Type Of Trader

As most traders would know, good trading is all about having a good trading psychology. For this, you need to understand yourself. There is a famous Indian song which says that if you know what you are, if you know what you can do and what you cannot do, if you know what your limitations are, you can always succeed in life. Whatever happens to you, you will never lose your self respect and you will always be successful.

So, try to understand yourself and choose a trading method that is fit for your psychology. There are basically traders who are scalpers and traders who are medium to long term. Scalpers get in and get out of markets very quickly. Their trades last for about an hour or lose and their profits vary from 7-8 pips to 100 or more pips (if they are lucky enough). They have a SL of mac 30-50 pips. Medium/long term traders trade with a view of 1 week to several weeks Their TP is hundreds of pips and so is their SL.

But what happens is, most traders cant stick to one trading psychology. They start out thinking that they are scalpers looking for 10-15 pips. They do take a few trades as scalpers but find that after they took profits, the trade went their way for several hundred pips. So, next time they are tempted and wait a little longer but then suddenly, the trade moves in the opposite direction and gets close to their scalping SL. They suddenly start thinking like a medium term trader. They think 'why dont we let this run and maybe it would turn back'. What happens ? even though they increase their SL, it still gets hit and they lose 150 pips or more. Imagine losing 150 pips aiming for a TP of 15 pips ??!!

Vice versa for medium term traders. They start off thinking to go for medium term for SL and TP of more than hundred pips but when the trade starts moving against them for 20 pips, they get scared and get out of the trade only for the trade to turn around and hit their TP....Or they get satisfied with just 20 pips profit and they start taking their profit too soon.

All the above is perfectly the wrong way of trading. Decide what kind of a trader you are and stick to it, whatever happens. If you are a scalper like me, have small TP and SL and take them as and when you see it. Dont bother about the trade after closing it. The more you bother about a closed trade, the more it affects you psychologically.

So understand who you are and trade. And always follow the KISS principle. Keep It Simple Stupid !!

Which indicators to use??

There are loads and loads of indicators out there and so all the new traders are overwhelmed with the amount of information at their disposal and also at the number of indicators. They do not know which ones work and which ones do not and which ones to use and which ones not to use.

Let me tell you something. All the usual, well known indicators work well. In fact, that is why they are well known. But at the same time, dont expect the indicators to tell you what the market is going to do. Indicators are like tools like hammer, scissors etc. It is upto you to learn to use it and find out how best to use it. Like any tool, indicators can be used to make a lot of money and also lose a lot of money. It all depends on the person who uses it. Moreover, as i keep saying, indicators are always reactive and not predictive. They always tell you what has happened and not what is going to happen.

For those who are new, the moving averages are the best and the most easy indicator to understand and use. The MA crosses are one of the most frequently used systems as well. Of course, the MA is always lagging and so it is upto the user to find the best and most optimum use for it. Try to understand what it is and how it works and then find how you can use it to improve your trading. Moving average for n periods is just the average of the price for the past n periods. If the current price is above that, then it means that the current price is above the average and vice versa. The lesser the value of n , the more reactive the average is to the price. The greater the value of n, the more smoothed the MA would be. There are many types of MA like simple, exponential, linear weighted etc. and they are the most used indicators for trading systems. Throw in various types of MA with different periods on the charts and watch for patterns between the MA and the price and you will learn a lot.

Likewise, RSI is a very good indicator as well and if properly used, it can tell you the fibs, pivots and S and R to a very precise extent. It would be amazing, but if u get the right combination of inputs to RSI, it would be amazing to note how it perfectly matches the daily fib levels. You dont need to even see the fibs, just get the correct combination of TF and RSI and you can see the fib levels automatically. I have seen it happen and it is really eerie to see the relation between the RSI and the fibs. They just seem to know each other so well.

Try and play around with various indicators with various settings and time frames and find out the one which works best for you. There is no such thing as the best indicator. It is all upto how you use it and how comfotable you are with it.

A New Addition

I am glad to welcome Sumeet to join me as one of the authors of this blog. As i pointed out yesterday, it has been my endevour to make this blog useful for as many traders as possible and to provide quality content to all traders. As a means to that end, pls join me in inviting Sumeet to this blog.

Sumeet Malik is a Forex trader and educator. With his interest in different countries and economies, Forex Surfing grew from a hobby to passion. His education includes a Bachelors in Economics from University of Delhi and an MBA from Pepperdine University, USA. He teaches NCFM certification and Trading courses at http://eduinfinity.com/. He also keeps a forex blog at  http://forexsurf.in/. You can follow Sumeet on twitter @fxsurfr.

Please continue to provide the same support to Sumeet as you have been providing to me so far. Together, we will all make this a wonderful blog for all traders.

Trading Systems

Everyday lot of traders ask me what trading system i use and they also ask my opinion about what trading systems they can use. The best advice that any experienced trader can give to another inexperienced one is to find things yourself. Not only in trading, in any sphere of life, only those things which we learnt by ourselves and which we spent time in understanding and imbibing would stay with us throughout our life. Those things which are got for free without much effort would either not stay with us at all or would leave us soon. We would understand the full value of anything only if we struggle and achieve it.

So try and learn trading and systems on your own. Go around the net, look into forums and forex sites, read read and read and gain as much knowledge about all the things as you can. The net has an equal number of scamsters and very helpful people as well. So be careful and spend your time finding out who the scamsters and who the nice guys are. Of course, you would lose money and time in the process but it would be well worth it. Learn the basics first, then how to see the charts, then learn the important indicators and then try to develop your own trading system. Of course, lots of system are freely available on the net. Learn as many as you can and if you feel comfortable with any of them , go ahead and use it. Or find out the good points of the system and try to incorporate them into your own.

Even today, though i may have 2-3 trading systems of my own, i spend every weekend trying to look for a new trading system which is better than my current one. I look around the forums and also look at the charts myself to develop my own. No trading system would be 100% successful but you can keep looking for systems which get close to that figure. The closer you get, the more money you would make. The process of learning and improving never stops. So keep reading and keep learning. It will always be useful whichever stage of your life (trading and otherwise) you are in..

Guest Writers Wanted !!

This blog is growing at quite a fast clip. This blog was started with a singular aim of helping other forex traders. You have placed trust in me and thats why 250-300 people visit this site on a daily basis. So, the only way that i can repay this faith is to ensure that i continue to serve up quality content related to forex here. I am also quite sure that down the line, traders might get a bit bored about what i say and do and would want to hear the opinion of others as well. Variety is the spice of Life!!

As a means for that, i am looking for guest writers. Forex traders, analysts anyone related to forex. i would like you to write about anything related to forex or tech analysis. As you can see, i dont make a penny out of this blog and hence please do not expect any payments (atleast for now..;-)). Those who want to teach their ideas, throw it open to an audience, meet fellow traders, share ideas with them and want to help others just as how others helped you, are most welcome to write in. If you feel that you are the kind of person, please contact me through email/twitter/comments etc.

Anyway, i would continue to write in this blog and i expect your continued support to this blog.

Newbie Syndrome

As expected and as posted in todays article, the crosses have begun their upmove and i feel that it would go on for a few days. Today, i would like to discuss about what i call the newbie syndrome. Most of us, when we start out, have small TPs in our minds and we all enter forex after some thorough study and all studies tell us that we need to have strict SLs. So when we start out trading, we have good TPs and SLs and we trade diligently.
With this kind of trading, we slowly accumulate our profits and suddenly we find that we have doubled our account and we feel happy and proud. But as the size of the account grows and as we make more and more successful trades, we forget our good habits and slowly fall into bad ones.

We forget that we need to have SLs, we forget that we need to set good TPs. So what do we do? We find that some of our SLs get hit and then the pair travels in the direction of our trade. So, slowly, we stop using SLs. We keep losing trades and we keep hanging on to them hoping that somewhere somehow some magic would happen and we would get back to parity on our trades. We also become greedy and start having impossible TPs. We forget the strategy that we used to make so much of profits and start trading with no strategy at all. This slowly leads to degradation of our account and one fine day, we find that our account has been wiped out totally.
The best way to make money is to be patient with our profits and impatient with our losses, but we always do it the other way around. We are impatient with our profits and we close our successful trades with very small profits. We are very patient with our losing trades and we keep waiting and waiting hoping that it would come back but the trade never comes back and it either closes out our account or someday we get a flash, understand that the trade would not come back and finally close the trade with a huge loss.

The above is the newbie syndrome and i guess many of us would have gone through it. So find out what strategies made you make a profit and stick to it. Dont change it. Times would change and your trades would keep going up and down but stick to strategy. Keep studying the market, its changes and keep analysing and keep developing new and better strategies in sync with the changing market. Analyse your new system thoroughly and make sure that it would be a profitable one in the long run before you decide to leave out your previous trading system and switch to a new one.

Expert Analysers

Many of us, when we start out trading try to look for short cuts tosuccess in trading. And one of the easiest ways to make money seems liketo go for EAs (short for expert analysers). So what are EAs? EAs are programs which are written to trade automatically. They are mainly used in MT4 platforms but now many other platforms have started supporting programs for auto trading.

So how does this work? You can program your trading platform to buy or sell under certain conditions. The conditions can be anything. It can be as simple as 'buy if price goes below 1.1000' to something as complicated as 'buy if 10 ema crosses 13 ema and MACD value is 1' or whatever. The indicators used in your platform can be called as functions by the program and parameters can be passed to it, indicator values can be returned for the parameters passed and then a buy or sell can be executed. It can also be programmed to give a audio or visual alarm when the trading signal appears.
The EA is the height of automated and mechanised trading. Nothing can beat it. No human intervention is required and everything happens mechanically. This has both its positives as well as negatives. The biggest positive is the emotional turbulence and hence the confusion of a human mind in trade is avoided. Since there is no human intervention,errors like seizing up when a signal is there cos you are too scared,taking profit early, refusing to execute a stop loss cos you somehow feel that the position will come back and other human errors born out of emotion can be avoided. The negative of this is the same as the positive. Just as being mechanised totally is good in a way, likewise,too much automated trading is not good. Whenever a signal is generated,there needs to be an analysis of the background of the signal, the market conditions, market sentiment etc before you enter a trade. Blind following of the signals will eventually lead to a huge loss.


Enter any discussion forum and you find that there is a huge demand for EAs. Why? Cos people are lazy. They just want to sit back and relax while all the money is made automatically by the EA. But they fail to realise that nothing in this world comes easily, without doing any work.Nothing wrong in using an EA but atleast an effort should be made to understand what is happening in the EA, how it works, when it works,when does it not work. etc. No EA will work under all conditions and at all times. So a thorough study of the EA needs to be made to understand what happens in the background so that the EA can be correctly controlled at important points of time so that its power can be utilised to the maximised extent.
My request to all new traders is to spend some time in forex. Spend sometime understanding how forex works, how the market works, how the indicators work, how the trading systems work, how EAs work etc. Spend lot of time studying. Nothing in this world is got freely without hardwork. There are no freebies in this world. If it looks like one, then it surely aint. So work hard, sweat it out, learn it the hard way. That is what will make you consistently successful.

Formulating a Trading Strategy using CBA

So how do u formulate a trading strategy based on the control bar analysis ?as mentioned before, the control bars appear in all timeframes ranging from 5M to the weekly. So first of all, decide which time frame you are comfortable trading in. Some are comfortable trading in 15M while some are comfortable trading the daily...choose which timeframe you want to trade in. I suggest that for day traders, you choose 15M and for those who work on other jobs, you can choose the daily timeframe.Once u have chosen a timeframe, stick to it and trade that timeframe. Dont keep changing the TF depending on how the trade goes....stick to it...

once u have chosen the TF, mark the control bars. These are bars with the highest ranges/volatility (between the high and the low) and mark the high and low of these control bars. For 15M, take the bars from the past 2 mnths.  For daily, take bars from past 6 mnths. You should get about 6-8 control bars. Mark the high and low of each. You should get good support and resistance areas.....will discuss step 2 later...

Market & the frictionless Ball

All of you would have seen the supports and resistances which i provide to all on a daily basis. These S and R are points in which the price is expected to stall and also there is a greater probability of the price falling from the resistance than it breaking. Thats what make the S and R useful and powerful.

But the big mistake that many traders make is to follow the S and R blindly. When the price nears a support or a resistance, we need to analyse the market situation as well as the market sentiment before we decide whether we are going to enter into the trade or not.

The market is like the frictionless ball which keeps rolling in one direction unless and until acted upon by a force. Everyday, atleast 3 forces act on the ball (market). These are the begin of the Asian session, European session and the American session. Apart from these three forces, there could be other forces like news, press conferences, rate hikes etc. but everyday will have atleast 3 forces. Lets say that in the begin of the Asian session, the ball is rolling in favor of the longs. The Asian traders would either choose to slow down the ball or force it to travel in the same direction faster or force it to reverse. Whichever is the direction, the ball keeps rolling in that direction till the begin of the European session (unless there is some news in between. If there is news, then that would be another force which will make the ball gain momentum or change direction). Likewise, the European traders would also make the ball move in a specific direction (either same or reverse). This trend continues during the American session as well and would be interrupted only by news etc.

So when entering a trade based on S and R, it is important to know what time it is and which direction the ball is rolling. The best example would be yesterday when in the begin of the Asian session, the ball began to roll in the direction of the longs. This continued in the Euro session as well. So midway, through the Euro session it would be foolish to enter into a short just cos we have met a resistance. The ball is rolling in favor of longs from the Asian session and continues thru the Euro session and since there has been nothing to change that direction, it is expected to roll in that direction only till the next force (like the news or begin of American session) comes in. So in such cases, it is better to wait for the next force to come in to get the correct direction (whether the force continues the move in the same direction or reverses it) before entering in the market. For example, yesterday, it would not have been a great idea to enter into shorts at any time just cos a resistance was near.

So always keep in mind the frictionless ball and trade accordingly.

Trading your Plan

Many of you, by now, should be having a trading plan or system. If you dont,then you must be pretty new to trading. So you better get a system for yourself as soon as you can. If you dont, the law of averages would soon catch up with you and you will soon start losing money. Your system or plan can be anything but the biggest thing here is sticking to your plan.

You have developed a great trading system which you find that works 70% of the time. It is on a 1H timeframe and you usually get signals every day. So now what happens? You get a signal. You either take it or leave it. Assuming that you take it, and you get a profit of say 50 pips and then you close out the trade. The pair continues to move in your direction and keeps going on for 2-3 days in the same way. You are out of the trade and slowly you get frustated. What do you do? You try to generate signals in your mind. You open your chart, have a long hard look at it and try to see things which actually do not exist.

Why do you do that? Cos you are out of the market and you want to get into the action. You see people and traders around you making money out of the move but you are left behind. So you want to do something to get back to it. The charts do not show signals for you to get into the action but somehow you want to do it. So you start seeing signals which do not exist. One of the biggest mistakes made by traders is to see things in charts which do not exist and try and take trades just cos you want to be in the thick of things. Signals in good trading systems should jump out of the charts and stare at you in the face. They should not be hiding inside the charts that you have to go in search of it. If they are like that, then either it is not a good system or it is not a good signal. So dont take those signals.

Wait for the signals to jump out from the charts. You need patience. Lots of it. That is the key. Dont try to generate signals and dont try to look hard to see things which are not there. Sit back, enjoy your trading. Enjoy the times that you are out of the market and wait for the right signal. Signals, if they arise, would be good and bright enough for you to see even when you are half asleep. You need not put your reading glasses on to see where the signals are. They will come to you eventually. It might take hours or even days but they will come. Make sure you take them when they come and only when they come.

So getting a good trading system is only part of the job. The biggest and most important thing is sticking to your trading system at all times and all costs.

Price Action vs. Indicators

I started out trading blindly like many other traders. I did not know what to buy, what to sell. All i understood was to buy pairs which went up and sell pairs which went down. This worked for sometime but later on the law of averages caught up with me and i started losing. Then slowly i started learning system trading. I went around forums and other parts of the net and tried to find trading systems which worked for me and which made money for me.

I found many systems, some which worked, some which did not. But there was something wrong in all the systems that i tried out. They refused to work under some circumstances. There was no system which said that if this happens, price would rise or if this happens, price would fall.There was something in there which led to whipsaws, wrong calls etc. which made me lose money and also which made implementation of the system difficult as well as subjective.
Also, many trading systems looked very complicated to me. There are systems which ask to use 10 ema, 15 ema, 39 ema, wait till one crosses another, wait till red becomes blue and black becomes yellow or whatever. But does a country's economy (on which currency is based on) depend on indicators? Do they depend on a indicator turning blue from red? Does Bernanke say 'ok 10 ema has crossed 15 ema, lets make a statement to make it cross back again'. No...So things cannot be so complex or cumbersome. There must be something straightforward.
And that straightforward stuff is price action. Everything that happens in the market is based on price action. Indicators are based on price action. All the indicators, colors etc. are merely a reflection of the price action.

And price action is a reflection of history. It is based on history. Why do trading systems stop working under some situations? Its because of the price action. Once we understand price action and how it relates to history and how to interpret all these, then we should be able to make money consistently. Indicators tell you what has happened. No indicator will tell you what is going to happen. Indicators tell you that when lot of people buy something and the price goes up, it tells you that it is overbought. It does not tell you why it is overbought nor does it tell you where and when it will stop.

If EURJPY goes from 165 to 170 without any rectracement, its obvious that its overbought. You dont need an indicator to tell you that. What concerns you at that point is whether the rise will stop, if yes, when and where. Not that the price has risen very much which is something that you can see from the chart itself and is common sense.

Where and when it will stop will be given by price action. The speed of rise will slow down, price action and history will tell you probable points of resistance and support which in turn give points where price will reverse. These tell you when and where the rise will stop. No indicator or systems based on indicators can tell you that. They always tell you what has happened and not what is going to happen. Only price action and history can tell you those. Fibos and elliot are based on price action and history and that is why they succeed so much. They are simple and straightforward. They are based on price action and that is why they are so effective.
So learn to analyse price action. This is the best way to make money in trading.

Importance of leverage

Most small traders use what is known as a mini account where 1 lot is of 10K units and each pip is worth 1 unit. These mini accounts can be opened with as little money as $250. At the outset, this looks like a boon to small traders as people can get exposed and also make money with as little as $250. If you get a call right, you can make 10-20% of your investment in a single day. Now where else can you get such returns. This mini account with $250 should surely be a boon, we might think. But…Think Again..

Here is where the concept of leverage is very important. Leverage is the ability to control a large amount of something using a small amount of the same thing. Here in a mini account, you control 10K unit using just $250. Here in this case, the leverage is 10,000/250 = 400:1. That is your leverage. It looks great on paper as long as you only think about the profits that such a leverage can bring in. Assume that you bought 1 lot of EURUSD using this money. Lets assume EURUSD was 1.0000 when you bought it. It goes in your favor and rises by 1% and becomes 1.0100. So you make a cool (10000 x 1.0100) – (10000 x 1.0000) = $100 on your trade. This means that you made 40% of your investment in your trade. That sounds fantastic. Absolutely!!

But now consider this. The same trade goes against you and the price falls by 1%. So you lose the same $100. This wipes off your account by 40% while EURUSD has moved just 1 % !! So you lost 40% of your account in a single trade leaving you with next to nothing for your next trade. If your trading and your account is worth only for one trade, then it will not be a very good trading career that you are going to have.

Now consider this. You have $1000 in your mini account and as above, you buy 1 lot of EURUSD. This time the leverage would be 10000/1000 = 10:1. Now if EURUSD falls by 1%, you will lose $100 again but this time, it will be just 1% of your account. You lose 1% of your account when EURUSD moves by 1% which is fair enough and this gives you a lot of leeway for EURUSD to move even further against you. Even if it moves further against you, you still have money in your account to sustain that move. If you chose to close it, again you are left with $900 using which you still survive in the trading business.

Of course, a rise of 1% would fetch only 1% return but the aim of trading is not to become rich overnight but to remain in the game for as long as possible and to make slow, steady and consistent profits.

Always remember to have as low a leverage as possible. Trading 1 mini lot using a $250 account can be done only in dreams. Don’t even think of it. Try and have a minimum of $1000 for a mini account (many professional traders will say that even this is very less). I am sure that there are few success stories around of people who made a lot with just $250 but remember, we are not here in trading to be exceptions and to be a smart ass. We are here to make money against a lot of odds. So be as much leveraged and have as much margin as possible. If you don’t have enough money, just wait till you get the required money as it would be no point starting off with $250 because you are going to lose it anyway.

Swing and Range Trading

Range trading is process of taking out a few pips of every small move in the price of a share or currency. This works best in a ranging directionless market where the price moves up and down without knowing where to go. It is in such a ranging market that the supports and resistances work very well. The idea behind range trading is to buy (or sell) near a support(or a resistance), wait for it to move up(or down) after hitting the support (or resistance) and thus get a few pips out of this move.

In a ranging market, there will be atleast 3-4 such signals per day per pair. Assuming that you make 5 pips out of every such move, u make 20 pips per pair per day which is pretty good. But what is most important in range trading and something which leads to many traders going broke is the stop loss. Before entering a trade, the trader has to decide whether he is going to range trade or swing trade. The mistake that most traders do is that they start off a trade with the intention of doing a range trade but when it breaks the support(or the resistance), they begin to treat it like a swing trade when actually there is no swing at all.

For thos who don know what swing trade is, it is just a bigger version of range trade where the traders look for 60-100 pip moves, use charts with greater time frames etc. These people lookout for fundamentals(more than what the range traders do), look out for much bigger and stronger supports and resistances and then take a trade hoping to get atleast 60-100 pips out of it...Swing traders get signals maybe once in 1 or 2 days per pair and so they need a greater amount of patience.

Coming back to the mistake made by range traders, they should remember that for range trading, the stop loss should be as minimum as required. When you are looking to make only 5-10 pips out of every signal, the SL should also be corresponding less (maximum 20 pips). Take the trade near the support or resistance and if the trade goes against you and breaks the support or resistance, just come out of it. Accept the fact that you have got it wrong and come out of it. Most range traders get into a trade planning to take 5-10 pips out of it and when they see the trade going against them, they wait and wait and keep seeing the position continue to go against them and after 100 pips loss, they realise their mistake and come out.

Just imagine this. In range trading, if you get 10 pips out of every signal and your SL is 100 pips, it means that you can afford to have only 1 loss out of every 11 trades that you make for you to make a profit. This means that you need to be successful more than 90% of the time which is next to impossible especially in range trading.
So take positions close to supports and resistances and when the trade goes against you and breaks the support and resistance, just accept the fact and come out as soon as possible.

In swing trading, you could afford to have much larger stop losses. As discussed in my article on this blog sometime back, the size of the SL would depend on the pair and also the direction of the trade. Trades in the direction of the trend can afford to have much larger SL than trades made against the trend.
For those who want to know more about SL, please refer my article on this blog which I had posted about SL sometime back.

Trading systems and Market Dynamics

Most traders, sucessful and otherwise, have some trading system. How successful the trading system is would depend on the market dynamics. If you study the trading systems, we will find that many trading systems depend a lot on the indicators. For me, trading systems and studying of the markets and trading is all about pattern recognition. Take any indicator or any study about trading and you will see that in the background, it is only pattern recognition.

Take elliot waves for example. We try to find patterns in the chart and then base our entry and exits on how these patterns work out. We try and interpret these patterns as waves. Likewise, with fibos as well. We basically look out for highs and lows and try to find patterns and match them and use them for fibos. As these depend a lot on the patterns, which are in turn dependent on subjectivity, we find that many people interpret these waves and patterns in different ways and this is the reason why , though many people might follow elliot and fibos, their results from this vary a lot.

Trading systems which depend on indicators also depend on pattern matching. Just throw in 2 or 3 indicators into the chart and watch it. Say throw in 12 ema, 20 sma and 10 macd or whatever. All that you have to do is look for patterns. If 70% of the time, you find that when 12 ema crosses 20 ema, the price goes up, then you have a trading system. So all that you need to do is throw in some indicators, qweak the parameters and watch for patterns. If you are able to find a pattern by which price rises or falls 70% of the time when the pattern occurs, then you have a good trading system. Sometimes, the trading system may not be so straightforward. You need to consider news, whipsaws and all that.

So now when you have a trading system which works 70% of the time, are you settled for life? No...Why? This is due to the market dynamics. The market is never constant. It keeps changing its character. So what might work today may not work tomorrow. One of the major market dynamics is the correlation between pairs. Lot of people would tell you that EURUSD and USDCHF are highly correlated. When one rises, the other goes down. But when i started out trading, the correlation between these 2 pairs was huge. If one pair went up, you could bet your house that the other would go down and you could also pinpoint how much it would drop down by a great degree. For eg., if EURUSD went up by 10 pips, you could pinpoint and say that USDCHF would drop by , say 15 pips. But now, predicting the correlation between these 2 pairs is not so easy nor can it be done so accurately. Each pair has slowly started to have its own characteristics.



Likewise, the volatility of the pairs also changes over time. Some pairs which had a daily range of 40-50 pips now have a range of 70-80 pips and the opposite is true as well.
This is just one example of changing market dynamics. So with the market changing so much over time, our trading systems also need to change and adapt to the changed market scenario. Thats why trading systems which used to work greatly a couple of years back do not work so well now. So be careful in choosing your trading system and once you have done that, keep following your systems closely to find out the time when their effectiveness becomes less and at those times, tweak it to make it more effective or move on to another trading system.

Stop Losses

How important are stop losses? Are they really required? Almost everyone who starts have trading would want to do trading in the right way and hence start off by having SL for all their trades. Due to the inexperience and lack of knowledge and various other factors, they choose wrong points to have their SL. The result is that the price hits their SL,closes their trade and then turns back and then carries on in the direction of the trade and the user is then heart broken.

This happens 5-6 times within a very short span of time and then the user comes to a conclusion that stops are of no use and then stops using the stop losses (!!). What happens then? 70% of the time, it leads to the account going up in smoke and rest of the 30% of the time, due to their good luck, the trade turns back and what was negative now becomes positive. That sounds great, aint it? If 30% of the time, if the trade does turn back in your favor, I guess most of us would be happy. But what we tend to do is conveniently forget the snowballing effect of negative trades.

Now lets look at what all we lose due to negative trades apart from the fact that we lose money. On the face of it, it seems that whatever amount we are in negative is the only loss that we have due to losing trades. But just think of the other losses that are not so obvious. Lets say that you short GBPJPY and the price goes against you. You donave a stop loss and by the end of the day it becomes -50 pips. Next day, it teases you, runs back and forth and then again turns against you even more and the loss becomes -100 and assume that it keeps doing this for a week and after one week, you find that the trade is -125 pips against you. You are too scared to take any other trade till this trade gets over and so you wait and keep watching this trade alone.So you have lost 125 pips worth of money so far.
But is that all? As said before, you are too scared to take any other trade. You have locked the premium money that you paid for the trade, you have locked 125 pips worth of money for about a week and also you have locked some more, say 100-200 pips of more money which you have had in your balance to sustain further losses. This means that roughly you would have locked about $300 on a mini account for a week.

If you had your SL at 75 pips, it would have got hit maybe on the second day of your trade and though you have lost 75 pips, the closed losing trade would have freed up all the locked money listed above. Using the $300 of freed money, in a weeks time, with proper trading, you could have easily made much more than 75 pips on GBPJPY. One more thing, in the above losing trade, by the time the price turns in your favor, you are exhausted, tired and tensed due to your wait and what do you do? Once the price turns in your favor and once you see just 5-10 pips of profit, you are overjoyed, you don’t want to lose the minute profit and you want to get out of this trade somehow. So instead of letting this profit ride on, you closed this trade and you are very happy for having survived the trade without a SL.

But just imagine how much you have lost from the above. You locked in $300 worth of money on a mini account for a week, did not take any other trades for a week, was scared to the hilt, was watching your monitor wasting electricity, not have proper food just to make 10 pips of profit in a week?

If you had had a SL, and if you are confident of your trading, you could have just digested the loss and moved on and made much more money by digesting the loss from your trade rather than wait for it to turn back. So try to use a SL as much as possible but at the same time, try to have it at the correct point. Study each trade, place your TP and SL at the correct points and enjoy your trading.

What are supports and resistances?

Supports and resistances are points in the price of an entity (it can be a share or a currency pair or a commodity or any other entity) where the prices stall. They have got more to do with history and user sentiment. Lets say that the price of the entity is 5 to begin with. It begins to rise and it keeps rising and seeing this price, more and more people would want to jump in and they keep buying and the price rises even more. This means that the demand is more than the supply and as long as this happens, the price will rise.
The price will continue to rise until a stage is reached where people start to feel that the price has become high enough or those who bought it early feel that they have earned enough profit. Lets say that at this point, the price of the entity is 10. So, people start feeling that the price has risen too much (this is also called overbought conditions) and slowly start selling. The demand becomes less than or equal to the supply and the price slowly drops from 10. As the price continues to drop, the people who plan to make money on shorts also jump in and the buyers (even though they might have very less profits or are in loss) start getting panicky and they start selling and the price starts falling more and also at a faster rate.
So the price continues to drop from 10 and thus 10 becomes resistance as the price has not breached 10. Next time the price comes close to 10, the buyers and the sellers will look at past history and find that 10 was the place where selling started the previous time and so the buyers would want to get out at that point just to be on the safer side and so 10 becomes a even bigger resistance.
The price drop from 10 continues and at one place, the opposite to the one explained above happens ie. the users feel that the price has dropped too much (say at 2) and they start buying again and the price starts to rise again. Thus 2 becomes the support.
Remember, the greater the amount of time that a support or resistance has not been broken, the stronger it is. Even yesterdays high and low are resistance and support respectively but they are not very strong as they are quite recent prices.
So, always watch out for supports and resistances. The big banks and traders dont sit with their ema or whatever indicators and buy and sell based on that. They look out for stops and resistances and buy / sell based on that. So be careful, watch out for opportunities and get a feel of the market before jumping in.

Money Management

What i have personally learnt is that price action is King. I have tried hundreds of indicators, standard ones in MT4, ones posted on FF, ones on russian forums, you name it, i have used it.thru all this, i have found that price action is the best.indicators seem to work but they work only for specific periods and for specific types of markets, they dont always work.so one week, they work very well, you make a lot of money and you start trusting it.So next week, cos of your trust, you start to over-leverage when you take trades and what happens ? the indicators dont work and you lose whatever u earnt and more.

Studying price action is not easy.it takes time, it takes experience to understand how the price moves, when and why.Forex is not a get-rich quick scheme.But when we are ready to spend so many years in our respective work areas (manufacturing, automobile, software etc.) to get some money, its amazing how people tend to get impatient when they enter into forex and they tend to over leverage.

Lesson no. 1 is 'dont ever over-leverage'.You should not risk more than 3% of ur account in any trade...ever....if u do, u are bound to lose in the long run.You could win in a week or mnth but u will lose in the long run.thats for sure....

The reason why people over leverage is cos of greed.Lesson no. 2 is to control greed.but its a contradictory thing....lets face it...most of us trade cos we are greedy.We are not happy with the oney that we are earning and we want more.Thats why we move to trading...but, the trade experts say that we should not be greedy.How can you avoid something which was the very reason that you entered into forex in the first place?? its tough.Its really really tough....it took me about 3-4 yrs to control greed.

But just remember this, do you realise that by earning just 50 pips a day using a $1000 account using 3% leverage, you could be making $1000 a mnth after just 5 mnths? and $2000 a mnth after just 7 mnths?? $2000 a mnth is more than enough for a lot of us. And i could go on and on on how we could keep building this amount....

What i have said is not impossible.Anyone can afford $1000. 3% leverage is a decent leverage for small accounts.and 50 pips a day is very much possible if you know what you r doing.So, all that i have said above is possible for all of us....but it needs a lot of self control...

You could make 50 pips a day just by trading for 2 hrs a day during the euro or the US session.But being patient and waiting for the right trade is the key...thats where everyone loses....