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Former investment bank FX trader: Risk management part 3/3
Welcome to the third and final part of this chapter. Thank you all for the 100s of comments and upvotes - maybe this post will take us above 1,000 for this topic! Keep any feedback or questions coming in the replies below. Before you read this note, please start with Part I and then Part II so it hangs together and makes sense. Part III
Squeezes and other risks
Market positioning
Bet correlation
Crap trades, timeouts and monthly limits
Squeezes and other risks
We are going to cover three common risks that traders face: events; squeezes, asymmetric bets.
Events
Economic releases can cause large short-term volatility. The most famous is Non Farm Payrolls, which is the most widely watched measure of US employment levels and affects the price of many instruments.On an NFP announcement currencies like EURUSD might jump (or drop) 100 pips no problem. This is fine and there are trading strategies that one may employ around this but the key thing is to be aware of these releases.You can find economic calendars all over the internet - including on this site - and you need only check if there are any major releases each day or week. For example, if you are trading off some intraday chart and scalping a few pips here and there it would be highly sensible to go into a known data release flat as it is pure coin-toss and not the reason for your trading. It only takes five minutes each day to plan for the day ahead so do not get caught out by this. Many retail traders get stopped out on such events when price volatility is at its peak.
Squeezes
Short squeezes bring a lot of danger and perhaps some opportunity. The story of VW and Porsche is the best short squeeze ever. Throughout these articles we've used FX examples wherever possible but in this one instance the concept (which is also highly relevant in FX) is best illustrated with an historical lesson from a different asset class. A short squeeze is when a participant ends up in a short position they are forced to cover. Especially when the rest of the market knows that this participant can be bullied into stopping out at terrible levels, provided the market can briefly drive the price into their pain zone. There's a reason for the car, don't worry Hedge funds had been shorting VW stock. However the amount of VW stock available to buy in the open market was actually quite limited. The local government owned a chunk and Porsche itself had bought and locked away around 30%. Neither of these would sell to the hedge-funds so a good amount of the stock was un-buyable at any price. If you sell or short a stock you must be prepared to buy it back to go flat at some point. To cut a long story short, Porsche bought a lot of call options on VW stock. These options gave them the right to purchase VW stock from banks at slightly above market price. Eventually the banks who had sold these options realised there was no VW stock to go out and buy since the German government wouldn’t sell its allocation and Porsche wouldn’t either. If Porsche called in the options the banks were in trouble. Porsche called in the options which forced the shorts to buy stock - at whatever price they could get it. The price squeezed higher as those that were short got massively squeezed and stopped out. For one brief moment in 2008, VW was the world’s most valuable company. Shorts were burned hard. Incredible event Porsche apparently made $11.5 billion on the trade. The BBC described Porsche as “a hedge fund with a carmaker attached.” If this all seems exotic then know that the same thing happens in FX all the time. If everyone in the market is talking about a key level in EURUSD being 1.2050 then you can bet the market will try to push through 1.2050 just to take out any short stops at that level. Whether it then rallies higher or fails and trades back lower is a different matter entirely. This brings us on to the matter of crowded trades. We will look at positioning in more detail in the next section. Crowded trades are dangerous for PNL. If everyone believes EURUSD is going down and has already sold EURUSD then you run the risk of a short squeeze. For additional selling to take place you need a very good reason for people to add to their position whereas a move in the other direction could force mass buying to cover their shorts. A trading mentor when I worked at the investment bank once advised me: Always think about which move would cause the maximum people the maximum pain. That move is precisely what you should be watching out for at all times.
Asymmetric losses
Also known as picking up pennies in front of a steamroller. This risk has caught out many a retail trader. Sometimes it is referred to as a "negative skew" strategy. Ideally what you are looking for is asymmetric risk trade set-ups: that is where the downside is clearly defined and smaller than the upside. What you want to avoid is the opposite. A famous example of this going wrong was the Swiss National Bank de-peg in 2012. The Swiss National Bank had said they would defend the price of EURCHF so that it did not go below 1.2. Many people believed it could never go below 1.2 due to this. Many retail traders therefore opted for a strategy that some describe as ‘picking up pennies in front of a steam-roller’. They would would buy EURCHF above the peg level and hope for a tiny rally of several pips before selling them back and keep doing this repeatedly. Often they were highly leveraged at 100:1 so that they could amplify the profit of the tiny 5-10 pip rally. Then this happened. Something that changed FX markets forever The SNB suddenly did the unthinkable. They stopped defending the price. CHF jumped and so EURCHF (the number of CHF per 1 EUR) dropped to new lows very fast. Clearly, this trade had horrific risk : reward asymmetry: you risked 30% to make 0.05%. Other strategies like naively selling options have the same result. You win a small amount of money each day and then spectacularly blow up at some point down the line.
Market positioning
We have talked about short squeezes. But how do you know what the market position is? And should you care? Let’s start with the first. You should definitely care. Let’s imagine the entire market is exceptionally long EURUSD and positioning reaches extreme levels. This makes EURUSD very vulnerable. To keep the price going higher EURUSD needs to attract fresh buy orders. If everyone is already long and has no room to add, what can incentivise people to keep buying? The news flow might be good. They may believe EURUSD goes higher. But they have already bought and have their maximum position on. On the flip side, if there’s an unexpected event and EURUSD gaps lower you will have the entire market trying to exit the position at the same time. Like a herd of cows running through a single doorway. Messy. We are going to look at this in more detail in a later chapter, where we discuss ‘carry’ trades. For now this TRYJPY chart might provide some idea of what a rush to the exits of a crowded position looks like. A carry trade position clear-out in action Knowing if the market is currently at extreme levels of long or short can therefore be helpful. The CFTC makes available a weekly report, which details the overall positions of speculative traders “Non Commercial Traders” in some of the major futures products. This includes futures tied to deliverable FX pairs such as EURUSD as well as products such as gold. The report is called “CFTC Commitments of Traders” ("COT"). This is a great benchmark. It is far more representative of the overall market than the proprietary ones offered by retail brokers as it covers a far larger cross-section of the institutional market. Generally market participants will not pay a lot of attention to commercial hedgers, which are also detailed in the report. This data is worth tracking but these folks are simply hedging real-world transactions rather than speculating so their activity is far less revealing and far more noisy. You can find the data online for free and download it directly here. Raw format is kinda hard to work with However, many websites will chart this for you free of charge and you may find it more convenient to look at it that way. Just google “CFTC positioning charts”. But you can easily get visualisations You can visually spot extreme positioning. It is extremely powerful. Bear in mind the reports come out Friday afternoon US time and the report is a snapshot up to the prior Tuesday. That means it is a lagged report - by the time it is released it is a few days out of date. For longer term trades where you hold positions for weeks this is of course still pretty helpful information. As well as the absolute level (is the speculative market net long or short) you can also use this to pick up on changes in positioning. For example if bad news comes out how much does the net short increase? If good news comes out, the market may remain net short but how much did they buy back? A lot of traders ask themselves “Does the market have this trade on?” The positioning data is a good method for answering this. It provides a good finger on the pulse of the wider market sentiment and activity. For example you might say: “There was lots of noise about the good employment numbers in the US. However, there wasn’t actually a lot of position change on the back of it. Maybe everyone who wants to buy already has. What would happen now if bad news came out?” In general traders will be wary of entering a crowded position because it will be hard to attract additional buyers or sellers and there could be an aggressive exit. If you want to enter a trade that is showing extreme levels of positioning you must think carefully about this dynamic.
Bet correlation
Retail traders often drastically underestimate how correlated their bets are. Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are really trading one position that is eight times as large. Bruce Kovner of hedge fund, Caxton Associates For example, if you are trading a bunch of pairs against the USD you will end up with a simply huge USD exposure. A single USD-trigger can ruin all your bets. Your ideal scenario — and it isn’t always possible — would be to have a highly diversified portfolio of bets that do not move in tandem. Look at this chart. Inverted USD index (DXY) is green. AUDUSD is orange. EURUSD is blue. Chart from TradingView So the whole thing is just one big USD trade! If you are long AUDUSD, long EURUSD, and short DXY you have three anti USD bets that are all likely to work or fail together. The more diversified your portfolio of bets are, the more risk you can take on each. There’s a really good video, explaining the benefits of diversification from Ray Dalio. A systematic fund with access to an investable universe of 10,000 instruments has more opportunity to make a better risk-adjusted return than a trader who only focuses on three symbols. Diversification really is the closest thing to a free lunch in finance. But let’s be pragmatic and realistic. Human retail traders don’t have capacity to run even one hundred bets at a time. More realistic would be an average of 2-3 trades on simultaneously. So what can be done? For example:
You might diversify across time horizons by having a mix of short-term and long-term trades.
You might diversify across asset classes - trading some FX but also crypto and equities.
You might diversify your trade generation approach so you are not relying on the same indicators or drivers on each trade.
You might diversify your exposure to the market regime by having some trades that assume a trend will continue (momentum) and some that assume we will be range-bound (carry).
And so on. Basically you want to scan your portfolio of trades and make sure you are not putting all your eggs in one basket. If some trades underperform others will perform - assuming the bets are not correlated - and that way you can ensure your overall portfolio takes less risk per unit of return. The key thing is to start thinking about a portfolio of bets and what each new trade offers to your existing portfolio of risk. Will it diversify or amplify a current exposure?
Crap trades, timeouts and monthly limits
One common mistake is to get bored and restless and put on crap trades. This just means trades in which you have low conviction. It is perfectly fine not to trade. If you feel like you do not understand the market at a particular point, simply choose not to trade. Flat is a position. Do not waste your bullets on rubbish trades. Only enter a trade when you have carefully considered it from all angles and feel good about the risk. This will make it far easier to hold onto the trade if it moves against you at any point. You actually believe in it. Equally, you need to set monthly limits. A standard limit might be a 10% account balance stop per month. At that point you close all your positions immediately and stop trading till next month. Be strict with yourself and walk away Let’s assume you started the year with $100k and made 5% in January so enter Feb with $105k balance. Your stop is therefore 10% of $105k or $10.5k . If your account balance dips to $94.5k ($105k-$10.5k) then you stop yourself out and don’t resume trading till March the first. Having monthly calendar breaks is nice for another reason. Say you made a load of money in January. You don’t want to start February feeling you are up 5% or it is too tempting to avoid trading all month and protect the existing win. Each month and each year should feel like a clean slate and an independent period. Everyone has trading slumps. It is perfectly normal. It will definitely happen to you at some stage. The trick is to take a break and refocus. Conserve your capital by not trading a lot whilst you are on a losing streak. This period will be much harder for you emotionally and you’ll end up making suboptimal decisions. An enforced break will help you see the bigger picture. Put in place a process before you start trading and then it’ll be easy to follow and will feel much less emotional. Remember: the market doesn’t care if you win or lose, it is nothing personal. When your head has cooled and you feel calm you return the next month and begin the task of building back your account balance.
That's a wrap on risk management
Thanks for taking time to read this three-part chapter on risk management. I hope you enjoyed it. Do comment in the replies if you have any questions or feedback. Remember: the most important part of trading is not making money. It is not losing money. Always start with that principle. I hope these three notes have provided some food for thought on how you might approach risk management and are of practical use to you when trading. Avoiding mistakes is not a sexy tagline but it is an effective and reliable way to improve results. Next up I will be writing about an exciting topic I think many traders should look at rather differently: news trading. Please follow on here to receive notifications and the broad outline is below. News Trading Part I
Introduction
Why use the economic calendar
Reading the economic calendar
Knowing what's priced in
Surveys
Interest rates
First order thinking vs second order thinking
News Trading Part II
Preparing for quantitative and qualitative releases
Data surprise index
Using recent events to predict future reactions
Buy the rumour, sell the fact
The mysterious 'position trim' effect
Reversals
Some key FX releases
*** Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
Profitable forex strategy: it is a type of instruction for the trader, which helps to follow a clearly verified algorithm and safeguard his deposit from emotional errors and consequences of the unpredictability of the Forex currency market.
Thanks to her, you will always know the answer to the question: how to act in certain market conditions. You have the conditions of opening a transaction, the conditions of its closing, likewise, you do not guess if it is time or not. You do what the trading strategy tells you. This does not mean that it cannot be changed. A healthy trading scheme in the forex market must be constantly adjusted, it must comply with the realities of current market trends, but there must be no unfounded arguments in it. >>> Forex Signals With Unbeatable Performance: Verified Forex Results And 5° Rated OnInvesting.com|Free Forex Signals Trial:CLICK HERE TO JOIN FOR FREE
Profitable Forex Strategy Reddit
Types of trading strategies The forms of a trading strategy can combine a variety of methods. However, several of the most commonly used options can be highlighted.
Trading strategy based on various complementary technical indicators
Trading strategy using Bollinger Bands
Moving Average Strategy
Technical figures and patterns
Trading with Fibonacci levels
Candlestick trading strategy
Trend trading strategy
Flat trading strategy
Scalping
Fundamental analysis as the basis of the strategy
Three most profitable Forex strategies
Important!These strategies are the basis for building your own trading system.Indicator settings and recommended pending order levels are for consultation only.If you do not get a satisfactory outcome in the test result or in a live account, that does not mean that the problem is the strategy.It is enough to choose individual parameters of indicators under a separate asset and under the current market situation.
1. “Bali” scalping strategy
This strategy is one of the most popular, at least its description can be found on many websites. However, the recommendations will be different. According to the author's idea, "Bali" refers to scalping tactics, as it facilitates a fairly short stop loss (SL) and take profit (TP). However, the recommended time frame is high, because the signals appear not very often. The authors recommend using the H1 interval and the EUR / USD currency pair. Indicators used:
Linear Weighted Moving Average. Period 48 (red line).
https://preview.redd.it/9mhs67mxeaw51.jpg?width=461&format=pjpg&auto=webp&s=913d428edd4cab0a3237e7039829a76dd587f1f5 The weighted linear moving average here acts as an additional filter. Due to the fact that LWMA gives more weight to the values of the last periods, the indicator in the long periods practically excludes delays. In some cases, LWMA can give a signal beforehand, but in this strategy only the moving position relative to price is important. Bearish LWMA is a buy signal, sell bullish.
Trend Envelopes_v2. Period 2 (orange and blue lines).
https://preview.redd.it/8bap0s41faw51.jpg?width=627&format=pjpg&auto=webp&s=a6236ad06765280bbfd655fa1fb4153b28aaaf56 The indicator is also based on the moving average, but the formula is slightly different for the calculation. Its marking is more precise (the impact of price noise has been eliminated). It allows you to identify the twists of the trend compared to the usual mobile with a slight anticipation. Trend Envelopes has an interesting property: the color of the line and its new location changes when the price penetrates its old trend line, a kind of signal.
DSS of momentum. The configuration in the screenshot below.
Important!Note that the indicators for the “Bali” strategy are chosen in such a way as to ultimately give an early signal.This gives the trader time to confirm the signal and check the fundamentals.
MA is one of the basics on MT4, the other two indicators can be found in the archive for free here. To add them to the platform, click on MT4: "File / Open data directory". In the folder that opens, follow the following path: MQL4 / Indicators. Copy the flags to the folder and restart the platform. Also Read: Make Money With Trading Conditions to open a long position:
Price penetrates the orange Trend Envelopes line from the bottom up. At the same time in the same candle there is a change of the orange line that falls to a growing celestial.
The candle is above LWMA. Once the above condition has been met, we wait for the candle to appear above the moving one. It is important that it closes above the LWMA red line. It is mandatory to have a Skyline Trend Envelopes on a signal candle.
The additional DSS of momentum line on the signal candle is green and is above the dotted line of the signal (that is, it crosses or crosses it).
We open a trade at the close of the signal candle. The recommended stop level is 20-25 points in 4-digit quotes, take profit at 40-50 points. https://preview.redd.it/t48d55s8faw51.jpg?width=1000&format=pjpg&auto=webp&s=1e93863745e74dec536178539817225767cbeb1c The arrow indicates a signal candle where a Trend Envelopes color change occurred. Note (purple ovals) that the blue line is below the orange line and goes upwards (in other cases the signal should be ignored). In the signal candle, the green DSS of momentum line is above the dotted line. Conditions to open a short position:
Price penetrates the Trend Envelopes sky line from top to bottom. At the same time in the same candle there is a change from the increasing celestial line to the falling orange.
The candle is below LWMA. Once the above condition has been met, we wait for the candle to appear below the mobile. It is important that it closes below the LWMA red line. It is mandatory to have an orange Trend Envelopes line on a signal candle.
The additional DSS of momentum line on the signal candle is orange and is below the dotted line of the signal (i.e. crosses or crosses it).
This profitable Forex strategy is weekly and can be used on different currency pairs. It is based on the spring principle of price movement, what went up quickly, sooner or later must fall. To trade you will only need a schedule on any platform and W1 time frame (although the daily interval can be used).
You should estimate the size of the candle bodies of different currency pairs ( AUDCAD , AUDJPY , AUDUSD , EURGBP , EURJPY , GBPUSD , CHFJPY , NZDCHF , EURAUD , AUDCHF , CADCHF , EURUSD , EURCAD , GBPCHF ) and choose the largest distance from the opening to the close of the candle in the framework of the week. In this to open a transaction at the beginning of the following week.
Conditions to open a long position:
The bearish candle, which signifies last week's movement, has a relatively large body.
Open a long position early next week. Make sure to place a stop loss at 100-140 points and a take profit at 50-70 points. When it is midweek, close the order if it has not yet been closed at take profit or stop loss. After that, wait again for the beginning of the week and repeat the procedure, in any case do not open operations at the end of the current week. https://preview.redd.it/vuihnqspfaw51.jpg?width=1000&format=pjpg&auto=webp&s=7641e9d7701911cc255c4f0c8a53e1660c35c9fe On this chart it is clearly seen that after each large bearish candle there is necessarily a bullish candle (although smaller). The only question is what period to take where it makes sense to compare the relative length of the candles. Here everything is individual for each currency pair. Note that a rising candle was observed followed by a few small bearish candles. But when it comes to minimizing risks, it is best not to open a long response position, as the relatively small decline from the previous week may continue. Conditions to open a short position:
The bullish candle, which signifies last week's movement, has a relatively large body.
We open a short position early next week. https://preview.redd.it/tv4zmf5ufaw51.jpg?width=1000&format=pjpg&auto=webp&s=61cd1dcfc4aebfa6f80343b6c51f7a6e46358602 The red arrows point to the candles that had a large body around the previous bullish candles. Almost all signals turned out to be profitable, except for the transactions indicated by a blue arrow. The shortcomings of the strategy are rare signs, albeit with a high probability of profit. The best thing is that it can be used in several pairs at the same time. This strategy has an interesting modification based on similar logic. Investors with little capital opt for intraday strategies, as their money is insufficient to exert radical pressure on the market. Therefore, if there is a strong move on the weekly chart, this may indicate a cluster of large strong traders. In other words, if there are three weekly candles in one direction, it is most likely the fourth. Here you also have to take into account the psychological factor, 4 candles is equal to one month, and those who "push" the market in one direction, within a month will begin to set profits. Strategy principle:
A "three candles" pattern (ascending and descending) formed on the weekly chart.
It is preferable that each subsequent candle was larger than the previous one. Doji is not taken into account (disembodied candles).
Stop is placed at the closing level of the first candle of the constructed formation. Take profit at 50-100% of the last candle, but it is often better to manually close the trade.
This strategy is universal and is usually given as an example for novice traders. It uses classic EMA (Exponential Moving Average) indicators for MT4 and Parabolic SAR, which acts as a confirmatory indicator. The strategy is trend. Most sources suggest using it in "minutes", but price noise reduces its efficiency. It is better to use M15-M30 intervals. Currency pairs - Any, but you may need to adjust the indicator settings. Indicators used:
EMA with periods 5, 25 and 50. EMA (5) in red, EMA (25) and EMA (50) in yellow. Apply to Close (closing price).
Red EMA (5) crosses the yellows from bottom to top.
Parabolic SAR is located under the sails.
Conditions to open a short position:
Red EMA (5) crosses the yellows from top to bottom.
Parabolic SAR is located above the candles.
The transaction can be opened on the same candle where the mobile crossover occurred. Stop loss at the local minimum, take profit at 20-25 points. But with the manual management of transactions you can extract great benefits. For example, close at the time of the transition from EMA (5) to a horizontal position (change of the angle of inclination of the growth to flat). https://preview.redd.it/4un92jlegaw51.jpg?width=1000&format=pjpg&auto=webp&s=406a700c00722349622d031e20d0858e4196d18b This screen shows that all three signals (two long and one short) were effective. It would be possible to enter the market on the candle by following the signal (in order to accurately verify the direction of the trend), but you would then miss the right time to enter. It is up to you to decide whether it is worth the risk. For one-hour intervals, these parameters hardly work, so be sure to check the performance of the indicators for each period of time in a minimum span of three years. And now that you know the theory, a few words about how to put these strategies into practice. Ready? Then let's get started!
From the theory to the practice
Step 1. Open demo account It's free, requires no deposit, takes up to 15 minutes, and no verification required. On the main page of your broker there is for sures a button "Register", click and follow the instructions. An account can also be opened from other menus (for example, from the top menu, from the commercial conditions of the account, etc.). Step 2. Familiarize yourself with the functionality of the Personal Area. It won't take long. It is at the most user friendly and intuitive. You just need to understand the instruments of the platform and understand how the trades are opened. Step 3. Launch the trading platform. The Personal Area has the platform incorporated, but it is impossible to add templates. Hence, the "Bali" and "Parabolic Profit" strategies can only be executed on MT4.
Characteristics of an effective Forex strategy Reddit
And finally, let's see what makes a profitable Forex strategy effective. What properties should it have? Perhaps three of the most important characteristics can be pointed out.
The minimum number of lag indicators. The smaller they are, the greater the forecast accuracy.
Easy. Understanding your strategy is more important than your saturation with complex elements, formulas, and schematics.
Uniqueness. Any trading strategy must be "tailored" to your trading style, your character, your circumstances, and so on.
It is very important to develop your own trading strategy, but it is necessary to test a large number of already available and proven strategies. On the Forex blog you will find trading strategies available for download. Before using a live account, test your chosen strategy on the demo account on the MetaTrader trading platform. Conclusion. To successfully trade the Forex currency market, create your own trading strategy. Learn what's new, learn out-of-the-box trading schemes, and improve your individual action plan in the market. Only in this case, the trading results will satisfy you to the fullest. Success, dear readers! >>> Forex Signals With Unbeatable Performance: Verified Forex Results And 5° Rated OnInvesting.com|Free Forex Signals Trial:CLICK HERE TO JOIN FOR FREE Join the community for more articles on trading and making money on the Forex and Stock market. ------------------------------------------------ ------------------------------------------------ Disclosure: This post contains affiliate links, if you click and make a purchase I may receive a commission - This has NO extra cost for you.
Scalping is a type of trading strategy designed to profit from small price changes since the benefits of these transactions are obtained quickly and once an operation has become profitable. All forms of trading require discipline, but because the number of trades is so large, and the profits from each trade are so small, a scalper must rigorously stick to their trading system, to avoid large losses that could eliminate dozens. successful operations. The scalper traders: they will take small profits to take advantage of the gains as they appear. The goal is a successful trading strategy by means of a large number of profitable trades, rather than a few successful trades with large profits. The scalping of the idea of a better risk exposure as the current time each operation is quite short, which reduces the risk of an adverse event that causes a big move. Furthermore, it is considered that smaller movements are easier to achieve than larger movements and that smaller movements are more frequent than larger ones. >>> Forex Signals With Unbeatable Performance: Verified Forex Results And 5° Rated OnInvesting.com|Free Forex Signals Trial:CLICK HERE TO JOIN FOR FREE
The best scalping strategies
Stochastic Oscillator Strategy
Moving average strategy
Parabolic SAR Indicator Strategy
RSI (Relative Strength Index) Strategy
Reddit Forex Scalping Strategies:
1- Scalping trading using the stochastic oscillator
Scalping can be achieved by using the stochastic oscillator. The term stochastic refers to the current price point relative to its range over a recent period of time. When comparing the price of a security with its recent range, a stochastic tries to provide potential changes. The scalping using said oscillator aims to capture the movements of a market trend, ie, one that moves up or down accordingly. Prices tend to close near the extremes of the recent range before a change occurs, as in the example seen below: https://preview.redd.it/7wy3ixui2nw51.png?width=1397&format=png&auto=webp&s=91f50d685dd4841015c51322cee9fb90701aad33 the chart above, for Brent over a three minute period, we can see that the price rises even higher, and the lows in the stochastic (marked with arrows) provide entry points for long trades, when the black line of% K is crosses over with the red dotted line of% D. The operation is exited when the stochastic reaches the maximum value of its range, above 80, when a bearish convergence appears, when the line of% K crosses below with% D. Rather, short positions would be used in a downtrend market, as in the example below. This time, instead of 'buying dips', we are 'selling raises'. Therefore, we will look for a bearish convergence in the direction of the trend, as highlighted below: https://preview.redd.it/y3qqvejs2nw51.png?width=1398&format=png&auto=webp&s=627f3ded47e901c1f9ea97d5416caeea49b9dc3f
2- Scalping using the moving average
Another method is to use moving averages, usually with two relatively short-term and one longer-term to indicate the trend. In the examples below, on a three-minute chart of the EUR / USD pair , we are using 5- and 20-period moving averages in the short term, and a further 200-period moving averages in the long term. In the first chart, the longer-term moving average is rising, so we expect the five-period moving average to cross above the 20-period moving average, and then we take positions in the direction of the trend. These are marked with an arrow. https://preview.redd.it/22jquy1z2nw51.png?width=1499&format=png&auto=webp&s=ed4f724384b86f95dff584c596e25652f23f240d In the second example, the long-term moving average is declining, so we look for short positions when the price crosses below the 5-period moving average, which has already crossed below the 20-period moving average. https://preview.redd.it/0tl7mky23nw51.png?width=1496&format=png&auto=webp&s=ca7b44138901537185d9e0dbd639a799407ced08 It is important to remember that these trades are trending and that we are not trying to find and capture every move. As in any scalping strategy, it is essential to have good risk management with stops, which is vital to avoid large losses that could eliminate many small gains quickly. >>> Forex Signals With Unbeatable Performance: Verified Forex Results And 5° Rated OnInvesting.com|Free Forex Signals Trial:CLICK HERE TO JOIN FOR FREE
3- Scalping with the use of the parabolic SAR indicator
The Parabolic SAR is an indicator that highlights the direction in which the market is moving and also tries to provide entry and exit points. SAR is the acronym for ' stop and reversal ', which means stop and revocation. The indicator is a series of points placed above or below the price bars. One point below the price is bullish and one point above it is bearish. A change in the position of the points suggests that there is going to be a change in trend. The chart below shows the DAX on a five minute chart; You can open short trades when the price moves below the SAR points and long when the price moves above them. As you can see, some trends are quite widespread and at other times a trader will encounter many trades that generate losses. https://preview.redd.it/35uo837g3nw51.png?width=1498&format=png&auto=webp&s=f020a461c6ff1f8d49fab381da0713b1de75dbf7
What do you have to know before starting scalping strategies Reddit?
The scalping requires the trader has an iron discipline, but also very demanding as far as time is concerned. Although long-term times and smaller sizes allow investors to move away from their platforms, given that there are few possible entries and can be controlled remotely, scalping requires the investor's full attention. Possible entry points can appear and disappear very quickly and therefore a trader must be very vigilant about his platform. For individuals who have a day job or other activities, scalping is not necessarily an ideal strategy. On the other hand, long-term operations with higher profit objectives are a more suitable option. It is difficult to execute a successful scalping strategy. One of the main reasons is that many operations need to be performed over time. Some research in this regard usually shows that more frequent investors only lose money faster, and have a negative capital curve. Instead, most investors are more successful and reduce their time commitments to trading, and even reduce stress by using long-term strategies and avoiding scalping strategies. The scalping requires quick responses to market movements and the ability to forgo an operation if the exact moment has passed. 'Chase' trades, along with a lack of stop-loss discipline, are the key reasons why scalpers are often unsuccessful. The idea of only being in the market for a short period of time sounds appealing, but the chances of being stopped out on a sudden move with a quick correction are high. Trading is an activity that rewards patience and discipline. Although those who are successful with scalping do demonstrate these qualities, they are a small number. Most investors do better with a long-term view, smaller position sizes, and a less frenetic pace of activity. >>> Forex Signals With Unbeatable Performance: Verified Forex Results And 5° Rated OnInvesting.com|Free Forex Signals Trial:CLICK HERE TO JOIN FOR FREE
Some trading wisdom, tools and information I picked up along the way that helped me be a better trader. Maybe it can help you too.
Its a bit lengthy and I tried to condense it as much as I can. So take everything at a high level as each subject is has a lot more depth but fundamentally if you distill it down its just taking simple things and applying your experience using them to add nuance and better deploy them. There are exceptions to everything that you will learn with experience or have already learned. If you know something extra or something to add to it to implement it better or more accurately. Then great! However, my intention of this post is just a high level overview. Trading can be far too nuanced to go into in this post and would take forever to type up every exception (not to mention the traders individual personality). If you take the general information as a starting point, hopefully you will learn the edge cases long the way and learn how to use the more effectively if you end up using them. I apologize in advice for any errors or typos. Introduction After reflecting on my fun (cough) trading journey that was more akin to rolling around on broken glass and wondering if brown glass will help me predict market direction better than green glass. Buying a $100 indicator at 2 am when I was acting a fool, looking at it and going at and going "This is a piece of lagging crap, I miss out on a large part of the fundamental move and never using it for even one trade". All while struggling with massive over trading and bad habits because I would get bored watching a single well placed trade on fold for the day. Also, I wanted to get rich quick. On top all of that I had a terminal Stage 4 case of FOMO on every time the price would move up and then down then back up. Just think about all those extra pips I could have trading both directions as it moves across the chart! I can just sell right when it goes down, then buy right before it goes up again. Its so easy right? Well, turns out it was not as easy as I thought and I lost a fair chunk of change and hit my head against the wall a lot until it clicked. Which is how I came up with a mixed bag of things that I now call "Trade the Trade" which helped support how I wanted to trade so I can still trade intra day price action like a rabid money without throwing away all my bananas. Why Make This Post? - Core Topic of Discussion I wish to share a concept I came up with that helped me become a reliable trader. Support the weakness of how I like to trade. Also, explaining what I do helps reinforce my understanding of the information I share as I have to put words to it and not just use internalized processes. I came up with a method that helped me get my head straight when trading intra day. I call it "Trade the Trade" as I am making mini trades inside of a trade setup I make from analysis on a higher timeframe that would take multiple days to unfold or longer. I will share information, principles, techniques I used and learned from others I talked to on the internet (mixed bag of folks from armatures to professionals, and random internet people) that helped me form a trading style that worked for me. Even people who are not good at trading can say something that might make it click in your head so I would absorbed all the information I could get.I will share the details of how I approach the methodology and the tools in my trading belt that I picked up by filtering through many tools, indicators strategies and witchcraft. Hopefully you read something that ends up helping you be a better trader. I learned a lot from people who make community posts so I wanted to give back now that I got my ducks in a row. General Trading Advice If your struggling finding your own trading style, fixing weakness's in it, getting started, being reliably profitable or have no framework to build yourself higher with, hopefully you can use the below advice to help provide some direction or clarity to moving forward to be a better trader.
KEEP IT SIMPLE. Do not throw a million things on your chart from the get go or over analyzing what the market is doing while trying to learn the basics. Tons of stuff on your chart can actually slow your learning by distracting your focus on all your bells and whistles and not the price action.
PRICE ACTION. Learn how to read price action. Not just the common formations, but larger groups of bars that form the market structure. Those formations carry more weight the higher the time frame they form on. If struggle to understand what is going on or what your looking at, move to a higher time frame.
INDICATORS. If you do use them you should try to understand how every indicator you use calculates its values. Many indicators are lagging indicators, understanding how it calculates the values can help you learn how to identify the market structure before the indicator would trigger a signal . This will help you understand why the signal is a lagged signal. If you understand that you can easily learn to look at the price action right before the signal and learn to watch for that price action on top of it almost trigging a signal so you can get in at a better position and assume less downside risk. I recommend using no more than 1-2 indicators for simplicity, but your free to use as many as you think you think you need or works for your strategy/trading style.
PSYCOLOGY. First, FOMO is real, don't feed the beast. When you trade you should always have an entry and exit. If you miss your entry do not chase it, wait for a new entry. At its core trading is gambling and your looking for an edge against the house (the other market participants). With that in mind, treat as such. Do not risk more than you can afford to lose. If you are afraid to lose it will negatively effect your trade decisions. Finally, be honest with your self and bad trading happens. No one is going to play trade cop and keep you in line, that's your job.
TRADE DECISION MARKING: Before you enter any trade you should have an entry and exit area. As you learn price action you will get better entries and better exits. Use a larger zone and stop loss at the start while learning. Then you can tighten it up as you gain experience. If you do not have a area you wish to exit, or you are entering because "the markets looking like its gonna go up". Do not enter the trade. Have a reason for everything you do, if you cannot logically explain why then you probably should not be doing it.
ROBOTS/ALGOS: Loved by some, hated by many who lost it all to one, and surrounded by scams on the internet. If you make your own, find a legit one that works and paid for it or lost it all on a crappy one, more power to ya. I do not use robots because I do not like having a robot in control of my money. There is too many edge cases for me to be ok with it.However, the best piece of advice about algos was that the guy had a algo/robot for each market condition (trending/ranging) and would make personalized versions of each for currency pairs as each one has its own personality and can make the same type of movement along side another currency pair but the price action can look way different or the move can be lagged or leading. So whenever he does his own analysis and he sees a trend, he turns the trend trading robot on. If the trend stops, and it starts to range he turns the range trading robot on. He uses robots to trade the market types that he is bad at trading. For example, I suck at trend trading because I just suck at sitting on my hands and letting my trade do its thing.
Trade the Trade - The Methodology
Base Principles These are the base principles I use behind "Trade the Trade". Its called that because you are technically trading inside your larger high time frame trade as it hopefully goes as you have analyzed with the trade setup. It allows you to scratch that intraday trading itch, while not being blind to the bigger market at play. It can help make sense of why the price respects, rejects or flat out ignores support/resistance/pivots.
Trade Setup: Find a trade setup using high level time frames (daily, 4hr, or 1hr time frames). The trade setup will be used as a base for starting to figure out a bias for the markets direction for that day.
Indicator Data: Check any indicators you use (I use Stochastic RSI and Relative Vigor Index) for any useful information on higher timeframes.
Support Resistance: See if any support/resistance/pivot points are in currently being tested/resisted by the price. Also check for any that are within reach so they might become in play through out the day throughout the day (which can influence your bias at least until the price reaches it if it was already moving that direction from previous days/weeks price action).
Currency Strength/Weakness: I use the TradeVision currency strength/weakness dashboard to see if the strength/weakness supports the narrative of my trade and as an early indicator when to keep a closer eye for signs of the price reversing.Without the tool, the same concept can be someone accomplished with fundamentals and checking for higher level trends and checking cross currency pairs for trends as well to indicate strength/weakness, ranging (and where it is in that range) or try to get some general bias from a higher level chart that may help you out. However, it wont help you intra day unless your monitoring the currency's index or a bunch of charts related to the currency.
Watch For Trading Opportunities: Personally I make a mental short list and alerts on TradingView of currency pairs that are close to key levels and so I get a notification if it reaches there so I can check it out. I am not against trading both directions, I just try to trade my bias before the market tries to commit to a direction. Then if I get out of that trade I will scalp against the trend of the day and hold trades longer that are with it.Then when you see a opportunity assume the directional bias you made up earlier (unless the market solidly confirms with price action the direction while waiting for an entry) by trying to look for additional confirmation via indicators, price action on support/resistances etc on the low level time frame or higher level ones like hourly/4hr as the day goes on when the price reaches key areas or makes new market structures to get a good spot to enter a trade in the direction of your bias.Then enter your trade and use the market structures to determine how much of a stop you need. Once your in the trade just monitor it and watch the price action/indicators/tools you use to see if its at risk of going against you. If you really believe the market wont reach your TP and looks like its going to turn against you, then close the trade. Don't just hold on to it for principle and let it draw down on principle or the hope it does not hit your stop loss.
Trade Duration Hold your trades as long or little as you want that fits your personality and trading style/trade analysis. Personally I do not hold trades past the end of the day (I do in some cases when a strong trend folds) and I do not hold trades over the weekends. My TP targets are always places I think it can reach within the day. Typically I try to be flat before I sleep and trade intra day price movements only. Just depends on the higher level outlook, I have to get in at really good prices for me to want to hold a trade and it has to be going strong. Then I will set a slightly aggressive stop on it before I leave. I do know several people that swing trade and hold trades for a long period of time. That is just not a trading style that works for me.
Enhance Your Success Rate Below is information I picked up over the years that helped me enhance my success rate with not only guessing intra day market bias (even if it has not broken into the trend for the day yet (aka pre London open when the end of Asia likes to act funny sometimes), but also with trading price action intra day. People always say "When you enter a trade have an entry and exits. I am of the belief that most people do not have problem with the entry, its the exit. They either hold too long, or don't hold long enough. With the below tools, drawings, or instruments, hopefully you can increase your individual probability of a successful trade. **P.S.*\* Your mileage will vary depending on your ability to correctly draw, implement and interpret the below items. They take time and practice to implement with a high degree of proficiency. If you have any questions about how to do that with anything listed, comment below and I will reply as I can. I don't want to answer the same question a million times in a pm. Tools and Methods Used This is just a high level overview of what I use. Each one of the actions I could go way more in-depth on but I would be here for a week typing something up of I did that. So take the information as a base level understanding of how I use the method or tool. There is always nuance and edge cases that you learn from experience.
Fundamentals
I keep a general high level Macro outlook for currencies. I dont get too deep into Fundamentals and just keep an eye out for news. If I am already in a trade I will hold it if its far enough away from my entry. However, I wont enter right before/during news as it can invalidate your setup.
Price Action
I started with the basics of learning the standard price action formations/patterns and candles. You can find tons of free info on that online, google is your friend. Then I stared at charts and said "why did the price do that or do this etc" then after a while I started to understand what's happening without having to think about it and I can see the market structure without having to look as closely as I did in the past.
After many many hours of staring at 5 min charts for 15 hours a day 5 days a week I learned how to look at 5 min charts and be like "Oh that's a hammer on the 15 min etc. If you keep track of time you can do the same for hourly candles as well and you will start to see market structure naturally. However I typically trade in a two chart panel window so I have a 15 min and 5 min chart up when trading intra day so I dont have to think too hard about it.
Support/Resistance Lines
Draw support resistance lines on Daily/4hr timeframes. I prefer to use body of the candle instead of the wick for support/resistance.
You can find support/resistance liquidity levels through out the day as well and trade those if the price retraces back through levels its already been through that same day.
It would be a bit length to explain exactly the best place to draw them. If your unsure there is plenty of free resources on the internet. Just try to use your head and look for price levels where the price was "Supported" or it "Resisted" that price level then slap a line on it. Draw as few or as many lines as you feel helps you and your style. I tend to lean on the side of fewer. I typically do about 6 lines main support/resistances (3 of each).
Fibonacci Extensions
Draw two Fibonacci Extensions. One on the daily timeframe, and then one on the 4hr time frame. Then you can trade the Fibonacci levels and use them for TP targets or entry zones if price action respects the level. Also you can use it along with support/resistance and pivots if they happen to line up or are very close.
I cannot really figure out how to put it into words how to draw a Fib if you dont know how. I will have to make a picture to demonstrate it. If your interested post below and I will draw one up and post a link. Probably the easiest way to understand. Just keep in mind the Fib you draw on the 4hr time frame will be inside the daily timeframe one.
Currency Strength/Weakness
The TradeVision2020 dashboard that I use just helps me keep a tab on the current market post plus any swing strength/momentum a currency might have on higher time frames. Helps me look for shifts in the market or confirmation that the bias it already has in momentum is continuing. I have found that often currencies when they get really/weak or strong might continue for several days or even longer like a full week or more. We recently had what felt like 1 week or so of flat out Yen weakness which was making some things wonky. All it does is allow me to look at the dashboard instead of a million other charts.
Indicators
I use two that work well for my intra day style. The Stochastic RSI is just like a RSI but its faster. The second is the Relative Vigor Index which I use to detect swings in momentum and divergences in bullish/bearish momentum. I have used many others in the past, but as I have grown and got better as a trader I have found making my analysis simpler has improved my trading.I dont like the whole idea of have 43 different indicators on 32 different time frames light up a dashboard to be green for me to enter a trade. With how I do it now, I have a clear understanding of what I expect to happen and why. That way when it does happen I understand the move and dont get freaked out if the market moves funny after I am in the trade.
Conclusion I use the above tools/indicators/resources/philosophy's to trade intra day price action that sometimes ends up as noise in the grand scheme of the markets movement.use that method until the price action for the day proves the bias assumption wrong. Also you can couple that with things like Stoch RSI + Relative Vigor Index to find divergences which can increase the probability of your targeted guesses. Trade Example from Yesterday This is an example of a trade I took today and why I took it. I used the following core areas to make my trade decision.
Fundamental Bias: I already had a bullish fundamental outlook on EUUSD with expecting the markets to price in future similes due a higher an higher chance of Biden winning on paper as the election closed in and a "Blue wave" coming which would lead to a weaker dollar. Also, the Euro Zone is getting hammered with COVID pretty hard plus Brexit drama so I had a strong Euro bias.NOTE: As frame of reference, all the other pairs I trade I traded as if they were ranging and trade a range. Markets are messed up right now.
Currency Strength/Weakness: I use a tool that gives me a currency strength/weakness dashboard called TradeVision2020. Helps me track individual currency strength/weakness intra day. Took me about a month to get used to it, but helps me keep track of intra day strength/weakness that can add a bias to trade direction as the day unfolds. Like "Will this run have a 2nd or 3rd push higher" or "I should look to TP at the first sign of weakness in the push" type bias data. You still got to use your brain and figure out the best decision. It wont make choices for you, its only a guide.NOTE: I am not trying to adverse the tool (if providing the code is against sub rules let me know), its just a tool I use every day that helps me with directional bias calls. I am sharing the coupon code that was given to me when I found out about the tool in the TradingView forex chatroom and the guy gave me the code to use when I signed up. I dont want someone to read the name and want to try it out then overpay for no reason. The coupon will give you 40% off. Coupon Code: 3F7A0T5T
Higher Timeframe Analysis: Detected some early signs of Bearish Divergence on the 1hr chart using a on a higher time frame using a Stochastic RSI. Then I saw more confirmation on 5 min charts using Relative Vigor Index to help time my entry mid session.
Pivot Points: I treat pivot points like support/resistance and trade them as such using price action to give me some idea how its being treated by the market. Pretty straight forward.
It may seem like a lot of stuff to process on the fly while trying to figure out live price action but, for the fundamental bias for a pair should already baked in your mindset for any currency pair you trade. For the currency strength/weakness I stare at the dashboard 12-15 hours a day so I am always trying to keep a pulse on what's going or shifts so that's not really a factor when I want to enter as I would not look to enter if I felt the market was shifting against me. Then the higher timeframe analysis had already happened when I woke up, so it was a game of "Stare at the 5 min chart until the price does something interesting" Trade Example: Today , I went long EUUSD long bias when I first looked at the chart after waking up around 9-10pm Eastern. Fortunately, the first large drop had already happened so I had a easy baseline price movement to work with. I then used tool for currency strength/weakness monitoring, Pivot Points, and bearish divergence detected using Stochastic RSI and Relative Vigor Index. I first noticed Bearish Divergence on the 1hr time frame using the Stochastic RSI and got confirmation intra day on the 5 min time frame with the Relative Vigor Index. I ended up buying the second mini dip around midnight Eastern because it was already dancing along the pivot point that the price had been dancing along since the big drop below the pivot point and dipped below it and then shortly closed back above it. I put a stop loss below the first large dip. With a TP goal of the middle point pivot line Then I waited for confirmation or invalidation of my trade. I ended up getting confirmation with Bearish Divergence from the second large dip so I tightened up my stop to below that smaller drip and waited for the London open. Not only was it not a lower low, I could see the divergence with the Relative Vigor Index. It then ran into London and kept going with tons of momentum. Blew past my TP target so I let it run to see where the momentum stopped. Ended up TP'ing at the Pivot Point support/resistance above the middle pivot line. Random Note: The Asian session has its own unique price action characteristics that happen regularly enough that you can easily trade them when they happen with high degrees of success. It takes time to learn them all and confidently trade them as its happening. If you trade Asia you should learn to recognize them as they can fake you out if you do not understand what's going on. TL;DR At the end of the day there is no magic solution that just works. You have to find out what works for you and then what people say works for them. Test it out and see if it works for you or if you can adapt it to work for you. If it does not work or your just not interested then ignore it. At the end of the day, you have to use your brain to make correct trading decisions. Blindly following indicators may work sometimes in certain market conditions, but trading with information you don't understand can burn you just as easily as help you. Its like playing with fire. So, get out there and grind it out. It will either click or it wont. Not everyone has the mindset or is capable of changing to be a successful trader. Trading is gambling, you do all this work to get a edge on the house. Trading without the edge or an edge you understand how to use will only leave your broker happy in the end.
The majority of this sub is focused on technical analysis. I regularly ridicule such "tea leaf readers" and advocate for trading based on fundamentals and economic news instead, so I figured I should take the time to write up something on how exactly you can trade economic news releases. This post is long as balls so I won't be upset if you get bored and go back to your drooping dick patterns or whatever.
How economic news is released
First, it helps to know how economic news is compiled and released. Let's take Initial Jobless Claims, the number of initial claims for unemployment benefits around the United States from Sunday through Saturday. Initial in this context means the first claim for benefits made by an individual during a particular stretch of unemployment. The Initial Jobless Claims figure appears in the Department of Labor's Unemployment Insurance Weekly Claims Report, which compiles information from all of the per-state departments that report to the DOL during the week. A typical number is between 100k and 250k and it can vary quite significantly week-to-week. The Unemployment Insurance Weekly Claims Report contains data that lags 5 days behind. For example, the Report issued on Thursday March 26th 2020 contained data about the week ending on Saturday March 21st 2020. In the days leading up to the Report, financial companies will survey economists and run complicated mathematical models to forecast the upcoming Initial Jobless Claims figure. The results of surveyed experts is called the "consensus"; specific companies, experts, and websites will also provide their own forecasts. Different companies will release different consensuses. Usually they are pretty close (within 2-3k), but for last week's record-high Initial Jobless Claims the reported consensuses varied by up to 1M! In other words, there was essentially no consensus. The Unemployment Insurance Weekly Claims Report is released each Thursday morning at exactly 8:30 AM ET. (On Thanksgiving the Report is released on Wednesday instead.) Media representatives gather at the Frances Perkins Building in Washington DC and are admitted to the "lockup" at 8:00 AM ET. In order to be admitted to the lockup you have to be a credentialed member of a media organization that has signed the DOL lockup agreement. The lockup room is small so there is a limited number of spots. No phones are allowed. Reporters bring their laptops and connect to a local network; there is a master switch on the wall that prevents/enables Internet connectivity on this network. Once the doors are closed the Unemployment Insurance Weekly Claims Report is distributed, with a heading that announces it is "embargoed" (not to be released) prior to 8:30 AM. Reporters type up their analyses of the report, including extracting key figures like Initial Jobless Claims. They load their write-ups into their companies' software, which prepares to send it out as soon as Internet is enabled. At 8:30 AM the DOL representative in the room flips the wall switch and all of the laptops are connected to the Internet, releasing their write-ups to their companies and on to their companies' partners. Many of those media companies have externally accessible APIs for distributing news. Media aggregators and squawk services (like RanSquawk and TradeTheNews) subscribe to all of these different APIs and then redistribute the key economic figures from the Report to their own subscribers within one second after Internet is enabled in the DOL lockup. Some squawk services are text-based while others are audio-based. FinancialJuice.com provides a free audio squawk service; internally they have a paid subscription to a professional squawk service and they simply read out the latest headlines to their own listeners, subsidized by ads on the site. I've been using it for 4 months now and have been pretty happy. It usually lags behind the official release times by 1-2 seconds and occasionally they verbally flub the numbers or stutter and have to repeat, but you can't beat the price! Important - I’m not affiliated with FinancialJuice and I’m not advocating that you use them over any other squawk. If you use them and they misspeak a number and you lose all your money don’t blame me. If anybody has any other free alternatives please share them!
How the news affects forex markets
Institutional forex traders subscribe to these squawk services and use custom software to consume the emerging data programmatically and then automatically initiate trades based on the perceived change to the fundamentals that the figures represent. It's important to note that every institution will have "priced in" their own forecasted figures well in advance of an actual news release. Forecasts and consensuses all come out at different times in the days leading up to a news release, so by the time the news drops everybody is really only looking for an unexpected result. You can't really know what any given institution expects the value to be, but unless someone has inside information you can pretty much assume that the market has collectively priced in the experts' consensus. When the news comes out, institutions will trade based on the difference between the actual and their forecast. Sometimes the news reflects a real change to the fundamentals with an economic effect that will change the demand for a currency, like an interest rate decision. However, in the case of the Initial Jobless Claims figure, which is a backwards-looking metric, trading is really just self-fulfilling speculation that market participants will buy dollars when unemployment is low and sell dollars when unemployment is high. Generally speaking, news that reflects a real economic shift has a bigger effect than news that only matters to speculators. Massive and extremely fast news-based trades happen within tenths of a second on the ECNs on which institutional traders are participants. Over the next few seconds the resulting price changes trickle down to retail traders. Some economic news, like Non Farm Payroll Employment, has an effect that can last minutes to hours as "slow money" follows behind on the trend created by the "fast money". Other news, like Initial Jobless Claims, has a short impact that trails off within a couple minutes and is subsequently dwarfed by the usual pseudorandom movements in the market. The bigger the difference between actual and consensus, the bigger the effect on any given currency pair. Since economic news releases generally relate to a single currency, the biggest and most easily predicted effects are seen on pairs where one currency is directly effected and the other is not affected at all. Personally I trade USD/JPY because the time difference between the US and Japan ensures that no news will be coming out of Japan at the same time that economic news is being released in the US. Before deciding to trade any particular news release you should measure the historical correlation between the release (specifically, the difference between actual and consensus) and the resulting short-term change in the currency pair. Historical data for various news releases (along with historical consensus data) is readily available. You can pay to get it exported into Excel or whatever, or you can scroll through it for free on websites like TradingEconomics.com. Let's look at two examples: Initial Jobless Claims and Non Farm Payroll Employment (NFP). I collected historical consensuses and actuals for these releases from January 2018 through the present, measured the "surprise" difference for each, and then correlated that to short-term changes in USD/JPY at the time of release using 5 second candles. I omitted any releases that occurred simultaneously as another major release. For example, occasionally the monthly Initial Jobless Claims comes out at the exact same time as the monthly Balance of Trade figure, which is a more significant economic indicator and can be expected to dwarf the effect of the Unemployment Insurance Weekly Claims Report. USD/JPY correlation with Initial Jobless Claims (2018 - present) USD/JPY correlation with Non Farm Payrolls (2018 - present) The horizontal axes on these charts is the duration (in seconds) after the news release over which correlation was calculated. The vertical axis is the Pearson correlation coefficient: +1 means that the change in USD/JPY over that duration was perfectly linearly correlated to the "surprise" in the releases; -1 means that the change in USD/JPY was perfectly linearly correlated but in the opposite direction, and 0 means that there is no correlation at all. For Initial Jobless Claims you can see that for the first 30 seconds USD/JPY is strongly negatively correlated with the difference between consensus and actual jobless claims. That is, fewer-than-forecast jobless claims (fewer newly unemployed people than expected) strengthens the dollar and greater-than-forecast jobless claims (more newly unemployed people than expected) weakens the dollar. Correlation then trails off and changes to a moderate/weak positive correlation. I interpret this as algorithms "buying the dip" and vice versa, but I don't know for sure. From this chart it appears that you could profit by opening a trade for 15 seconds (duration with strongest correlation) that is long USD/JPY when Initial Jobless Claims is lower than the consensus and short USD/JPY when Initial Jobless Claims is higher than expected. The chart for Non Farm Payroll looks very different. Correlation is positive (higher-than-expected payrolls strengthen the dollar and lower-than-expected payrolls weaken the dollar) and peaks at around 45 seconds, then slowly decreases as time goes on. This implies that price changes due to NFP are quite significant relative to background noise and "stick" even as normal fluctuations pick back up. I wanted to show an example of what the USD/JPY S5 chart looks like when an "uncontested" (no other major simultaneously news release) Initial Jobless Claims and NFP drops, but unfortunately my broker's charts only go back a week. (I can pull historical data going back years through the API but to make it into a pretty chart would be a bit of work.) If anybody can get a 5-second chart of USD/JPY at March 19, 2020, UTC 12:30 and/or at February 7, 2020, UTC 13:30 let me know and I'll add it here.
Backtesting
So without too much effort we determined that (1) USD/JPY is strongly negatively correlated with the Initial Jobless Claims figure for the first 15 seconds after the release of the Unemployment Insurance Weekly Claims Report (when no other major news is being released) and also that (2) USD/JPY is strongly positively correlated with the Non Farms Payroll figure for the first 45 seconds after the release of the Employment Situation report. Before you can assume you can profit off the news you have to backtest and consider three important parameters. Entry speed: How quickly can you realistically enter the trade? The correlation performed above was measured from the exact moment the news was released, but realistically if you've got your finger on the trigger and your ear to the squawk it will take a few seconds to hit "Buy" or "Sell" and confirm. If 90% of the price move happens in the first second you're SOL. For back-testing purposes I assume a 5 second delay. In practice I use custom software that opens a trade with one click, and I can reliably enter a trade within 2-3 seconds after the news drops, using the FinancialJuice free squawk. Minimum surprise: Should you trade every release or can you do better by only trading those with a big enough "surprise" factor? Backtesting will tell you whether being more selective is better long-term or not. Hold time: The optimal time to hold the trade is not necessarily the same as the time of maximum correlation. That's a good starting point but it's not necessarily the best number. Backtesting each possible hold time will let you find the best one. The spread: When you're only holding a position open for 30 seconds, the spread will kill you. The correlations performed above used the midpoint price, but in reality you have to buy at the ask and sell at the bid. Brokers aren't stupid and the moment volume on the ECN jumps they will widen the spread for their retail customers. The only way to determine if the news-driven price movements reliably overcome the spread is to backtest. Stops: Personally I don't use stops, neither take-profit nor stop-loss, since I'm automatically closing the trade after a fixed (and very short) amount of time. Additionally, brokers have a minimum stop distance; the profits from scalping the news are so slim that even the nearest stops they allow will generally not get triggered. I backtested trading these two news releases (since 2018), using a 5 second entry delay, real historical spreads, and no stops, cycling through different "surprise" thresholds and hold times to find the combination that returns the highest net profit. It's important to maximize net profit, not expected value per trade, so you don't over-optimize and reduce the total number of trades taken to one single profitable trade. If you want to get fancy you can set up a custom metric that combines number of trades, expected value, and drawdown into a single score to be maximized. For the Initial Jobless Claims figure I found that the best combination is to hold trades open for 25 seconds (that is, open at 5 seconds elapsed and hold until 30 seconds elapsed) and only trade when the difference between consensus and actual is 7k or higher. That leads to 30 trades taken since 2018 and an expected return of... drumroll please... -0.0093 yen per unit per trade. Yep, that's a loss of approx. $8.63 per lot. Disappointing right? That's the spread and that's why you have to backtest. Even though the release of the Unemployment Insurance Weekly Claims Report has a strong correlation with movement in USD/JPY, it's simply not something that a retail trader can profit from. Let's turn to the NFP. There I found that the best combination is to hold trades open for 75 seconds (that is, open at 5 seconds elapsed and hold until 80 seconds elapsed) and trade every single NFP (no minimum "surprise" threshold). That leads to 20 trades taken since 2018 and an expected return of... drumroll please... +0.1306 yen per unit per trade. That's a profit of approx. $121.25 per lot. Not bad for 75 seconds of work! That's a +6% ROI at 50x leverage.
Make it real
If you want to do this for realsies, you need to run these numbers for all of the major economic news releases. Markit Manufacturing PMI, Factory Orders MoM, Trade Balance, PPI MoM, Export and Import Prices, Michigan Consumer Sentiment, Retail Sales MoM, Industrial Production MoM, you get the idea. You keep a list of all of the releases you want to trade, when they are released, and the ideal hold time and "surprise" threshold. A few minutes before the prescribed release time you open up your broker's software, turn on your squawk, maybe jot a few notes about consensuses and model forecasts, and get your finger on the button. At the moment you hear the release you open the trade in the correct direction, hold it (without looking at the chart!) for the required amount of time, then close it and go on with your day. Some benefits of trading this way: * Most major economic releases come out at either 8:30 AM ET or 10:00 AM ET, and then you're done for the day. * It's easily backtestable. You can look back at the numbers and see exactly what to expect your return to be. * It's fun! Packing your trading into 30 seconds and knowing that institutions are moving billions of dollars around as fast as they can based on the exact same news you just read is thrilling. * You can wow your friends by saying things like "The St. Louis Fed had some interesting remarks on consumer spending in the latest Beige Book." * No crayons involved. Some downsides: * It's tricky to be fast enough without writing custom software. Some broker software is very slow and requires multiple dialog boxes before a position is opened, which won't cut it. * The profits are very slim, you're not going to impress your instagram followers to join your expensive trade copying service with your 30-second twice-weekly trades. * Any friends you might wow with your boring-ass economic talking points are themselves the most boring people in the world. I hope you enjoyed this long as fuck post and you give trading economic news a try!
How to get started in Forex - A comprehensive guide for newbies
Almost every day people come to this subreddit asking the same basic questions over and over again. I've put this guide together to point you in the right direction and help you get started on your forex journey. A quick background on me before you ask: My name is Bob, I'm based out of western Canada. I started my forex journey back in January 2018 and am still learning. However I am trading live, not on demo accounts. I also code my own EA's. I not certified, licensed, insured, or even remotely qualified as a professional in the finance industry. Nothing I say constitutes financial advice. Take what I'm saying with a grain of salt, but everything I've outlined below is a synopsis of some tough lessons I've learned over the last year of being in this business. LET'S GET SOME UNPLEASANTNESS OUT OF THE WAY I'm going to call you stupid. I'm also going to call you dumb. I'm going to call you many other things. I do this because odds are, you are stupid, foolish,and just asking to have your money taken away. Welcome to the 95% of retail traders. Perhaps uneducated or uninformed are better phrases, but I've never been a big proponent of being politically correct. Want to get out of the 95% and join the 5% of us who actually make money doing this? Put your grown up pants on, buck up, and don't give me any of this pc "This is hurting my feelings so I'm not going to listen to you" bullshit that the world has been moving towards. Let's rip the bandage off quickly on this point - the world does not give a fuck about you. At one point maybe it did, it was this amazing vision nicknamed the American Dream. It died an agonizing, horrible death at the hand of capitalists and entrepreneurs. The world today revolves around money. Your money, my money, everybody's money. People want to take your money to add it to theirs. They don't give a fuck if it forces you out on the street and your family has to live in cardboard box. The world just stopped caring in general. It sucks, but it's the way the world works now. Welcome to the new world order. It's called Capitalism. And here comes the next hard truth that you will need to accept - Forex is a cruel bitch of a mistress. She will hurt you. She will torment you. She will give you nightmares. She will keep you awake at night. And then she will tease you with a glimmer of hope to lure you into a false sense of security before she then guts you like a fish and shows you what your insides look like. This statement applies to all trading markets - they are cruel, ruthless, and not for the weak minded. The sooner you accept these truths, the sooner you will become profitable. Don't accept it? That's fine. Don't bother reading any further. If I've offended you I don't give a fuck. You can run back home and hide under your bed. The world doesn't care and neither do I. For what it's worth - I am not normally an major condescending asshole like the above paragraphs would suggest. In fact, if you look through my posts on this subreddit you will see I am actually quite helpful most of the time to many people who come here. But I need you to really understand that Forex is not for most people. It will make you cry. And if the markets themselves don't do it, the people in the markets will. LESSON 1 - LEARN THE BASICS Save yourself and everybody here a bunch of time - learn the basics of forex. You can learn the basics for free - BabyPips has one of the best free courses online which explains what exactly forex is, how it works, different strategies and methods of how to approach trading, and many other amazing topics. You can access the BabyPips course by clicking this link: https://www.babypips.com/learn/forex Do EVERY course in the School of Pipsology. It's free, it's comprehensive, and it will save you from a lot of trouble. It also has the added benefit of preventing you from looking foolish and uneducated when you come here asking for help if you already know this stuff. If you still have questions about how forex works, please see the FREE RESOURCES links on the /Forex FAQ which can be found here: https://www.reddit.com/Forex/wiki/index Quiz Time Answer these questions truthfully to yourself: -What is the difference between a market order, a stop order, and a limit order? -How do you draw a support/resistance line? (Demonstrate it to yourself) -What is the difference between MACD, RSI, and Stochastic indicators? -What is fundamental analysis and how does it differ from technical analysis and price action trading? -True or False: It's better to have a broker who gives you 500:1 margin instead of 50:1 margin. Be able to justify your reasoning. If you don't know to answer to any of these questions, then you aren't ready to move on. Go back to the School of Pipsology linked above and do it all again. If you can answer these questions without having to refer to any kind of reference then congratulations, you are ready to move past being a forex newbie and are ready to dive into the wonderful world of currency trading! Move onto Lesson 2 below. LESSON 2 - RANDOM STRANGERS ARE NOT GOING TO HELP YOU GET RICH IN FOREX This may come as a bit of a shock to you, but that random stranger on instagram who is posting about how he is killing it on forex is not trying to insprire you to greatness. He's also not trying to help you. He's also not trying to teach you how to attain financial freedom. 99.99999% of people posting about wanting to help you become rich in forex are LYING TO YOU. Why would such nice, polite people do such a thing? Because THEY ARE TRYING TO PROFIT FROM YOUR STUPIDITY. Plain and simple. Here's just a few ways these "experts" and "gurus" profit from you:
Referral Links - If they require you to click a specific link to signup for something, it means they are an affiliate. They get a commission from whatever the third party is that they are sending you to. I don't care if it's a brokerage, training program, hell even an Amazon link to a book - if they insist you have to click their super exclusive, can't-get-this-deal-any-other-way-but-clicking-my-link type bullshit, it's an affiliate link. There is nothing inherently wrong with affiliate programs, but you are literally generating money for some stranger because they convinced you to buy something. Some brokers such as ICMarkets have affiliate programs that payout a percentage of the commission you generate - this is a really clever system - whether you profit or blow your entire account, the person who referred you to the broker makes a profit off you. Clever eh?
Signal Services, Education & Training Programs, Courses - If somebody is telling you they are making a killing with a signal service and are trying to convince you to join it, I guarantee they are getting a piece of your monthly fee. And better still, these signal services often work...for about a week. Just long enough to suck a bunch of poor fools into it. You see people making money, you want in so you agree to pay the $200+/month subscription fee. You follow the signals and it looks like it's making money for a few days or weeks. Then it turns sideways, you start losing money hand over fist. Pretty soon you have lost most of your trading account because you blindly followed a signal service. And better still - when you go screaming at the person running the signal service they will be very quick to point you to their No Refunds policy. To add insult to injury, the buttfucker that referred you to the signal service in the past will likely listen to you getting mad, and then come back with something like "Sorry it didn't work out, but I just joined this other amazing service and it's working great, you should come join it to earn your money back. Here's my link..." You get the point here right?
Multi-Level Marketing (MLMs) - These people are scum. They are going to offer you training and education, signals, access to forex experts and gurus, and all kinds of other shit with the promise that you will live the dream and become financially free. They are also loading you into a pyrmaid scheme where you will be hounded to recruit other people and make money off them just like you got roped into it. A really prime example here is iMarkets Live (or IML for short). Don't touch this shit with a 10 foot pole. I don't care what they are claiming, you will lose everything using them.
Fund Managers - These people make my skin crawl. It's a classic scam and it works like this - somebody will post online about how much money they are making trading forex/commodities/stocks/whatever. Most of the time they won't explicitly post they are offering a trading service, rather they just put the message out there and wait for the ignorant masses (that's you) to contact them. They will charm you. They will lie to you. They will promise you the moon if you simply wire them some money or give them API access to your trading account. Care to guess what happens next? If you send a wire transfer (or Western Union...hell any kind of payment to them) they will vanish. Happens usually after they take a bunch of suckers for the ride. You sent them $2,000 and so do 9 other suckers. They just made $20,000 and are gone. With API access to your account, you will find your account gets blown super fast or worse - possibly leaving you open to persecution by the broker you are using.
These are just a few examples. The reality is that very few people make it big in forex or any kind of trading. If somebody is trying to sell you the dream, they are essentially a magician - making you look the other way while they snatch your wallet and clean you out. Additionally, on the topic of fund managers - legitimate fund managers will be certified, licensed, and insured. Ask them for proof of those 3 things. What they typically look like are:
Certified - This varies from country to country, in the US it's FINRA (http://www.finra.org). They need to have their Series 7 certification minimum. You can make the case that other FINRA certifications are acceptable in lieu of Series 7, but the 7 is the gold standard.
Licensed - They need to have a valid business license issued by the government. It must clearly state they are an investment company, preferrably a hedge fund because they have some super strict requirements to operate (and often require $25,000+ in fees just to get their business license, so you know they at least have some skin in the game).
Insured - They need to be backed by an insurance company. I'm not talking general insurance for shit like their office burning down. I'm talking about a government-implemented protection insurance program - in the US I believe that is issued by the Securities Investment Protection Corporation (https://www.sipc.org/).
If you are talking to a fund manager and they are insisting they have all of these, get a copy of their verification documents and lookup their licenses on the directories of the issuers to verify they are valid. If they are, then at least you are talking to somebody who seems to have their shit together and is doing investment management and trading as a professional and you are at least partially protected when the shit hits the fan. LESSON 3 - UNDERSTAND YOUR RISK Many people jump into Forex, drop $2000 into a broker account and start trading 1 lot orders because they signed up with a broker thinking they will get rich because they were given 500:1 margin and can risk it all on each trade. Worst-case scenario you lose your account, best case scenario you become a millionaire very quickly. Seems like a pretty good gamble right? You are dead wrong. As a new trader, you should never risk more than 1% of your account balance on a trade. If you have some experience and are confident and doing well, then it's perfectly natural to risk 2-3% of your account per trade. Anybody who risks more than 4-5% of their account on a single trade deserves to blow their account. At that point you aren't trading, you are gambling. Don't pretend you are a trader when really you are just putting everything on red and hoping the roulette ball lands in the right spot. It's stupid and reckless and going to screw you very quickly. Let's do some math here: You put $2,000 into your trading account. Risking 1% means you are willing to lose $20 per trade. That means you are going to be trading micro lots, or 0.01 lots most likely ($0.10/pip). At that level you can have a trade stop loss at -200 pips and only lose $20. It's the best starting point for anybody. Additionally, if you SL 20 trades in a row you are only down $200 (or 10% of your account) which isn't that difficult to recover from. Risking 3% means you are willing to lose $60 per trade. You could do mini lots at this point, which is 0.1 lots (or $1/pip). Let's say you SL on 20 trades in a row. You've just lost $1,200 or 60% of your account. Even veteran traders will go through periods of repeat SL'ing, you are not a special snowflake and are not immune to periods of major drawdown. Risking 5% means you are willing to lose $100 per trade. SL 20 trades in a row, your account is blown. As Red Foreman would call it - Good job dumbass. Never risk more than 1% of your account on any trade until you can show that you are either consistently breaking even or making a profit. By consistently, I mean 200 trades minimum. You do 200 trades over a period of time and either break-even or make a profit, then you should be alright to increase your risk. Unfortunately, this is where many retail traders get greedy and blow it. They will do 10 trades and hit their profit target on 9 of them. They will start seeing huge piles of money in their future and get greedy. They will start taking more risk on their trades than their account can handle. 200 trades of break-even or profitable performance risking 1% per trade. Don't even think about increasing your risk tolerance until you do it. When you get to this point, increase you risk to 2%. Do 1,000 trades at this level and show break-even or profit. If you blow your account, go back down to 1% until you can figure out what the hell you did differently or wrong, fix your strategy, and try again. Once you clear 1,000 trades at 2%, it's really up to you if you want to increase your risk. I don't recommend it. Even 2% is bordering on gambling to be honest. LESSON 4 - THE 500 PIP DRAWDOWN RULE This is a rule I created for myself and it's a great way to help protect your account from blowing. Sometimes the market goes insane. Like really insane. Insane to the point that your broker can't keep up and they can't hold your orders to the SL and TP levels you specified. They will try, but during a flash crash like we had at the start of January 2019 the rules can sometimes go flying out the window on account of the trading servers being unable to keep up with all the shit that's hitting the fan. Because of this I live by a rule I call the 500 Pip Drawdown Rule and it's really quite simple - Have enough funds in your account to cover a 500 pip drawdown on your largest open trade. I don't care if you set a SL of -50 pips. During a flash crash that shit sometimes just breaks. So let's use an example - you open a 0.1 lot short order on USDCAD and set the SL to 50 pips (so you'd only lose $50 if you hit stoploss). An hour later Trump makes some absurd announcement which causes a massive fundamental event on the market. A flash crash happens and over the course of the next few minutes USDCAD spikes up 500 pips, your broker is struggling to keep shit under control and your order slips through the cracks. By the time your broker is able to clear the backlog of orders and activity, your order closes out at 500 pips in the red. You just lost $500 when you intended initially to only risk $50. It gets kinda scary if you are dealing with whole lot orders. A single order with a 500 pip drawdown is $5,000 gone in an instant. That will decimate many trader accounts. Remember my statements above about Forex being a cruel bitch of a mistress? I wasn't kidding. Granted - the above scenario is very rare to actually happen. But glitches to happen from time to time. Broker servers go offline. Weird shit happens which sets off a fundamental shift. Lots of stuff can break your account very quickly if you aren't using proper risk management. LESSON 5 - UNDERSTAND DIFFERENT TRADING METHODOLOGIES Generally speaking, there are 3 trading methodologies that traders employ. It's important to figure out what method you intend to use before asking for help. Each has their pros and cons, and you can combine them in a somewhat hybrid methodology but that introduces challenges as well. In a nutshell:
Price Action Trading (Sometimes called Naked Trading) is very effective at identifying when trends will start and finish. This gives you the advantage of staying ahead of the market and predicting when a change in trend direction will occur. It has the disadvantage of being really easy to screw it up if you don't plot your support and resistance lines properly and interpret the chart wrong. Because you can identify a change in trend direction, you'll generally make more profit on a new trend than a technical strategy will.
Technical Analytics (or TA) uses math and statistics to try and identify where the market is headed or confirm/reject whether a trend is happening. It has the advantage of being very math and stat driven which is hard to refute the numbers, but it has the disadvantage of being late to the party when it comes to identifying trends (hence why people call TA a lagging strategy). When people fail using TA, it's not because of the math - it's because you misinterpreted what the math is telling you.
Fundamental Analysis (or FA) uses news and macro scale events to predict what is going on. A really good example right now is Brexit, what a clusterfuck that is. Every time some major brexit news breaks it causes all sorts of choas in almost every currency pair. Fundamental trading has the highest potential profitability per trade but it also has the highest potential drawdown per trade.
Now you may be thinking that you want to be a a price action trader - you should still learn the principles and concepts behind TA and FA. Same if you are planning to be a technical trader - you should learn about price action and fundamental analysis. More knowledge is better, always. With regards to technical analysis, you need to really understand what the different indicators are tell you. It's very easy to misinterpret what an indicator is telling you, which causes you to make a bad trade and lose money. It's also important to understand that every indicator can be tuned to your personal preferences. You might find, for example, that using Bollinger Bands with the normal 20 period SMA close, 2 standard deviation is not effective for how you look at the chart, but changing that to say a 20 period EMA average price, 1 standard deviation bollinger band indicator could give you significantly more insight. LESSON 6 - TIMEFRAMES MATTER Understanding the differences in which timeframes you trade on will make or break your chosen strategy. Some strategies work really well on Daily timeframes (i.e. Ichimoku) but they fall flat on their face if you use them on 1H timeframes, for example. There is no right or wrong answer on what timeframe is best to trade on. Generally speaking however, there are 2 things to consider:
Speed - If you are scalping (trading on the really fast candles like 1M, 5M, 15M, etc) odds are your trades are very short lived. Maybe 10 minutes to an hour tops. For the most part, scalping strategies will produce little profit per trade but make up for it in the sheer volume of trades. Whereas swing trading may only make a few trades but each one could be worth a significant amount of money.
Spread (the fee you pay to the broker when you trade) - If you are a scalper, the spread is your worst enemy because you have to overcome it very fast to make a profit on your order. Whereas swing trading the spread hardly impacts you at all.
If you are a total newbie to forex, I suggest you don't trade on anything shorter than the 1H timeframe when you are first learning. Trading on higher timeframes tends to be much more forgiving and profitable per trade. Scalping is a delicate art and requires finesse and can be very challenging when you are first starting out. LESSON 7 - AUTOBOTS...ROLL OUT! Yeah...I'm a geek and grew up with the Transformers franchise decades before Michael Bay came along. Deal with it. Forex bots are called EA's (Expert Advisors). They can be wonderous and devastating at the same time. /Forex is not really the best place to get help with them. That is what /algotrading is useful for. However some of us that lurk on /Forex code EA's and will try to assist when we can. Anybody can learn to code an EA. But just like how 95% of retail traders fail, I would estimate the same is true for forex bots. Either the strategy doesn't work, the code is buggy, or many other reasons can cause EA's to fail. Because EA's can often times run up hundreds of orders in a very quick period of time, it's critical that you test them repeatedly before letting them lose on a live trading account so they don't blow your account to pieces. You have been warned. If you want to learn how to code an EA, I suggest you start with MQL. It's a programming language which can be directly interpretted by Meta Trader. The Meta Trader terminal client even gives you a built in IDE for coding EA's in MQL. The downside is it can be buggy and glitchy and caused many frustrating hours of work to figure out what is wrong. If you don't want to learn MQL, you can code an EA up in just about any programming language. Python is really popular for forex bots for some reason. But that doesn't mean you couldn't do it in something like C++ or Java or hell even something more unusual like JQuery if you really wanted. I'm not going to get into the finer details of how to code EA's, there are some amazing guides out there. Just be careful with them. They can be your best friend and at the same time also your worst enemy when it comes to forex. One final note on EA's - don't buy them. Ever. Let me put this into perspective - I create an EA which is literally producing money for me automatically 24/5. If it really is a good EA which is profitable, there is no way in hell I'm selling it. I'm keeping it to myself to make a fortune off of. EA's that are for sale will not work, will blow your account, and the developer who coded it will tell you that's too darn bad but no refunds. Don't ever buy an EA from anybody. LESSON 8 - BRING ON THE HATERS You are going to find that this subreddit is frequented by trolls. Some of them will get really nasty. Some of them will threaten you. Some of them will just make you miserable. It's the price you pay for admission to the /Forex club. If you can't handle it, then I suggest you don't post here. Find a more newbie-friendly site. It sucks, but it's reality. We often refer to trolls on this subreddit as shitcunts. That's your word of the day. Learn it, love it. Shitcunts. YOU MADE IT, WELCOME TO FOREX! If you've made it through all of the above and aren't cringing or getting scared, then welcome aboard the forex train! You will fit in nicely here. Ask your questions and the non-shitcunts of our little corner of reddit will try to help you. Assuming this post doesn't get nuked and I don't get banned for it, I'll add more lessons to this post over time. Lessons I intend to add in the future:
Demo Trading
Why you will blow your first account and what to do when it happens
Trading Psychology (this will be a beefy one and will take a while to put together)
Exotics vs Majors and which you should focus on as a newbie (aka how to blow your account in a single trade with exotics)
Hedging (there isn't really a good guide written on this anywhere)
Doubling Your Risk to Save Your Ass or Lose a Shit Ton (aka Martingale & Anti-Martingale)
Risk On/Off
Forex Calendars
Currency Strength / Heat Maps
Swap
Margin Calls (What are they and why are you getting them?)
If there is something else you feel should be included please drop a comment and I'll add it to the above list of pending topics. Cheers, Bob
Forecasting the End of Major Corrections, and Accumulating Trend Trading Positions.
A prerequisite post to this post can be read here; https://www.reddit.com/Forex/comments/clx0v9/profiting_in_trends_planning_for_the_impulsive/ It will also be beneficial to read this; https://www.reddit.com/Forex/comments/clbxk2/shorting_noobs_common_trend_following_mistakes_im/ Before getting into the meat of things, you need to understand the 'elastic band' effect of large moves in the market. What this means is most of the time before a market starts to make a big move in the direction it is ultimately going, it will make a strong and usually fast counter move. You know this already in a way. You've been taught from early on (I assume) that pin bars (hammers etc) are indications the market is reversing. You're told the wicks are formed by price pushing into an area and being rejected from it. In a trend formation, this is what the intra-week price action would tend to look like when there is the formation of reversal candles at the close of the weekly timeframe. https://preview.redd.it/nv1nbk0c9th31.png?width=909&format=png&auto=webp&s=f87d94ee33f0d07cde211c05d9234a236a487309 Here we would have been in a down trend and then for a week or two seen bullish momentum. The blue swing is the "elastic band" move. Or what I like to call the "ping swing". The formation I have drawn here is not arbitrary. A lot of specific things are going on in this chart. Here I've highlighted the relevant ones. When we've seen all of these, we know there is a good chance we have reached the end of a C leg correction (read up on basic Elliot wave theory if you do not understand this terminology). https://preview.redd.it/8u9bg43nath31.png?width=1066&format=png&auto=webp&s=1ddb04a27b9a99ddbcaab5eef4e3ca7eea78e000 There can be variance in the 4 and 5 area. I am being polite, I should be honest. This area is often a bitch to trade in. Sometimes there are deep retracements and sometimes they are really shallow. Personally I've not been able to find ways to get strong ideas of how to forecast which is more likely. It tends to be an area I lose money and one I continue to work on trying to develop better ways of dealing with. Here are examples of each type from trades I've taken recently. https://preview.redd.it/6n0x4k43cth31.png?width=744&format=png&auto=webp&s=f03fdbff3176e1df36727f3606dbf6fc67912e53 This is explained in more context at https://www.reddit.com/Forex/comments/cks8q1/shorting_noobs_problems_proofs_and_fine_tuning/ This chart is messy because a lot of positions are being taken rather than a specific strategy being followed, but as I've explained in the 'Shorting Noobs' series of posts, I am mot interested in trading off the 61.8% fib. https://preview.redd.it/97cb1x0wcth31.png?width=719&format=png&auto=webp&s=d49bbac385242184d9f9ba2708d1e9fe92efba42 Here is one with EURUSD that had very shallow sell-off then made the ping swing. https://preview.redd.it/dbiujru0fth31.png?width=1025&format=png&auto=webp&s=277682a868af7cb2dc2b612243a8abfef54e9de0 You maybe thinking at this point, "But the range bit looks like it should be the 5". I know! I told you it's a bitch. As you can see here regardless of this I have still sold the best price. I am doing this by having a clear SR level I am forecasting in this sort of move. (Explained in more detail in the shorting noob series [2][3] ) Note, it is still entirely possible that this can make another ping swing and slightly spike out this high. If it does, we have a great opportunity. At this point, we are wiser to look for the better RR trade with trend continuation by considering we are possibly in this part of the move and we have the next (usually stronger than previous) sell off coming. https://preview.redd.it/15xd09pzfth31.png?width=730&format=png&auto=webp&s=c5e3a70fbc9411b36d74a7e32ebf5c1aabf1ad05 Which actually fits inside another cycle for a ping swing. https://preview.redd.it/31craqbkgth31.png?width=1018&format=png&auto=webp&s=4d7cc139aa406673213c62009220a3182e7e9e55 Here is a real time forecast of a ping swing we can watch for and set pending orders (or define areas to watch for reversal patterns) GBPUSD https://preview.redd.it/uz93cn53ith31.png?width=1082&format=png&auto=webp&s=3b2d9a7fc12c961dafb7ee3cc7aa4c1aec29c927 (Ignore the buy trades on this, they are from a different type of strategy) This is a lot of information, and to intrinsically understand this you'd have to go over a lot of trending charts and watch how they have developed. I have spent a hell of a lot of time on this. I will round up with leaving you just a few simple rules we can take from understanding this general pattern that recurs in trends. Some of them will help you win, others will help to prevent you losing. 1 - When it starts to chop, it's time to stop. When a trend that has been in a free flowing form starts to get choppy, it's time to stop following the trend for the time being. You should be aware the next breakout(s) can be false ones, and the next shallow correction for a "Retest & continue" type trade is likely a trap. 2 - Big corrections rarely feature only one leg. When you see a really big move against the trend it gets really tempting to rejoin the trend once it starts to form price action reversal candles. Any time you're entering without the market having previously faked and then spiked out early sellers at least a couple of times, you have a more risky trade. 3 - Forecast where early sellers will lose. Quite simply, if you see a downtrend and then a spike up and what looks like the continuation of a downtrend you can assume there are sellers into what they think will be the new downtrend move. It's also quite likely these sellers have it very wrong on their stop area. It will be just above the previous highs and the consolation range. This is the very area we'd expect the ping swing to spike into and then make the proper trend move after whipsawing those who sold too early. Where they are getting stopped out, you want to be entering. Not sure where this is? Look in Forex forums, they'll tell you. 4 - Velocity does not mean victory! As price comes into the reversal area it will usually be carrying a lot of short term momentum and moving fast. Moving quickly into an area is not in any way an indication of a break of that area or a reversal. In fact, once you've identified where you think the ping swing will end, the more parabolic that move is into that area the better for the reversal trade. Plan ahead, do not be caught up in the moment. The moment will be deceptive. 5 - Have excellent exit plans on both sides of this sort of move. If the move fails, the counter move running against you can be persistent. Stop losses should be around 78% of the swing. Small spike outs of the 61.8% level are to be expected. Breaks of the 76% level are not. Similarly, profits can come lightening quickly. Which can actually be a problem if you've not planned the areas you want to exit or how to trail your stops. So be well prepared to exit before you enter. The things I have explained in this post have validity on all timeframes. I scalp with it, and I swing with it. It transfers readily to any market with trending properties. If you were to master this (especially at an intraday level - which is harder) , it would be highly likely you significantly beat what most people would think are "good returns" when the markets are trending. It would be possible for someone who has sufficient skill in doing this to make themselves substantial profits even starting from a small amount of money and using moderate risk over the course of just trading 4 - 5 major trend moves on daily and weekly charts. This is quite an easy setup in my opinion (once it's been highlighted at least) and for as long as you can find trends to use it, it will outperform most strategies I see on public display. (All bets are off in ranges. This will make a mockery of you if you try to do it in ranges) Happy trend following :)
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