The Cashmaster's Forex Foray

End of month Trading results

2006-08-02T11:47:00.000-07:00

The month produced excellent returns again, with a final profit of 31%. This has been my best month to date. After having a great start to the month. I decided to experiment for the rest of the month with some Heiken Ashi studying.

Hieken Ashi are modified Japanese candlesticks, and most trading platforms allow you to select these as your preferred technical indicator. Whilst they look very impressive and pretty, I really haven’t had much luck with them as my primary indicator. Basically you ‘sell’ when they are red, and buy when they are white. But, I had so many false signals with them, that I’ve abandoned them for now while I search for more detailed information on how to use them correctly. I know that a lot of successful traders use Heiken Ashi almost exclusively as their prime indicator. Obviously they know something I don’t – at the moment at least. There are a couple of trading courses around that teach and use H.A. so maybe I’ll try one of those. I’ll keep you posted.

This last month, it was indeed fortunate that I decided not to trade. The escalating conflict between Israel and Lebanon no doubt caught a lot of people off guard as the prices swung this way and that. Technical indicators were nearly useless in this situation, and trading the news was pointless when the news coming from that region was changing hourly. In my opinion, unless you can be glued to the screen in this scenario – it’s best to stand aside.

For those news traders out there, Thursday and Friday are going to be busy with ECB,BOE rate decision on Thursday and Non Farm Payroll data on Friday

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Box technique on eurusd and gbpusd.

2006-07-09T16:43:00.000-07:00

Below are two trades from this past week on the pairs mentioned above. Using a technique I have mentioned before a ‘Box’ or ‘Channel’ technique. This is particularly useful for a sideways trending market. As there was a mixed week on the markets, due to the 4th July break in the US, the likely action was probably due to take place on the Thursday and Friday sessions. This was because of news releases on Thursday and Friday.
We see the currency pair bouncing sideways and place a buy stop above (30Pips) and a sell stop below (30 Pips) This 30 pip range is to allow for some movement – but it will hopefully catch a large swing. My stop losses are placed at the current price position. In addition to this we place a trailing stop loss at about 15-20 pips.
Our first trade is not that exciting the EURUSD bounces up through our buy stop and the gets stopped out buy the TSL.
Still, profit is better than loss and we’ll take it!

Our second two trades on Friday are far more interesting for two very different reasons. I place two box trades on the EURUSD and the GBPUSD exactly as described above. This was done the night before the impending news release, as for me it was the middle of the night when the release would happen.

When I awoke I see the EURUSD trade is nowhere to be seen on my terminal. I examine the trade and see it stopped out for a small loss – despite the price action never touching my stops!

This was extremely annoying! Especially as my GBPUSD trade was 140 Pips in profit.
Entry........
Exit.........

So instead of having my two trades in profit by a total of nearly 300 pips, I have a total of around a hundred and twenty. I end the week up around 180 in profit. Some people claim that brokers will go “Stop Hunting”. That is triggering stops before they are reached. I have never experienced it myself, but am now doubly sure I shall be looking for a mix of brokers to handle my trades.

However, considering I traded only two days I'm happy to be handsomly in profit.

That's all for now. Best of luck
Cash
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End of Month round up

2006-07-03T10:38:00.000-07:00

The end of the month profit for June was 19.3%

Very happy with that. This was despite missing the big movement last Thursday due to a non existent internet connection.

Refining the strategy little by little, and think the next move is diversification into different brokers. Probably four brokers in total.

This is to keep the size of the account with each broker manageable in both lot size and in money terms. I've noticed a delay in orders being filled and am going to experiment with multiple accounts for a while.

The pivot strategy seems to be working very well and I'll continue to tweek it the coming month.

Good Fortune
Cash
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Multiple trades on USDCHF using pivots and candlesticks

2006-06-21T11:15:00.000-07:00

Today’s post displays a multiple trade on the USDCHF this week. As well as a nice trade on the EURUSD. First the USDCHF.
In the first screen capture, we see a shooting star at the top of a previous climb. Normally these are a no-brainer but, as it’s early in the week, our pivots aren’t yet accurately displaying support and resistance. We wait for confirmation of the fall/reversal. A series of spinning tops and other candlesticks indicating lack of clear direction tells us to hold our position. Another shooting star, and a subsequent bearish candlestick prompts our entry. Our trade is not as dramatic as we hoped and our TSL is triggered, but still giving us a nice profit.
The following day another shooting star appears. This one much stronger, and now our pivot points are giving us a little more help. A brief touch of a resistance line coupled with such a strong shooting star prompts me to enter a ‘sell’ order. The trade falls to the pivot and we exit as there is no clear break through.

Watching the pair retrace the fall upwards, we notice another reversal at the resistance (yellow line) – essentially another shooting star - and enter another sell order.

This time the fall is much more dramatic (52 pips) after a falter at the main pivot, our trade crashes through and heads down towards the next point of support – Blue line. Carrying on going, it finally starts to retrace at the yellow support – prompting us to close out.

This series of trades shows us the impoertance of following the currency pairs closely. After a while one can get a 'feel' for the action going on beneath the chart activity.

In another trade this week on the EURUSD we see a clear resistance after a sustained climb at our pivot point.

After a few heartstopping moments we see the trade dramatically fall in our favour.

This time instead of using my usual 15Pip TSL, I opt for a heavier margin of 25Pips TSL. This is eventually triggered - but not before we have bagged a nice bunch of pips.
With practice and daily chart analysis, this really can become second nature.
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A Volatile week comes to a close

2006-06-17T10:18:00.000-07:00

Very little trading done this week. Those of you following the markets this week will have noticed the charts varying wildly from one moment to the next. Each day seemed to bring ever more random and extreme variations in the currency pairs. Of course this was due to the multitude of news releases issued during the course of the week. As I have mentioned before, I don’t usually trade the news. I normally sit and wait out any volatility during the newsbreak until the markets are again giving me some clear indication of direction. But, this week the markets never seemed to settle. The result this week was that I didn’t trade a single day with the exception of Friday, when I traded a brief eur/usd bounce See pics below.

There are people who do nothing but trade the news. If you are so inclined there is a course called MMTS forex trading system, which can help with timing trades during news releases. They have two main systems, one is the "London open system". They claim it is useable on any currency pair. As the name suggests it uses the news releases on the London session in conjuntion with mathematics to work out entry and exit strategies.

Lets hope the coming week brings some clarity and stability.

Here's the eur/usd trade.
Noticed a possible support forming at our yellow line, seeing a bullish candle forming, I entered a buy order. (notice how the slippage puts my order much higher than normal) I enter an automatic take profit at the blue line above, which I guess is the next point of resistance.
I get admittedly a little lucky and our trade touches our closeout price. But, I'll take it!

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The Emotional Side Of Trading

2006-06-08T09:49:00.001-07:00

Hi Everyone,

I thought I would post concerning not, as you would expect, winning trades – but losing trades.

I had entered two positions on USDJPY and GBPUSD my reasons for entry were pivots as usual. I expected the trades to proceed up and down accordingly - and they did. But, that particular day I had had a spectacular argument with my other half, and when I looked before retiring for the night I saw that the combined profit for the two trades was at roughly 48 pips - Great!
However, being a little tired from the day’s aforementioned spat, I declined to put in place my usual 15 pip TSL and went to bed. On awakening I saw both trades had disappeared from my terminal! Which meant that they had both reversed and passed through my 30 pip stop-loss. Further investigation revealed that both trades had been mightily in profit before the reversal took place. I had in trading parlance "Turned my winners into losers."

There is an important lesson to be learnt here. Whatever happens, stick to your rules. ALWAYS put your TSL or TP in place – in fact if possible don’t leave trades open through the night AT ALL! (But certainly not without the TSL)

This illustrates what in my opinion is the main difficulty in trading the forex market. It is not that the technical analysis skills are hard to aquire (they are quite easy to grasp) It is the emotional side of trading that is the hardest to master. Trading, after a while, should become second nature. The signs are often clear, the direction obvious - and yet we still fail to act accordingly. We must control our emotions - not just our greed.

On the bright side – I am back to my winning ways. Examples of two 20+ pip winners earlier in the week. See the trades below.

As you can see from the image above, our pair had been testing a pivot resistance point. After three failed attempts to break through, I entered a sell order.

Our trade dips nicely as predicted and we bag 20+ pips after a bearish candlestick prompts our closeout.

Our GBPUSD pair looks as if it is reversing a short fall as a series of reversal candlesticks appear.

A clear point of support is forming at the red pivot and we enter a short term buy. The trade progresses nicely but stalls aroung the next resistance (blue line) we close out again for 20+pips.

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USDCAD trade. Month end profit.

2006-05-31T12:58:00.000-07:00

Noticed an engulfing bullish candlestick forming at 1.0940 on the usdcad (thought I'd taken a screenshot - but can't find it!) . If you look on the chart above, which is actually taken after my exit., you'll see a bullish candle open lower than the bearish close but then start to 'overtake' the open of the previos candle. A true engulfing candle would have opened lower but then closed higher than the previous open - which this did not.

However fortune, in this case, favored the brave and I was rewarded with a 34pip gain eventually cashing out when the spinning top appeared at the far right of the image.

This months results are a total of 17.5% profit for the month of May. I'm very pleased with this and shall continue to refine the strategy I'm using at the moment. I am however going to open a demo account on another platform to test out some other trading strategies. I shall of course keep everyone informed.

Good Fortune - Cash

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Pennant Breakout Arrives as Predicted

2006-05-29T11:54:00.000-07:00

As predicted on Friday our pennant was breached upward today on the eurusd. As it’s a holiday today though, the breakout was not as dramatic as I hoped and I closed the trade after a shooting star appeared. Still some nice pips – which is better than a loss!

Noticed the USDJPY pair had reached a turning point with a couple of bearish candlesticks at a resistance line.

Entered the trade and watched as the trickle of bearish candles (spinning tops) turned into a flood! Followed it down to a 20pip profit before the emergence of a bullish candle prompted me to closeout for 18 pips.
Now looking at a 12% gain on the account this month, which is not bad considering I had a 10% loss day earlier in the month.

Slowly refining, and defining a strategy. I think my main focus is still candlesticks. Then trending and pivots. It’s looking like a powerful combo.

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Pivot point trades and EURUSD Trend and upcoming pennant

2006-05-27T14:03:00.000-07:00

More nice trades to finish off the week. Noticed an upward trend was forming (possibly) After confirmation of the fall from resistance, I wait for the second candlestick to confirm direction - then enter a sell order.

The currency does fall as anticipated, and I wait for the expected reversal at support. This doesn't happen however and our trade drops right through support ..... and carries on going. I let it ride, as I have a 15 pip TSL in place and it eventually gets triggered, closing us out for a profit of 33 pips - excellent!

If you have a look at the image below, you will see at close on friday, the currency is beginning to trade in a narrowing range. This is forming a pennant, which should eventually be breached. I think possibly up. But I am going to place a buy and sell stop above and below to catch the movement Sundays open. Keep your eye's on it!

Good old pivot points. Never let us down! This trade was really a no-brainer as the GBPUSD was trading off the Pivot and support almost to the pip. Made two trades (second one shown here) You can see the pair briefly touching the main pivot before re-tracing to the blue support, each time the bearish candlestick signalling our entry.

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Pivot Points explained

2006-05-24T10:15:00.000-07:00

Hi All!
After yesterdays trades using pivots as an indicator for exit and entry, I had a flurry of enquiries for clarity.
So here we go.

How to Calculate Pivot Points
There are many methods for calculating pivot points (I actually use a software based one for MT4). The formula below uses the previous day's high, low and close, along with two support levels and two resistance levels (totaling five price points) to derive a pivot point.

The equation is;-

R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1)

"S" = support levels, "R" = resistance levels and "P" = the magic pivot point. High, low and close are represented by the "H", "L" and "C" respectively. Our high, low and close in 24-hour forex markets are calculated using New York closing time on a 24-hour cycle.

Using Pivot Points
When calculating pivot points, the pivot point itself is the primary support/resistance. The other support and resistance levels are less influential, but may still generate significant price movements.

Pivot points can be used in a variety of ways. The first way is for determining overall market trend: if the pivot point price is broken in an upward movement, then the market is bullish, and vice versa. Keep in mind, however, that pivot points are short-term trend indicators, useful for only one day until they need to be recalculated. I use them for re-enforcing any candlestick action I see

Pivot points are a useful tool, which when coupled with other indicators give a powerful prediction of future direction. The success of a pivot-point system, however, lies squarely on the discipline of the trader. On your ability to effectively use the pivot-point systems in conjunction with other analysis. The greater the number of positive indications, the greater the chances for success.

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Todays Forex Trades on the GBPUSD and EURUSD

2006-05-23T16:34:00.000-07:00

Today has been a good day! Decided to use a combination of pivots and candlesticks just before the open of the Asian session.

In Diagram 1 You can see how the Blue Pivot for the day was tested several times. The emergence of bearish candlesticks prompted me to enter a trade at 1.2853
........our trade drops to 1.2828 where we see the arrival of a bullish candlestick which arrives right on the main pivot (diag 2)– we are out, for a profit of $1320 in less than an hour NICE!

As the GBPUSD chart is looking very similar we try the same on this pair. Again our trade is giving us some nice pips – I go to make a cuppa, putting in my stop loss and, as the trade is 15 pips in profit, a TSL for good measure.
Coming back from the kitchen I see we have been bounced out of the trade.....
............but the TSL has saved the day and I still bank $400 - nice hours work.

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Back to Basics....Again! Damn Forex!

2006-05-19T12:45:00.000-07:00

Well a disasterous 24 hours left me with a 10% loss on my account. Three trades all stopped out within 2 pips. Especially infuriating as the trades then reversed to head in exactly the direction I predicted.

Retiring to lick my wounds, I decided that a more philosophical approach was required! Turning to the book of Tao (Dao) I found this quote which seemed very appropriate for Forex trading!

"When undecided, do nothing. More will be revealed"

That lasted about 24hrs!

I decided that I would return to basics as some nice trending occured as well as the USDJPY behaving itself on the pivots.

Three trades - three winners. Back in the saddle again!

Pics of the trades below. Simple uptrends traded on the downward bounce from resistance yeilded some quick returns.
And this one!

Traded the downward reversal on this example below, as the pair had been bouncing between the pivots. - Bit more risky this trade, as the margin had been narrowing - but luckily I managed to catch the fall.

That's all for now. Good luck and have a great weekend.
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Trade On The EURUSD

2006-05-17T09:52:00.000-07:00

As promised here is the completed trade on the EURUSD I placed earlier this week.

I had noticed a possible downward trend forming. After placing a couple of trend lines (although this formed more of a pennant/flag) I waited for confirmation at my resistance line.
This being confirmed by a bearish candlestick, I entered my sell trade at 1.2810 the trade continued as predicted and, as I couldn't watch the screen I entered a TSL (trailing stop loss) as well as my usual stop loss. Notice on the 1Hr chart below, that further confirmation is given for the downward movement by the formation of a staggered head and shoulders .
Although my trade went 30+ pips positive at one point, my TSL saved my blushes when the trade reversed while I wasn't watching and cashed me out for a profit of $600.00
See how the trend was eventually reversed in the diagram below. Which often happens in a pennant or flag trading trend mentioned above. The narrowing trading range eventually causes a breakout.
More later - That's all for now, Happy forex trading.
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Consolidating What We've Learned.

2006-05-15T12:06:00.000-07:00

I’ve been scratching my head this weekend, looking for interesting candlestick formations and clusters to write about. I came to the conclusion that I was entering a consolidation period. Every instance I looked at, when the market opened on Sunday evening, was a situation that had been covered – more or less – by one of my previous posts. I have a couple of trades running at the moment and I will post them up tomorrow, they just reinforce the information and analysis techniques I have already talked about with one exception.

I was looking at the EURUSD charts today. I noticed a possible short term trend (down) developing. As usual, I check this info on other timeframes, and noticed that as I went out to 1hr, 4hr and 1day timeframes different trades present themselves. As I am concentrating on short term trading (hours rather than days) I was more interested in the 30min 1hr and 4hr timeframes. As I said above the 30minute chart showed an emerging downward trend. (although as I write my trade is in negative territory) This was possibly confirmed by a head and shoulders chart emerging in the 1hr and 4hr chart. However if we go out to the 1day and even monthly chart the trend becomes reversed to a clear upward trend – still well within the trendlines. When the trade closes out, later today I’ll post screenshots of these charts.

It’s a well known fact that as you increase the length of the timeline the decisions become easier to make, as the information becomes clearer and more reliable. – But, LARGE margin, and stop loss is required to trade this way. The upward trend on the EURUSD has a resistance and support gap of over 180 pips for example (Trade has just turned around and gone into profit again – exciting!) Check back tomorrow, when all will be revealed.

But to continue my point about consolidation. In my opinion, sometimes MORE information and MORE indicators, knowledge and technical analysis can lead to information paralysis. A simple set of indicators and a clear strategy for how to implement those indicators WORKS. Let's not try to fix what isn't broke. As someone wrote on a forum recently when discussing my trades "The old ways (candlesticks) work - and work well"

More tomorrow - Good Luck!
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Japanese Candlestick Clusters - More Reliability

2006-05-11T11:04:00.000-07:00

Multiple candlesticks reinforce the possibility of a reversal. For example, if we see an upward trend peaked by a shooting star and the following candlestick is also a reversal sign – or sign of indecision by the market – say a filled in spinning top. Then we can be more confident of predicting a downward reversal. In this scenario I would personally like to see one more bearish candlestick before I entered a ‘sell’ A case in point - see below

In our example from the chart above, we see a bullish shooting star followed by a spinning top and bearish shooting star - Which also falls through our simple moving average (red wavy line). Ordinarily we would see this as a clear reversal, but if we wait for another sign of confirmation we see an additional spinning top - advising us to wait. And indeed the chart does go into a series of spinning tops - indicating no clear direction. It's just as important to know when NOT to trade.

That's all folks happy trading
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Forex Reversal Signs - Bullish Candlestick Formation

2006-05-04T10:46:00.000-07:00

Japanese Candlesticks - The Morning Star

Continuing our look at Japanese candlesticks, and with an emphasis on real life examples, today we will look at a “Morning Star” formation.
A “Morning Star” is found at the bottom of a downward movement and is similar in appearance to our “Shooting Star” previously mentioned – So it is a BULLISH reversal sign. The main difference is that our Morning Star is HOLLOW.

We are looking for a three candlestick pattern. The first candlestick should be bearish (filled in) and be part of a previous or current downward move. Our “Morning Star” appears next and is “hollow” - Preferably it should gap below the close of the first candlestick. That is the CLOSE of the Morning star should be below the close of the first candlestick. The third candlestick in our formation should be bullish – hollow - and close halfway into our first candlestick.
The scenario written above is the IDEAL. However as you see from our screenshots you have to adapt the theory to the real world - As, in forex charts, perfect gapping is a fairly rare occurrence.

That's all for today, have fun!
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Forex risk management

2006-05-02T15:01:00.000-07:00

Basic, but important steps to control risk and limit losses.

"Cut your losses and let your profits run"

This is a cliche you will hear time and time again. But, how do we adhere to this maxim.

Our first defence, is limiting the size of the trade we are doing relative to our account level. We should not be risking more than 1-2% of our account capital per trade.

Second in our toolbox is using our stop loss (SL). Our SL sets a limit to our potential loss. That is, if a trade goes against us by a margin determined by us we would close the trade and take the loss. This is a totally automatic process in most trading platforms - providing you set it! I would suggest a SL of between 25 - 35 Pips. Again this depends on your risk tollerance. Losses in Forex trading are inevitable, and should be viewed dispassionately as part of the learning process. Never trade without a SL.

Thirdly we can also use a trailing stop loss (TSL)to lock in profits.
A TSL works like this. After entering a trade, instead of entering a take profit (MT4 Platform) - although you can still do this if you wish, I set a TSL of 15 – 25 Pips. After the trade has risen in profit by 15 Pips my TSL is activated. This means that my worst scenario from this point is break even, as my TSL will activate a close out once the trade retreats by 15 Pips. The beauty of it is, that as the price continues to rise – so does the TSL. If we eventually end up 30 pips in profit, and the trade subsequently drops to a negative, our TSL will cash us out at a profit of 15 Pips. TSL is usually used by currency and stock traders as a long term strategy, but I like to use them to lock in profits and in choppy markets where you can get bounced from profit to loss in an instant. It also follows our rule of letting our profits run, which hopefully they will!

Trailing stopp losses are also useful tools for watching a trade when you can't. If a profitable trade reverses on you while you sleep, a TSL can save your blushes - and still fill your pockets :-)
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Forex Trading Breakout Strategies No3

2006-04-30T18:36:00.000-07:00

Upward Breakout from a Downward trend - USDJPY

Following on from our strategy for taking advantage of an upward trend. Today we will look at another trading opportunity, using a downward trend as an example.

As well as trading the emerging trend we can sit on our hands and do nothing. Why? Well, trends don’t last indefinitely and a reversal will eventually happen. We spot reversals by breakouts from our trendlines.
In our picture, as the currency bounces up from our support it crashes right through our resistance. However, as we are being prudent we wait for confirmation that it is a true breakout. Confirmation does not come as the next two candlesticks from our breakout are bearish. After a short return to the downward trend we see a series of bullish indicators and watch the trend reverse over the next couple of hours (while we sit on our hands and do nothing!) Confirmation of the bullish move - to my mind - comes after the hollow spinning top. With our growing knowledge of the Japanese candlesticks, we enter our buy trade. Take quick profits or watch the trend develop, depending on your risk tolerance. I took quick profits - sure enough shortly after I cashed, out the developing upward trend fizzled out and dropped through my support line.

To be truthful the diagram above is not the best example of this type of trade. But in keeping with the tone of this blog I am trying to give examples of REAL trades, which I have personally done. Theory after all can prove anything!

Also with trades such as this I prefer to use a trailing stop loss (TSL) More of which later in the week as I discuss risk management.
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Forex Trading Strategies For A Sideway Market

2006-04-28T11:59:00.000-07:00

Before we look at our strategies for trading the sideways market, let's have a look at the spinning top Japanese Candlestick we saw in our trade yesterday.

Japanese Candlestick Reversal - The Spinning Top
The Spinning top is another reversal indicator which, when coupled with other data, can be a good sign that the market is about to do an about face! The smaller the central body (which can be filled in or hollow) the less current direction the market has. In this case the body is solid meaning the open was HIGHER than the close.

As I mentioned above, in yesterdays trade you can clearly see the spinning top before the subsequent upward movement.

Now, onto our ideas for trading in the sideways market.

As with our upward and downward trends, a sideways trend is an excellent money making opportunity. After a big movement the markets will usually enter a period of relative inactivity. (this can also happen before an important news announcement)
We can clearly see our support and resistance trendlines, in this case forming a channel. We are now looking for a breakout from this channel – either up or down – to enter our trade. It is very important to set a good margin for error when attempting these kinds of trades, as there are frequent ‘false breakouts’. One formula for doing this is to use the width of the current sideways trend as a marker for sell entries and buy entries.

To clarify, if the width of our current sideways movement between support and resistance is 20 pips say. We set our buy point at 20 pips above resistance, and our sell point 20 points below. However, there really is no substitute for watching the chart unfold and paying close attention to any indicators in the emerging candlesticks. These will often become repetitive during these periods of inertia, so particular attention is required. We can of course trade the width of the channel while our trade bounces between support and resistance. But we need a decent pip range to risk this - I would say 30 Pips+

There is a trade, demonstrating this technique in the real world already on this blog, if you click Here
Scroll down the page to read about the trade.

Happy Trading!
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Enter and Exit Strategies using Trendline and Japanese Candlesticks

2006-04-27T13:55:00.000-07:00

Why Do We Enter Or Exit a Trade

So over the last few days we have looked at upward, downward and sideways trending markets on our forex charts. I hope you've been practicing! Now we are going to look at entering and exiting trades using this information.

In our first real example from Sunday 23rds Asian open, we have a nice EURUSD trade during an upward trend.
We notice a trend forming and decide it has all the requirements we need. Nice slope (45 degrees, or there abouts) three points of contact with our trendlines. Bullish candlestick formations when it approaches the trendline at support.

When we see the trend confirmed, with the next bounce from support on our trendline - We enter our buy trade. We watch our trend continue in the anticipated direction.

Our trade continues in keeping with our predicted direction until we see a very clear indication that the trend is likely reversing. A bearish morning star doji briefly touches our resistance trendline, prompting me to close out the trade for a nice profit.

But, this is such a clear sign of reversal I decided to re-enter a sell order and follow the trade down. I decided, at this point, to recalculate the pivot points ( multi color horizontal lines on the chart ) and as soon as we reached our bottom point of support - the red line - a spinning top appears followed by a bullish candlestick so I exit the trade as this is also a clear reversal sign. You will see how our previous upward trend has been completely broken and we are now looking for the emergence of the next trend.

I decided to stand aside for the upward movement until there was another clear candlestick indicator. At the top of the movement there are a couple of bearish candlestics and I enter a sell order for the probable reversal. It looks like there may be a move to trade between the pivot indicators as the reversal is preceded by three tests at the highest point of resistance, but I exit the trade soon after (for a 10 pip profit) as I don't want to push it. I also decide not to trade for the rest of the day.
I have made a significant profit of double figure pips. All with the use of some very basic Japanese candlestick knowledge and a couple of trend lines!

To recap;-
Allways look for 3 points of contact on our trendlines.
Allways get confirmation of the direction from the candlesticks
Allways close out the trade at the first point of breakout.

Tomorrow we'll look at that spinning top candlestick in greater detail

Good fortune!
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The Sideways Trend

2006-04-24T12:15:00.000-07:00

Sideways Market

The sideways trend is usually seen after an upward or downward market movement. I think it represents a great opportunity for trading, and I love it when I see the market moving sideways – Because it can’t stay that way forever!

Click to enlarge
As we see in our screenshot, after an upward movement our currency pair is bouncing sideways over a 34 pip range. We place our trendlines on the support (bottom) and resistance (top) price points, and await a move outside the range. In this case we wouldn't want to risk trading the 34 Pips up & down (well I wouldn't!) Also notice in our image how there is huge gapping - bottom right hand corner - as the Forex markets close and open in different regions. Wouldn't want to get caught the wrong side of a move like that! Over a 100 pip drop.

OK let's try to demystify our Japanese Candlesticks a little more, with a couple of bearish indicators.

Todays Japanese Candlestick - Gravestone Doji
As you might expect these are seen at the tops of an upward trend. As with the Dragonfly we saw on Saturday, the Gravestone has a long tail or wick (but in the opposite direction) and is a stronger indicator of a possible downward movement emerging than the shooting star below.

Shooting Star. Possible downward move imminent! Note how our Shooting Star, at the top of our cluster of candlesticks, is followed by a swift downward reversal from the previous upward movement. These are often much "stubbier" with a short body, so keep an eye open, they could mean a profit opportunity is aproaching.

Ok - more later Happy Trading!
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Examples Of A Downward Trend

2006-04-22T19:08:00.000-07:00

The Downward Trend.

Yesterday, we looked at the upward trend. As you might imagine, our downward trend is the opposite of the upward. As usual we are looking for a downward slope of round about 45 degrees, to ensure that our trend looks sustainable enough for us to get in and make some profit.

Click to enlarge
Depending on the width of the trend (support and resistance lines) you may find good opportunity to enter and exit trades for some quick profit ( in our image it is 60 Pips or so) . Make sure you know what the bid offer spread is if you try this. – it can make all the difference!

Todays Japanese Candlesticks - Dragonfly Doji

This is what is known as a Dragonfly Doji. Often seen at the bottom of a downward trend, our long downward ‘tail’ or ‘wick’ could indicate a bottoming out and reversal.
These Dragonfly Doji are a stronger indicators than the Hammer shown below.

Bullish Hammer

Thats all for now - See you next time
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In Forex - The Trend Is Our Friend

2006-04-21T16:55:00.000-07:00

The Trend is our friend?

This an old adage when it comes to trading. Whether it is Stocks or Forex, it still holds true. But what do we mean exactly?

Simply this, it’s better to go with a trend than against it. To truly get the benefit of this strategy we need to be able to recognize and interpret the trend. This can take the form of reading charts and Candlestick patterns. - without a doubt one of the most basic but important skills to acquire in Forex trading.

A currency pair can be trading sideways, up or down - and if we can read the signs we can make money in all three of these situations.

If we understand what we are seeing we can make a deliberation on the probable outcome of the emerging data. A trend needs at least 3 points of reference to be relevant.

There are various trends and Forex chart patterns to be aware of. These give us, as traders, a probable indication of direction in the future.

When we add the charting knowledge to our growing understanding of Japanese candlestick formations – we are starting to acquire some powerful prediction tools.

In an upward trend, our trendlines are sitting on successive higher lows or higher highs. Although in real trading the lines are rarely tidily drawn! As seen in this image

Upward trend.

The bottom line is showing us the support points of our current trend. The top line is showing us the resistance. In an upward trend our support point is constantly rising and our resistance price point is constantly rising also.

We must also look at the steepness of our trend. An upward trend with a very steep incline is usually very short lived – hopefully it doesn’t die before we’ve taken advantage!

Further Japanese Candlesticks - The Doji

The Doji candlestick is interpreted as a sign of pending reversal. There is no real body, as the opening and closing prices are in close proximity. This means neither the Bulls or Bears have the upper hand.
As a word of caution, we should always have a further confirmation before acting on the Doji.
But, when added to other indicators and other candlestick patterns the Doji can be a powerful indicator. For example, if our current trend is up – we need a closing price below the close of our Doji to confirm that the trend is in-fact reversing.

More next time. Cashmaster Out.
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Forex Trading Using Fundamentals Or Technical Analysis

2006-04-14T13:45:00.000-07:00

Trade the news or trade the data?

There is continuing debate as to whether it is more profitable to trade the news or trade the data from the charts. This is called trading fundamentals "trading the news" or, in the case of trading the data - Technical Analysis. Personally I trade on the data most of the time, whilst keeping an eye on the news feeds (more on news feeds in a moment) I keep an eye on the newsfeeds and economic calendars for two reasons.

1) To ensure I don’t enter a trade when there is an important economical announcement imminent.

2) To verify if the effects I am seeing on a currency pair are due to the news announcement or imminent news announcement.

I think the general consensus on “trading the news” is NEVER enter a trade before the news is announced – You can get caught badly if the news is not as expected (as the ECB announcement last week, which was the total opposite of expectations)
If after you read the announcement, you see the market moving in any one particular direction – then you can decide if you want to enter the trade, if you think the trend will continue (or reverse) . Again there is debate here, but most successful forex traders will wait for the market to settle down after it’s made a major move, before trading again.

So, where do we find these newsfeeds, and how do we read them. The first thing we are going to need is a news reader. There are many free ones on the web (and we like free stuff!) I use Googles free news reader. Google also has a nice info page and tour of their reader. Google newsreader info

So now we have our reader, what do we read on it? There are many newsfeeds online, I use CNN newsfeeds . Follow this link to add many interesting feeds to your reader. Bloombergs newsfeeds are also excellent and seem to be updated more frequently than some of the others. A lot of the Forex trading platforms also offer news alerts. Sometimes they charge for this, sometimes it’s free. Personally I don’t think anyone should pay for news reports when there is so much free information online.

Another free resource, which is invaluable is Bloombergs economic calendar. Here you can keep your eye on upcoming economic announcements due in the week.

Whether or not you decide to be a fundamentals man, or a technicals kind of guy is up to you. Personally I prefer reading the charts and learning to analyze the data, and I think it’s key to long-term successful forex trading.

Finally, a little anecdote to lend a little brevity to the subject.

A university professor was talking to a technical analysis expert.

“Why don’t you come down to my classroom, as I’m giving a lecture all about economics and how the global economy and world events impacts the world currency markets. – I think you’d find it very interesting.”

To which our Technical analysis expert replies.

“Wow professor that does sound fascinating, and I’d love to come. But, as I’m a bit busy at the moment, why don’t I fly you up to New York on my private jet – and we can discuss your theories over lunch at the Four Seasons.”

Happy trading, and good luck!

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Placing The Trade On Meta-Trader 4

2006-04-11T12:54:00.000-07:00

I thought I would post a quick description of how to enter and closeout a trade using the meta-trader 4. Also, if you scroll down, there is an interesting trade on the USDJPY.

First the trade - I like to enter my trades in this manner. We have our EUR/USD chart open and we see an opportunity unfolding. We think the price is going to rise. At the top of the screen we see the ‘New Order’ button with the green cross. Clicking on this, gives us the order placing window. Do Not enter any stop loss or take profit at this time. Click the ‘Buy’ button. Our order is confirmed and we click ok. The reason we do not enter any other info at the time of placing the order means we save valuable time and avoid the price moving from the price at which we saw the opportunity.

Right, now we can go back into our trade and modify the information to add stop losses and take profit signals. At the bottom of the screen you will see the trade you have just entered. Double click on the trade and our execution window reveals itself again. In the drop down menu select ‘Modify’. Then enter a stop loss at approximately 20-30 pips under the price we went in at. EG; if our trade is a buy order at 1.2050and we are expecting the price to rise, we would place a stop loss at 1.2020 . We do this to limit our loss if the trade goes against us. We then enter our take profit. We look at our chart and we decide the price will probably reach 1.2100 . so we place our take profit at 1.2095 to make sure we get our profit. Click on the long button to confirm. You will see on your chart that we now have three lines. A green dotted one, which is our entry price - and a red dotted one above and below the green one which are our take profit and stop loss. Now when the price reaches either of our red lines the platform will automatically close the trade.

To manually close out a trade, simply double click on the trade at the bottom of your screen. Click on ‘Close’ and the platform will exit the trade for you. You will see the proceeds from the trade reflected in your balance.

There are a couple of other options which we will explore later! But these will get you started and are a good habit to get into.

Some screenshots of a recent trade on the USDJPY

Fig 1 (Click to enlarge)

I noticed that the pair had possibly started to trade between two points on the pivot charts (more on pivots later) The blue line representing the possible top/resistance, and the pink line possible support. After seeing confirmation of the probable top with a bearish candlestick (filled in) I entered a 'Sell' order at 117.66 . Our trade proceeds to fall as expected. AsI entered four lots I decide on a reverse pyramiding technique, which is stripping half the trades in profit out as the trades progress. I strip the first two trades out at 117.47.

Following the trade down (Fig 2). I noticed a possible double bottom and, being the nervous type, closed out half the trade again at this point. 117.40 . The trade then bounced back up possibly confirming a reversal, and I closed the remaining trade at 117.47 Leaving me with a profit of 81 pips or $810

The trade actually continued down to my first estimate, but hindsight is allways 20:20 isn't it :-)

That's all for now - see you next time.