How To Increase Forex Profits 100% in 10 Minutes

Eurusdtrader
http://www.eurusdtrader.com

Fri, 08 Sep 2006 10:12:11 GMT
by Jimmy Young

How To Increase Forex Profits 100% in 10 Minutes

This simple exercise will increase Forex profits 100% and works for 99% of all short-term FX traders – stop trading so much – widen out your stops – widen out your profit targets – and only trade in the direction of the trend indicated by 4 hour chart.

1) Stop trading so much
Sure there are no commissions but the spreads are HUGE and believe it or not (well you’ll believe it after you do the simple exercise below) the spreads are reducing your profits 100%!

2) Widen out your stops
Initial stop loss should be a minimum of 23 points; I use between 23 and 35 point stop losses for short-term trading.

3) Widen out your profit targets
Unless you think a trade can make you 100 points or more don’t do it.

4) Only trade in the direction of the 4 hour chart
The real money is made in the direction of the trend

Simple exercise

1) Download all your trades for the year into an excel spreadsheet (if you don’t know how to do this ask your broker for help).

2) Determine the dollar value of the spread for each trade.

3) Sum up the total dollar value of all spreads for all trades and add this number it to your current account balance; this is your spread adjusted account balance.

4) Take your spread adjusted current account balance and divide it by your opening balance at beginning of year; the result will be a percentage change.

5) Take your actual current account balance and divide it by your opening balance at beginning of year; the result will be a percentage change.

6) Subtract your spread adjusted year to date percentage change from your actual year to date percentage change.

7) That number should be 100% or more

8) Take the necessary steps as outlined above (1 to 4) and improve your results 100%

Trade the News

FX Engines  [ See company's profile at FXstreet.com Directory ]
http://www.fxengines.com

Fri, 18 Aug 2006 09:58:54 GMT
by Scott Owens

Most traders intuitively know that major news events drive FX price action, but few trade the news proactively. In fact, most traders avoid news events simply because they lack the tools and information needed to trade the news effectively. Now, the introduction of a toolkit specifically designed to trade the news makes a new, compelling method of trading available to FX traders for the first time.

Analysis

• Understanding the drivers of price action
• Context: the most critical element of any trading system
• Targeting news event driven price action
• Automation as the key element of any news trading approach
• Why trading the news is actually a conservative strategy
• See recent sample trades with charts

Action

• Trade the news with FX Engines!
• Get familiar with the FX Engines Trade the News Toolkit

Related material

Test-drive FX Engines for free online at www.fxengines.com to see the power of trading the news first hand.

About this report

The Forex Report is a periodic publication that investigates strategies for superior trading performance in the foreign exchange markets. These reports utilize advanced statistical and econometric modeling techniques to create new insight into the trading strategy of the average trader. This report, Trade the News, is a general report intended for all audiences, including those new to the forex market.

Analysis

All traders want an edge. In pursuit of that extra advantage, traders will pay thousands in training, subscribe to black-box signal services, and build trading systems using signals they barely understand. The desired end result is a system that can be used repeatedly for profits beyond those offered by traditional investment alternatives. Most traders fail.

To find out why, we dissected price data from the past five years and emerged with a single conviction: forex price action is driven by news events.

We learned that the systems most people use are fundamentally flawed, and we learned that most traders avoid the very thing that could lead to their success because of a lack of tools. This report exposes the reality of trading the news: the empirical, analytical support for the concept and the introduction of a new set of tools from FX Engines specifically designed to extract profits from these amazing price moves.

Drivers of price action

From a distance, market action in the forex markets represents pure chaos. One minute the market can be completely flat while another can witness 10-pip tics in both directions. Prices can trade in a range for months, then suddenly jump out into a major trend lasting equally long. What drives it?

To understand the drivers of price action one must understand the participants in the market. The world’s daily FX volume is created by a myriad of constituents: governments, banks, corporations, investors, traders, et al. Each of these constituents brings with it certain goals for their participation, and each brings a transaction volume. The sum of these goals and their corresponding volume is the price action seen each day in the markets.

At the most basic level, foreign exchange rates are derived from long term economic fundamentals. These variables measure and weigh the value of one currency vs. another. Think of these economic fundamentals as the tide, ebbing and flowing over time. Indeed, these macro-factors can lead to the very long term trends we see in weekly and monthly charts.

Go a little closer to the surface and you will see a variety of price action driven by governments protecting their currency, corporations and banks transacting true currency swaps, and traders speculating according to differing timelines and investment goals. Each of these constituents can cause price action that goes with the tide or against it, depending on their market power at the time of their transactions.

At the very surface level we have a constant hunt for equilibrium. The market wishes to always have a complete, correct value for the exchange rate for two currencies, but it does not always have complete, correct information. The passing of inflection points and, more importantly, major economic news events, gives the market the information it needs to re-evaluate exchange rates and make instant changes.

Forex Analysis: When to Trade

One of the key elements of any trading systemis market timing. Many traders fail to account for timing when makingtrading decisions, and those who do often rely on their instinct ofmarket timing rather than empirical data. The sophisticated investoruses advanced timing techniques to optimize market entry and exit.

Analysis

• Hour: Which hours of the day will produce the best trades?
• Session: Which trading session has the most action?
• Day: What is the range for particular days of the week?
• Month: Do the days of the month differ?

Action

• Correlate your engines to optimal trading ranges
• Test your engines according to a specific entry schedule

When to trade? We wanted to be sure ourselves, so we took 4 yearsof historical tic data from a dealer and ran it through a rigorouseconometric analysis. The most basic results of that analysis show theimportance of understanding and employing timing in your entry and exitdecisions.

Hours of the Day

Average range in pips for the four majors, Eastern Time:

Trading Session

Average range in pips for the four majors:

Day of the Week

Average range in pips for the four majors:

Day of the Month

Average range in pips for the four majors:



Related Material:
 
Test-drive FX Engines for free online at www.fxengines.com to seethe power of system building, system testing, and system automation.

Forex Trading Systems

Wednesday, June 28, 2006 10:21 AM GMT
by Raul Lopez

Mechanical vs. Discretionary Systems

There are basically two types of Forex trading systems, mechanical and discretionary systems. The trading signals that come out of mechanical systems are mainly based off technical analysis applied in a systematic way. On the other hand, discretionary systems use experience, intuition or judgment on entries and exits. But which one produces better results? Or more importantly, which one fits better your trading style? These are the answers we will try to answer on this article.

We will first analyze the pros and cons about each system approach.

Mechanical systems

Advantages

This kind of system can be automated and backtested efficiently.

It has very rigid rules. Either, there is a trade or there isn’t.

Mechanical traders are less susceptible to emotions than discretionary traders.

Disadvantages

Most traders backtest Forex trading systems incorrectly. In order to produce accurate results you need tick data.

The Forex market is always changing. The Forex market (and all markets) has a random component. The market conditions may look similar, but they are never the same.

A system that worked successfully the past year doesn’t necessary mean it will work this year.

Discretionary systems

Advantages

Discretionary systems are easily adaptable to new market conditions.

Trading decisions are based on experience. Traders learn to see which trading signals have higher probability of success.

Disadvantages

They cannot be backtested or automated, since there is always a thought decision to be made.

It takes time to develop the experience required to trade successfully and track trades in a discretionary way. At early stages this can be dangerous.

Conclusion

Now, which approach is better for Forex traders? The one that fits better your personality. For instance, if you are a trader that finds it hard to follow your trading signals, then you are better off using a mechanical system, where your judgment won’t play an important role in your system. You only take the trades that your system signals.

If the psychological barriers that affect every trader (fear, greed, anger, etc.) puts you in unwanted scenarios, you are also better off trading mechanical systems, because you only need to follow what your system is telling you, go short, go long, close a trade. No other decision has to be made.

On the other hand, if you are a disciplined trader, then you are better off using a discretionary system, because discretionary systems adapt to the market conditions and you are able to change your trading conditions as the market changes. For instance, you have a target of 60 pips on a long trade. But the market suddenly starts trending up pretty strongly, then you could move your target to say 100 pips.

Does it mean that trading a discretionary system has no rules? This is absolutely incorrect. Trading discretionary systems means that once a trader finds his/her setup, the trader then decides what to do. But every trader still needs certain rules that need to be followed, such as the size of the position, conditions that have to be met before thinking to get in the market, and so on.

I am a discretionary trader. The main reason I chose a discretionary system is that my trades are based on price behavior, and as you already know, the price behaves similar to the past, but it is never identical, therefore the outcome of every trade is unknown. However, I do have rigid rules on my system, certain conditions have to be met before I even think in getting in a trade. This keeps me out of trouble, once my setup is present and in accordance with the rules I have set, then I closely watch the price behavior and finally decide whether it is a good opportunity or not.

Whether you choose to be a discretionary or a mechanical trader there are some important points you should take in consideration:

1. You need to make sure the Forex trading system you are using totally fits your personality. Otherwise you will find yourself outguessing your system.
2. You also need to have some rules and most importantly have the discipline to follow them.
3. Take your time to build the perfect system for you. It’s not easy and requires time and hard work, but at the end, if done correctly, it will give you consistent profitable results.
4. Before going live, try it on a demo account or even on a small account (I will go for the second option, since psychological barriers will be present.)

Introduction to Trend Following

Wednesday, June 28, 2006 7:07 AM GMT
by Jurgen Apfelbacher

If we were to spend some time speaking with others about what a trend is, we would likely get a range of different answers. Below are some potential answers you could encounter when asking others...

A trend could be spoken of as...

1. A price move in the market over any specific period of time.
2. A series of new highs and higher lows or of new lows and lower highs.
3. A favorite trending indicator showing a long or short signal.
4. An upmove or downmove.
5. An Elliott Wave formation.
6. An astrological occurrence.
7. A fundamental news item.
8. My stockbroker’s next hot tip on a stock.
9. My coin flipping strategy.
10. My throw-a-dart-on-the-“stock” board strategy.
11. The price that a psychic has pinned the Euro to go to in 1 week.

While some are humorous, some foolish, and others technical, which, if any, is correct? Well, if we decide to enlist our dictionary for assistance, we come to this definition:

The relatively constant movement of a variable throughout a period of time. The period may be short-term or long-term, depending upon whether the trend itself is shortterm or long-term. For example, a rising market is taken to mean that prices of most stocks are in an upward trend.

Clearly, number one is the closest choice and a neat fit to the definition provided in the dictionary. Trends may be relatively small or may be relatively large, but all trends have some amount of price movement. In a nutshell, trend following is trading on the idea that a some price movement in one direction could be the start of a bigger price move in the same direction.

To illustrate the basic idea, please look at the following diagram: 

where (A) is the current price, the price now, and (B) is the price after some time elapsed.

Referring to the diagram above, note that although the start price and the end price are 2 different prices, they are not necessarily the lowest prices nor the highest prices that the instrument traded at during the specified time period. Below are some sample prices of a mock stock ABCD over a 1 week period. Each price represents the closing price for one day of the week:

Day 1: $20.00
Day 2: $21.00
Day 3: $21.00
Day 4: $19.00
Day 5: $18.00
Day 6: $22.00
Day 7: $28.00

First notice that for a 7-day trend to have occurred, the closing price on Day 1 must be different from the closing price on Day 7.

Trend = Price at End of Time period - Price at Start of Time Period must be >0

So, $28.00 - $20.00 = $8.00 and $8.00 is > $0, so we have an $8 uptrend from the close of Day 1 to the close of Day 7.

More importantly, notice that the price on Days 4 and 5 went below the closing price on Day 1. Therefore, although a trend occurred, but the closing price on Day 1 was not the lowest price during the week. Under the concept of trend following, you believe that a price move in one direction could be the beginning of a larger price move. If you intend to buy on the close of Day 1 at $20 and it falls to $19, you have a temporary loss of $1. Even though, in this case, you know that the price on Day 7 closes at $28, what if you did not know the closing price of Day 7? Would you presume it to be $28? If you have not read the publication on making decisions, please read it.

In this example, if you did not know how Day 7 shall close, and the price drops to $19.00, you should assume an upward price pattern is wrong (whether temporarily or not is not important). When you choose to buy, you expect prices to rise from either the price you bought it at or from a price just slightly below where you bought it at. If you exited the trade at $19 knowing obviously you are either temporarily wrong or permanently wrong, you can always repurchase the stock if it crosses above the current highest closing price of the series to ensure the pattern of prices is resuming upward motion.

Therefore, you should repurchase stock ABCD at a price greater than $21 which would be $21.01 . As long as the stock ABCD traded at $21.01, and you closed the trade at the close on Day 7, you might realize a profit of $6.99 per share. Please note that the actual trend is greater than what you could have collected actually buying and selling the stock. Moreover, you also sold out of our position once, incurring a $1 per share loss. Please notice that there was actually a loss incurred. Losses are generally incurred when a trend has price action against our position causing our upward or downward pattern to be broken.

Here is the price sequence of the week. We anticipate an upward pattern and buy at $20:

$20 , $21 , $21 , $19 , $18 , $22 , $28

Note that the underlined prices invalidate the upward pattern because each consecutive price must be greater than the previous price. Therefore, the pattern is wrong, and we must conclude that the pattern is unknown. But if the price goes above the last high price in the sequence, we can claim that the pattern could have reverted to an upward pattern and place another trade at $21.01 with the hope that the sequence over the remaining period of time turns out to be upward.

In review, trend following is the hope that a price move in a direction could be the beginning of a large price move in the same direction. Trend following is an important concept for the professional investor to understand. Market Speculators utilizes only trend following strategies when trading clients’ monies. We at Market Speculators intend to provide clients with knowledge they need to understand our core beliefs to build a strong business relationship. Market Speculators takes the timely burden of trading a market for clients that is generally active 120 hours of the week. Market Speculators intends to provide a profitable vehicle for investing to those individuals seeking capital preservation and appreciation without having to devote countless hours to a market in which the vast majority of traders reportedly lose in.

Thank you again for reading this publication. Please read our other publications to learn more. We at Market Speculators are dedicated to the preservation and appreciation of your invested capital with us. Please consider having us manage an account for you!

anaging Option Directional Trades

Anduril, Inc.
http://www.andurilonline.com

Tuesday, June 13, 2006 3:56 PM GMT
by John Forman

Options provide great position management and risk control potential when using them to trade the market directionally. This goes beyond the simple fact that a long position in a call or put option has an absolute maximum risk equal to the cost of the option (plus commissions, of course). That, in and of itself, is a very useful thing. What this article discusses, however, are a couple of handy little things one can do while holding an option position to maximize the return and keep the risk well constrained.

Roll Up/Down

Most traders are familiar with the concept of a trailing stop whereby one moves their protective exit as the market moves in favor of the trade. This is used to lock in profits. The same thing can be accomplished when one is trading options rather than the underlying. This is done by rolling one's position up or down strike prices depending on whether the trade is a long using calls or short employing put options.

Here's a recent example from the author's own trading.

A long position in Seagate Technology (STX) was initiated when the stock was trading at around 21.50 using the March 22.50 call options. They were purchased for $0.80. The market rallied over the next few weeks, eventually moving up above $24. At that point, a roll-up was executed by selling the March 22.50 calls at $2.60 and purchasing the March 25 calls at $1.40. This action served two purposes. The first is that it took $1.20 off the table, reducing the portfolio exposure and freeing up cash for use elsewhere. It also locked in a profit of $0.40 ($2.60 sales price minus the $0.80 purchase price for the 22.50 calls minus the $1.40 purchase price for the new 25 calls). At the same time, it had no effect on the remaining upside potential for the trade. The two strikes would probably profit about the same from any further appreciation in the price of STX shares.

If the portfolio exposure was deemed acceptable at $2.60, an alternate course of action would have been to sell the March 22.50 calls and not take any money out, but rather roll it all in to the March 25 calls. For example, if the position was 10 options, selling the 22.50s would net $2600. That cash could have been used to purchase 18 of the 25 calls ($2600/$140 = 18.57). By doing so, one actually increases the upside potential for the trade substantially. Of course, the full position is at risk, meaning one could theoretically lose the whole $2600 invested, which is more than could have been lost when the trade was first initiated.

Roll Forward

One of the issues with options is the limited duration they provide for holding trades. If one is an intermediate to longer-term trader, this can be an important hurdle. That said, however, in a manner similar to the roll up/down, if one wants to extend the holding period of a position it can be done by rolling forward the expiration month.

Continuing with the STX example, we can look at rolling forward. That would be accomplished by going from the March contract to the June one. As of this writing, the March 25s are trading at $2.40 and the June 25s are at $3.60. There's the rub, though. Because of the longer time to expiration, the June contract is priced significantly higher. That is why a roll forward is often best accomplished with a roll up/down.

Consider the earlier roll-up in STX from the 22.50 call to the 25 call. If we were still in the former, and wanted to both roll forward and up, we could jump to the June 25 call. The current price on the 22.50 option is $4.10. With the June 25 at $3.60, we could accomplish both the roll up and roll forward and take $0.50 off the table. That is not quite as much as we accomplished with the roll up, but it does extend the time we could hold the position by three months. Whether that is worth the trade-off depends on the anticipated holding period for the trade.

The rolling of strike prices and expiration is something easily accomplished. The transaction costs for options trades have come down substantially for the individual trader in recent years. That opens up a great many possibilities for playing the market directionally and managing positions efficiently.

Published on  Tue, 12 Dec 2006 11:39:43 GMT