when price is far from the moving averages due to the possibility of a mean reversion. Based on this analysis, I create a bias. I’m either a bull or a bear. As a bull, I look to buy dips on the smaller time frames. As a bear, I sell rallies on the smaller time frames. Without bias, I am neutral and often don’t trade at all. For example, if my daily chart bias is bearish, I look for resistance and over bought conditions on the lower time frames. If we are at a Daily R Pivot that is near a psychological round number, I see this as possible resistance. I then check the 15 min stochs to see if there is any steam left in the current “up” move. If not, I’ll look for moving averages crossing down, lower lows and such. The rest is trade management... and praying doesn’t hurt.
Contributors List FXstreet.com would like to thank the contributors who participated to this special report, sharing their best trading tip with our readers: Valeria Bednarik - FXstreet.com Charis Charilaou - TFIFX James Chen - CTA, CMT - FXDD Dirk Du Toît - DayForex Yohay Elam - Forex Crunch Derek Frey - ForexTradersDaily.com Elizabeth Gregory – ACM Raghee Horner – RagheeHorner.com Aamar Hussain - Pivotfarm Mohammed Isbeer - ecPulse.com John Kicklighter - DailyFX César B. Leiceaga - FXstreet.com Independent Analyst Team Kathy Lien - GFT, BKForexAdvisors and kathylien.com Wayne McDonell - FxBootcamp Greg Michalowski - FXDD Alberto Muñoz - FXstreet.com Shawn Powell - FXDD Adam Rosen - 4xLounge Ron Schelling - 2HEDGE
Sam Seiden - Online Trading Academy Dr. S Sivaraman - i-knowindices.com Joseph Trevisani - FX Solutions, LLC Ross Yamashita - Pro Pipper Trading Keagan York - Compass Global Markets
