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In contrast, bears move downward when they attack or charge. Bulls, therefore, resemble a buying market, because they believe prices will continue to move upward, or rise, whereas bears resemble a selling market, because they believe prices are going move downward, or fall.
Every trader has to make a decision to be either a bull or a bear before entering the market. Bulls enter the market buying first and exit selling second.
Bears do the opposite: they enter selling first and exit buying second. To make a profit in the market, you must always buy low and sell high.
Both bulls and bears are trying to do that; bears just reverse the transactions see Figure Remember, there is a bid price and an ask price with a 3- to 6-pip spread on the major currencies the U.
dollar [USD], the Japanese yen [JPY], the British pound [GBP], the Swiss franc [CHF], the European euro [EUR], the Canadian dollar [CAD] and the Australian dollar [AUD]. Traders buy on the ask price and sell on the bid price. If you want to enter buying, you would pay the ask price of 1.
You can enter and exit the market using a limit order, which are orders placed ahead of time to enter the market buying below where current prices are or selling above where the current prices are. They are placed like a limit order at a predetermined price; however, they turn into market orders when the market reaches the predetermined price and may be subjected to slippage.
The rule is, when you place a buy order above the current market price it is called a stop order, and when you place a sell order below where the current price is it is also called a stop order. Every trade should have an entry point, a predetermined exit point for profit, and a well-thought-out exit point for minimal loss should the market not go your way. The rule is, every buy order should have two sells: a sell limit order for profit and a sell stop order for loss protection.
Conversely, every sell order should have two buy orders: a buy limit order for profit and a buy stop order for loss protection. Some trading software programs allow the trader the ability to place an OCO one cancels the other order.
This means the moment the market hits either the stop order or the sell order, it cancels the opposite order. By trading with an OCO order, you are not left exposed with a working order after either your stop or limit has been filled and you have been taken out of the market.
An OCO order offers you the opportunity to set a trade and forget about it. You can literally walk away from your computer and not be concerned with catastrophic results if you have properly quantified your potential losses before you placed the trade.
No one knows where the next pip will go, so the best you can do is plan your trade and trade your plan. One of the most important and productive habits you can adopt is properly educating yourself about the Forex before you begin trading. If you move forward without the proper education, be prepared to lose your money, much like in a casino.
Just like the casino, the market will be there to take all your money. I have learned that to achieve success in trading requires learning to understand the three critical facets of trading: 1. The technical education and trading knowledge 2. The fundamental understanding of what determines market movement 3. All successful traders learn that working through frustration is the path to success. Knowing what to do when you get frustrated is critical.
Strong people make as many mistakes as weak people. The difference is that strong people admit their mistakes, laugh at them, and learn from them, and that is how they become strong. Mistakes are part of being human. We need to appreciate our mistakes for what they are. Before you begin trading, you need to create your own mission state- ment to help you focus on becoming an educated, financially successful, long-term Forex trader.
I want you to think of your journey toward becom- ing a successful trader as a transformation of thought, a new process of knowledge build-up, followed by: 1. Disciplined thought 2. Disciplined rules 3. Practice first on a demo account to become comfortable with the trading platform before trading with real money.
LEVEL 2: THE COMPETENT TRADER You acquire conscious competence. You begin to trade with real money, work through your emotions, and learn to trade within the equity manage- ment rules to achieve a consistent financial return. LEVEL 3: THE EXPERT TRADER You acquire unconscious competence. You mechanically execute profitable trades with no emotion. THE REALITY OF TRADING The reality of trading is that less than 10 percent of all traders who attempt to trade succeed in the market.
More than 90 percent of all traders who attempt to become successful on the Forex fail. Our professional international team at Market Traders Institute adamantly believes in proper education first. Knowledge is the key that can make a big difference in the success of a trader, providing a necessary edge. I cannot stress this enough: the majority of the world is locked into managing its poverty or mediocrity.
Very few people learn how to manage any kind of success because they are not given any sort of manual or instruction guide to success. Growing up, we learn how to survive finan- cially from our caregivers and circles of influence. But not all mentors are successful, leaving many to learn through trial and error. Thousands of books have been written on how to achieve some sort of success.
I believe that success comes from acquiring the right education about the opportunity; possessing the right work ethic; implementing the right productive daily habits; and believing with focus, concentration, action, and a positive attitude that your dream will come true.
Successful people keep things simple. They find beauty in simplicity. The average per- son, for some reason, tries very hard to complicate things, even the simplest processes or procedures. I, on the other hand, have worked hard to take a very complicated issue, Forex, and simplify it, enabling just about anyone to understand how the markets work and how to trade them. THE DAY, 3 PERCENT RULE The human mind forgets 80 percent of the knowledge it acquires within the first three days of acquisition.
During the next 18 days, it continues the loss of information until it settles at 3 percent retention of the new information. Our focus at MTI is to provide you with productive practical, continued education, enabling you to be trading with percent-plus recall. You must practice them over and over again until they become an unconscious habit. Doctors prac- tice on cadavers first. Pilots fly with instructors long before they go solo.
I personally believe that self-empowerment is learning how to fish and that dependency is all about being handed a fish to stay alive. Make no mistake, there is no holy grail! You cannot buy any indicator or trading system that works percent of the time any more than the airlines can buy an autopilot system that eliminates the need for pilots.
I would think not, because if you could create such a trading system, all you would need to do is walk into any major financial institution like the Bank of America or the Royal Bank of Scotland and show proof that your auto- mated system works.
Just as there is no perfect trading system, there is no autopilot sys- tem that works without a pilot. I very much doubt that human beings will ever put their lives on the line with a computer or autopilot system in an airplane without a pilot. We all have bought enough electronic equip- ment in our lives—TVs, VCRs, cameras, and so forth—to know they all fail eventually. Pilots are educated and trained to fly proficiently before they are even shown where the autopilot system button is.
The first time I got into the cockpit with my instructor I asked him where the autopilot button was. I did eventually learn how to engage the autopilot function and will have to say, the autopilot system is not a fail-safe function without the close moni- toring of a pilot. As powerful as such systems are, when things start to go wrong, they cannot make spilt-second decisions in the best interest of the passengers. They can only do what they are programmed to do, and there are too many variables in flying to program absolutely everything.
Autopilot systems do not work percent of the time, they have their limitations. As a trader, you will learn that, from time to time, the trading environ- ment will be ideal enough to use an autopilot system. That is truly suc- cessful trading.
I was sitting in my office at home and had been in a few trading positions for a couple of days on four different currencies. All of a sudden, they all took off like rockets in the opposite direction of my positions. Thank goodness I was not using an auto- pilot trading system or I could have been financially wiped out that day.
I was stopped out on all four currencies and was able to preserve what profit I had made. The reality is that to become a successful trader, you must go through an education process no different than that of becoming a pilot, a physician, or of any profession that requires a specific discipline to be mastered.
I am even more amazed at the massive amounts of people willing to purchase these products. But I am never surprised when they call our office and share their experience of buying a Forex program that failed or disappointed them. These traders are now pleading for help because with their current system, they keep on losing money and have no idea how to make it back.
A fair question is, did the system truly fail or was it the system found between their ears that failed? You must be taught how to use the best tools available for whatever profession you want to pursue. If you are going to be a ditch digger, you need to be taught how to use a backhoe as well as a shovel and be taught in which situations one or the other should be used. Learning to trade on Forex, from someone who is already successful at trading, is critical.
Finding out which trading tools they use is equally important. Now is not the time to go bargain hunting for tools. Bargain hunting for free or low-cost trading tools is like learning to navigate on the ocean with a compass in a foot canoe—clearly the wrong vessel for the environment.
A solid built, 1,foot, state-of-the-art cruise ship with all the latest gauges for weather would be wiser. With so much at stake, do not take a shortcut on paying for quality trading tools. When it comes to trading on Forex, I highly recommend the MTI 4. These systems can be back-tested over many years instantaneously, allowing a trader to see if their trading strategy is a good one, or if they are working in the wrong direction.
You can create a trading strategy that aligns with your personality, program it into a system, back-test it, and, if it is productive, have the trading system send you alerts via e-mail or cell phone when an entry and or exit signal is triggered see Figure The most important part about a trading system is that it must be simple and easy to use.
Whether it is done visually or created by a trading system, your trading strategy must have three very important components: 1. It must be able to find the current market direction. It must have a consistent entry strategy that works consistently.
It must have two very clear exit strategies, one for protecting you against major losses and one for capturing a profit. In Figure , you can see a line that goes above and below the price movement against time that is monitored by a computer creating a candlestick formation candlestick formations are a way of monitoring the open, high, low, and close market prices in any given time period.
This line is called a moving trend line; a visual indicator of market direction or perhaps the current trend. When you turn on your computer and begin to review your charts on any time frame, if the current candle is above that line, the market on that time frame is in a potential uptrend, and if the current candle is below that line, the mar- ket on that time frame is in a potential downtrend.
No matter what time frame you trade in, this simple exercise accompa- nied with this system can help you determine trend direction.
Before you use an autopilot program, you need to understand how it has been programmed. Looking at the moving trend line, on any time frame, can help you deter- mine market direction on that time frame. One mistake traders often make is believing that a trading system created for a minute chart will work on all time frames, such as a one-hour chart or a daily chart.
Sometimes it does work, but typically, as you move a trading system from one time frame to another, you may want to adjust the settings of such a system to optimize its performance on that time frame.
It is vital to find trading software that will not only allow you to change these settings but also instantaneously back-test the results as found incorporated in MTI 4. Every trader wants the market to move in his or her direction from entry—there is nothing worse than get- ting in a trade and having the market run in the opposite direction.
One of the most important traits of a successful person is that when they are trying to make a productive, empowered decision, they gather facts. The more facts they can gather, the more informed their decision. Trading is 10 percent skill and 90 percent emotion, which is why our emotions frequently stand in the way of making good decisions. Anytime you need to make a decision, do yourself a favor and do not make it while you are in an emotional state. Take the time to calm down and place your- self in a logical state of mind.
If you do that, you will open up the left side of your brain, where all your knowledge is stored, where all your intellec- tual recall is, and you will have access to everything you have learned in your past that is productive. You will begin to make an educated, positive, and productive decision. Trading indicators can keep you from using the right side of your brain, where all your emotions are stored. You can program buy and sell signals that have no emotion, they just monitor price movement against time.
Using different indicators together can create effective entry points, like the ones found in Figure , but they need to be manually monitored. The trading system you are looking at in Figure is called the MTI Trend Scalper. The two moving lines overlapping the candles are moving trend lines, which can act as buy and sell signals.
The line closest to the candles is a moving inner trend line and the other one is a moving outer trend line.
In Figure top , you can see that if you used the moving trend lines as your entry and exit signals, right around March 10, , you would have bought the euro at approximately 1. But where do you get in if the moving trend lines have already crossed? Do you have to sit there for another three to six months before they cross over again to find another trading opportunity?
The answer is no. You can have two options. You either educate yourself how the markets move without using indicators or you learn to add additional indicators to your trading system like the waving line you see at the bottom of the chart in Figure This indicator, called the MTI Trend Tracker, monitors the waves of the market. As the market moves, it resembles the waves of the ocean. The greatest part about a trading system is that it is constantly moni- toring the movement of the market, projecting directions with entry and exit points 24 hours a day even while you sleep or work.
Using a trading system allows you to control your trading in the market, rather than the market controlling you, and to come and go, or turn off your computer, without having to do all kinds of new technical analysis of the market to catch up from where you left off. If the lines overlapping the candles crossed while you were away, the MTI Trend Tracker allows you to enter the market at a price point where the market will more than likely reverse and rally back up in your buying direc- tion from entry, which is what every trader wants.
Look at the MTI Trend Tracker indicator where you see the bold up-arrows see Figure , bot- tom. When the moving line is going south and then U-turns to the north, the market should follow. Look at the price movement of the market and how it began to rally again. This trading system works just as effectively in a downtrend as it does in an uptrend, as you can see in Figure All the rules are the same but in the opposite direction.
When the lines overlapping the candles cross from the north to the south, it is time to sell. Once again, if you turn on your charts and the mov- ing trendlines have already crossed, giving a short signal, you can enter when the MTI Trend Tracker indicator moving north U-turns to the south.
Look at the market movement on the charts after the U-turn toward the south. Using trading indicators eliminates a lot of the guessing and allows you to focus on developing a trading strategy that works consistently, on a time frame that suits your personality. Some traders like fast action and want to turn their computer into a video game—they want to quickly scalp the market.
In and out, in and out, perhaps 10 times a day. If you enjoy day trading, use this trading system on one-hour to four-hour time frames, and if you enjoy long-term trading, use this trading system on four-hour, daily, or weekly charts In any of these cases, you let the computer do the majority of the work.
Just like an autopilot system. If it were that easy, however, we would all be living in gated communities and flying our jets to our beach-house estates every weekend.
Most traders make their money during trends and lose it when the market gets turbulent or begins to go sideways. What if you were just starting out and the market began to go sideways, or consolidate, as shown in Figure Just about every time the computer gave a buy signal, the market went south, and just about every time the computer gave a sell signal, the market reversed and went north. When most people board an airplane and look inside the cockpit, they are intimidated by all the gauges they see.
How do I know? Just like when I turned on my computer back in the s and looked at charts, I, too, was extremely intimidated. But believe it or not, sideways movement can potentially offer the trader more trading opportunities than trends.
Envision buying all the lows as seen in Figure and exiting at the highs and then reversing your position, shorting the market by selling all the highs taking a ride across the trading channel and exiting at the lows. It is clear to see by continually repeating this process that there is profit to be made. Conversely, when going short or selling first to enter the market, every sell entry order needs two buy exit orders, one for profit and one for loss.
After you enter the market, you need the two exit points, one for profit and one for financial protection should the trade not work out. The fact of the mat- ter is that no one knows where the next pip will go. The best you can do is to understand how the market works and learn how to go with it.
But success comes to those who understand how it works—just look at the people who have been able to create great compa- nies that haul freight, passengers, or oil over the ocean. After the market has moved in your direction from entry, as planned, the question is where do you get out?
The last thing in the world you want to do is guess what the market is going to do next. Let a simple mathe- matical calculation of price movement against time tell you instead. Remember the two indicators—the moving trend lines that are overlapping the candles and the MTI Trend Tracker at the bottom of the chart?
If you take a long position and want to become a long-term trader, you may want to stay in until the moving trend lines cross over. However, if you only want to grab a few pips, and you entered using the indicator below, you may want to get out after that line has moved from the south to the north and is beginning to U-turn back south see Figure Some traders use the movement of their indicators as their protective stop loss orders—they let the indicators make their decisions regarding when to reverse their positions.
Your hope and or fear will get the best of you. What is critical is finding and calculating where your pro- tective stop order needs to go as you are making your trading plan. Once you find that location, after you enter the market, place that order immediately and do not move it if you are trading an OCO one cancels the other order. Trading is about keeping your losses small and letting your profits run. The problem with most Forex traders is they hold onto their losses and quickly dump their profits for fear the market will take them back.
They have the definitions of hope and fear backwards. They will hold a losing position for days, sweating it out, walking through the valley in the shadow of death, praying, hoping, promising God and everyone else that will listen to just help them get back to breakeven and once they do, they dump their position after only capturing a few pips.
Some traders will go pips in the red to only exit after a brutal ordeal and capture only 2 pips. Learning where to place your protective stop loss orders and creating a trading plan before you trade is of critical importance as a novice trader. Trade a simple strategy with a clear entry order accompanied by two exit orders trying to capture a profit of perhaps 10 to 20 pips. Your aim should be to establish the habit of winning more than you are losing. After you get in the habit of winning more than losing, and realizing that losing is just as much a part of this game as winning, you will then be able to move to a larger time frame to capture more pips, perhaps capturing 40 to 80 pips at a time, consistently, 7 out of 10 times with some losses.
After you get the simple basics down of winning more than losing, you can start learning more advanced exit strategies. Take two different time frames, for example, a daily time frame and a four-hour time frame, using the same MTI Trend Scalper trad- ing system on both time frames.
Remember the MTI Trend Tracker at the bottoms of the charts, which monitors the wave movement? Look what happens to the price movement on a four-hour chart when the indicator U-turns on a daily chart, as seen in Figure Remem- ber, prices on a smaller time frame respond to the movement on a larger time frame.
This works the same on all time frames and is a great way to trade. The MTI checklist cross-checks important points for your entry and exit. These seven points are graded, indicating the odds of your making money, and include the use of indicators, candlestick formations, Fibonacci Fib numbers, coun- tertrend lines, and more.
Trading needs to be fun and simple. Anyone who tries to impress you with all their knowledge and indicators see Figure will only confuse you. A confused mind is going to take you down a path of financial destruc- tion. Stay clear from using too many indicators or complicated indicators. Keep it simple! Candlestick formations are the sign language of the mar- ket. They frequently tell the trader where U-turns or reversals are and where the market is going.
Most beginner traders prefer learning how to read charts using what is called a Japanese candlestick, which monitors price movement against time. There are three types of charts traders can refer to: a line chart, a bar chart, or a candlestick chart.
Military confrontation had become a way of life in that country as feudal lords fought for control of rival territories. Once somewhat relative peace had been established, several new opportunities for expansion developed. It was during that the concept of the Japanese candlestick was being explored, tested, and used in monitoring prices in the rice markets.
Because there was no standardized currency, the price of rice became the predominant medium of exchange, or currency. In the late s, the Rice Exchange was formed to regulate trading proceedings.
By , there were more than 1, rice dealers. Rather than just deal in actual rice, rice coupons were issued, and these became one of the first forms of futures contracts ever traded. Similar events took place in other parts of the world. There was the Tulip Mania that swept The Netherlands in the early s, which also involved a form of futures contract. During this period, tulips became the standard medium of exchange and became even more valuable than gold there.
The popularity of these Tulip coupons were drawing attention around the world and other countries began to catch on to this effective way of trad- ing. Rice coupons in Japan became significant, with a bale of rice being the standard amount to be traded. An empty rice coupon became a form of a futures contract—a coupon for rice that may not even be planted or harvested yet. The rice is traded for a specific future date, as if it was grown and going to be delivered to that person on that future date.
Today, futures trading is a multibillion dollar industry. In America, most futures trading for commodities occurs in Chicago, at the Chicago Mercantile Exchange, or CME.
But where do Japanese candlesticks fit in? Munehisa Homma was born into a wealthy Japanese farming family in Homma had an aptitude for business and would eventually become a dominant trader in the Japanese rice market. Although candlesticks were not actually developed by Homma, he studied the psychology of investors and formulated several key trading principles.
These concepts evolved into the candlestick charting techniques that we know today. Candlestick charts were originally plotted painstakingly by hand. This labor-intensive step, as well as the fact that many Japanese traders could not properly communicate or share their trading methods due to language barriers, meant that the use of Japanese candlestick formations could not become widespread until recent times.
As the candlesticks form, they begin to tell a story of the activity in the market, as well as reflect the mood of the market during that time. Candlesticks become the sign language of the market, communicating via certain forma- tions the future potential moves of the market, which is how profits are made—by projecting correctly where the market will go, not where it has been. Successful traders take the time to study and understand this visual lan- guage. Candlestick formations indicate clear buy and sell signals, commu- nicating to the trader when it is time to enter the market or to get out.
How well you understand candlestick formations can give you a significant advantage in the market. They will appear in the form of a single candlestick or a combination of more than one candlestick. There are hundreds of formations, yet only a handful of formations carry substantial weight when looking for a good entry point. A good entry point is described as a location where the market goes your way from the beginning. Let us see what a Japanese candlestick looks like and how it forms see Figure Candlesticks, which are composed of full bodies and wicks, measure price fluctuations within a certain period of time.
As prices move up or down from the opening, the body begins to form. If, from the opening price, prices move up and then close higher than the opening, it is a bullish candle. If prices begin to fall from the opening price and close lower than the opening, it is a bearish candle. For example, you can set your charts to provide you with 5-minute candlesticks, , , or minute candlesticks, even hourly, daily, weekly, monthly, or yearly. Candlesticks monitor price movement against time, providing traders with four key pieces of information for that specific time period: the opening price, the closing price, the highest price reached, and the lowest price reached.
Trading is a financial game involving two opponents: the bulls and bears. We all know that there are not actual bulls and bears trading in the market, but investors and traders who have invested either in a bullish direction or a bearish direction.
Both sides have clear objectives and want the market to move in their direction: bulls want the market to go up, or rally, to make higher highs, whereas the bears want to take the market down, or have it dip to make lower lows. The numbers to the far right indicate the price and the numbers at the bottom of the chart indicate the time period.
The very last candle to the right is the current candle, indicating the current price. All the previous candles, to the left of the current candle, have recorded the historic price movement during that time.
As you see in Figure , all the icons to the left, top, and right of the actual chart are your trading tools. HOW TO FIND A HIGH Highs are defined as a level where the market ceases to rally and U-turns in the opposite direction. A high can be considered a new level of resistance, or a higher price level achieved by the bulls that is interrupted and reversed by the bears. However, not all highs are major levels of resistance.
Only highs that are higher than the current market can be considered a level of resistance see Figure The levels of resistance noted in the above chart as R1, R2, R3, R4, and R5 become future price targets for the bulls to chase and move higher. Once they regain control of the market, they will aim to make higher highs and higher lows. The bears are maintaining control in the above chart, as the market is making lower lows and lower highs.
HOW TO FIND A LOW A low is defined as the level where the market ceases to drop. A low can be considered as a new level of support, or a lower price level that was achieved by the bears and then interrupted and reversed by the bulls; however, only lows that are lower than the current market level can be considered a level of support see Figure Once they gain control of the market again, they will aim to make lower lows and lower highs.
The bulls control the above market example. Although candlesticks may look alike, the 20 formations listed in Figure will provide you with a solid understanding of candlestick formations and their meanings. This is a bullish line if it occurs after a significant BULLISH PATTERN downtrend. If the line occurs after a significant uptrend, it is called a hanging man. A hammer is identified by a small body a small range between the open and closing prices and a long lower shadow the low is significantly lower than the open, high, and closes.
The body can be empty or filled in. PIERCING LINE. This is a bullish pattern and the opposite of a BULLISH PATTERN dark cloud cover. The first line, on the left, is a bearish line, and the second line is a bullish line. The second line opens lower than the first line's low but closes more than halfway above the first line's real body.
BULLISH PATTERN BULLISH PATTERN BULLISH ENGULFING LINES. This pattern is strongly bullish if it occurs after a significant downtrend it acts as a reversal pattern. It occurs when a small bearish line is engulfed by a large bullish line.
MORNING STAR. This is a bullish pattern signifying a potential bottom. The star, at the bottom between the two lines, indicates a possible reversal; the bullish line confirms this. The star can be empty or filled in. BULLISH DOJI STAR. A star indicates a reversal and a Doji BULLISH PATTERN indicates indecision.
Thus, this pattern usually indicates a reversal after an indecisive period. You should wait for a confirmation, as in the morning star in the previous pattern, before trading a Doji star. The first line can be empty or filled in. HANGING MAN. These lines are bearish if they occur after a BEARISH PATTERN significant uptrend, and if the pattern occurs after a significant downtrend, it is called a hammer. They are identified by small real bodies a small range between open and closing prices and a long lower shadow, that is, the low was significantly lower than the open, high, and close.
The bodies can be empty or filled in. This is a bearish pattern that is more significant if the second line's body is below the center of the previous line's body as illustrated. BEARISH ENGULFING LINES. This line is strong and bearish if it occurs after a significant uptrend—it acts as a reversal pattern.
It occurs when a small bullish line is engulfed by a large bearish line. EVENING STAR. This is a bearish pattern signifying a potential top. The star indicates a possible reversal, and the bearish line confirms it.
The star can be empty or filled in or it can be a Doji star. DOJI STAR. A star indicates a reversal and a Doji indicates indecision. You should wait for a confirmation, such as an evening star illustration, before trading a Doji star. BEARISH PATTERN BEARISH PATTERN BEARISH PATTERN SHOOTING STAR.
This pattern suggests a minor reversal when it appears after a rally. The star's body must appear near the low price, and the line should have a long upper shadow. LONG-LEGGED DOJI. This line often signifies a turning point. It occurs when the open and close are the same, and the range between the high and the low is relatively large. DRAGONFLY DOJI. This line also signifies a turning point. This pattern occurs when the open and the close are the same and the low is significantly lower than the open, high, and closing prices.
This line signifies another turning point. It occurs when the open, close, and low are the same, and the high is significantly higher than the open, low, and closing prices. Stars indicate reversals.
A star is a line with a small real body that occurs after a line with a much larger real body, where the real bodies do not overlap, although the shadows may. SPINNING TOPS. These are neutral lines. They occur when the distance between the high and the low, and the distance between the open and the close, are relatively small.
This line implies indecision because the security opened and closed at the same price. These lines can appear in several different patterns. DOUBLE DOJI. This implies a forceful move will follow a breakout from the current indecision. This pattern indicates a decrease NEUTRAL PATTERN in momentum. It occurs when a line with a small body falls within the area of a larger body.
In this example, a bullish line with a long body is followed by a weak bearish line and implies a decrease in the bullish momentum.
When it moves, the candlesticks provide a visual sign that monitors the strength or weakness of the market in a certain direction. However, there are two basic types of candlesticks: 1. Decision candlesticks 2. Indecision candlesticks Decision candlesticks are full-bodied bullish or bearish candles with rela- tively small wicks on either side.
They communicate to the trader that either the bulls or the bears are in control. The indecision candlestick formation is exactly the opposite, with small bodies and, in some cases, no bodies at all—just a line where the open and the close were at the same price with large wicks on either side or on both sides see Figure As the market moves, it creates visual waves, and the candlesticks form different patterns.
Movements are caused by investors entering and exiting the market. When there are more buyers than sellers, the market begins to rally; when there are more sellers than buyers, the market begins to dip, or decline; and when there are equal numbers of buyers and sellers, the market goes sideways. These patterns communicate the strength or weakness of the continued move. As the market moves, it waves, and the can- dlesticks form bullish and bearish reversal patterns.
These patterns are the sign language of the market and the buy and sell signals for the traders. The patterns communicate when it is time to get in and when it is time to get out. These patterns can become invaluable whenever they appear at the end of a downtrend in a smaller time frame, which many times is nothing more than the end of a retracement in a larger time frame. It is imperative to note that as the market moves sideways in a to pip trading range, the market may form all kinds of bullish and bearish candle- stick patterns, which should be ignored.
It is imperative not to trade these candlestick formations in small consolidated or sideways movement. The charts being used in this book have black and white candles— the black candles are bearish and the white are bullish. THE MORNING STAR BUY SIGNAL Figure A clearly shows the formation of the morning star.
What is important to note is that in the formation of morning stars, they start out with a bearish decision candle, followed by one, two, three, or even four indecision candles before the decision bullish candle appears.
In Figure B, a morning star appears at the bottom of the chart, signifying the end of the recent dip. A morning star forms when you have a large bear- ish decision candle followed by one or more indecision candles, which are followed by a bullish decision candle that closes beyond the 60 percent mark, or beyond the top half of the beginning bearish decision candle.
It indicates the market is U-turning. Investor Psychology Behind the Morning Star The bears are losing control and investors are no longer selling when you spot a morning star. More buyers have come into the market, which creates an equal number of buyers and sellers. In the end, more buyers step in and take control of the market. Bears are placed in hibernation, and bulls come out of their corrals in herds.
The final bullish candle of the formation sends ripples of greed throughout the trading community and a major rally takes place, especially when accompanied by significant trading volume. THE BULLISH ENGULFING PATTERN BUY SIGNAL A bullish engulfing candlestick formation often signifies the end of a down move, or a reversal. It can also be the turning point or the end of the retrace- ment in an uptrend see Figure A. An ideal bullish engulfing candle is formed when the candle opens lower than the close of the previous bearish decision candle, engulfing the previous two or three bearish candles.
This is a strong sign of a U-turn. The bulls are clearly taking control, as seen in Figure B. Traders with short positions make a quick dash to cover their exposure, and their rush to exit their positions adds power to the creation of the pattern.
The volume on the uptake component shows that the majority of traders have changed camp from bearish to bullish within the duration of one period. TWEEZER BOTTOM BULLISH FORMATION BUY SIGNAL Tweezer bottoms form when bears lose control. Buyers step in and create an environment of equal buyers and equal sellers, which forms two or more indecision candles.
Figure A shows the formations. When the market has been falling and a clear decision has been made by the bulls to take over, tweezer bottoms are formed. The market contin- ues to move down, and bearish candles are formed.
All of a sudden, an indecision candle appears, which means more bulls have started buying. We now have equal buyers and sellers. When bears attempt to take prices lower and bulls step in and buy more than bears, a long wick on the south side of a small-bodied candle forms.
A second attempt is made by the bears to take prices lower, with the same results, leaving another inde- cision candle with a long wick on the south side of the small body of the indecision candle, next to the last one. The lows of the two candles, as dis- played by the wicks, are usually at the same price or within a couple of pips difference, which now creates a new level of support. Anyone wanting to make a profit in this next rally needs to start buying right now! Because higher prices are likely to follow the formation of tweezer bottoms, as you see in Figure B.
Invester Psychology Behind the Tweezer Bottoms The bears have created lower prices, which have been tested, and new buy- ers have entered the market. As traders note more bullish participation, a rally is implied. The bears were unable to acquire the interest of more sell- ers and were not strong enough to hold prices down.
Several attempts for lower prices failed, as evidenced by the long wicks on the south side of the small-bodied candles. The tweezer bottoms are a sign of selling exhaustion. It is important to note that the tweezer bottoms do not need to be side- by-side; they can be several candles apart, as long as the lows of the wicks are close to each other, with only a difference of a few pips.
Such a forma- tion will create a level of support. These patterns can become invaluable whenever they appear at the end of an uptrend in a smaller time frame, which many times is nothing more than the end of a retracement in a larger time frame. It is imperative that you remember not to trade these candlesticks formations in small consolidated or sideways movement. THE EVENING STAR SELL SIGNAL Figure A shows what an evening star looks like.
What is important to note is that it starts out with a bullish decision candle, followed by perhaps one, two, three, even four indecision candles before the decision bearish candle appears.
In Figure B, an evening star appears at the top of the chart, signify- ing the end of the recent rally. An evening star forms when you have a large bullish decision candle, followed by one or more indecision candles, which are followed by a bearish decision candle that closes beyond the 60 percent mark, or beyond the bottom half of the beginning bullish decision candle.
It signifies the market is U-turning. If the last bearish candle closes above the halfway point of the first bullish candle of the formation, it is a sign of continued bullish sentiment. Investor Psychology Behind the Evening Star In Figure B, the bulls start out rallying like a rocket going to the moon, driving prices higher.
Initially, it seems nothing can stop them. These initial candles reinforce the bullish sentiment. All of a sudden, a spinning top appears—a sign of indecision—in the form of a small indecision candle. It is quickly followed by a bearish decision candle and the session quickly U-turns. The bulls lose control and investors are no longer buying. More sellers come into the market, which creates the dip in prices. Bulls run for cover and begin liquidating their bullish positions, which adds to the bearish momentum.
In the end, more sellers step in and take control of the market. Bulls are corralled and bears come out of hibernation. The final bearish candle of the formation sends ripples of fear throughout the trading community and a major sell-off takes place, especially when accompanied by significant trading volume.
THE BEARISH ENGULFING PATTERN SELL SIGNAL A bearish engulfing candlestick often signifies the end of an up move, or a reversal. It can also be the turning point or end of the retracement in a downtrend, as seen in Figure B. The opening price of the bearish engulfing candle must be higher than the close of the previous bullish candle and the closing price of the bearish engulfing candle must be lower than the open of the previous bullish candle. The prototypical bearish engulf- ing candle occurs when the open of the bearish engulfing candle opens higher than the close of the previous bullish decision candles and engulfs several previous bullish candles.
This is a strong sign of a U-turn when the bears are taking control. Investor Psychology Behind the Bearish Engulfing Pattern On an emotional level, a devastating blow has been swiftly delivered to the bulls when an engulfing bearish candle appears. Those feeling optimistic and buoyant about the upward market direction have been proverbially kicked in the teeth. Traders with long positions make a quick dash to cover their exposure, and their rush to exit their positions adds power to the creation of the bearish engulfing pattern.
Within the duration of one period, the majority of traders have changed camp from a bullish perspective to a bearish orientation. TWEEZER TOP FORMATION SELL SIGNAL Tweezer tops form when bulls lose control.
Sellers step in and balance out the numbers of buyers, which forms two or more indecision candles see Figure A. In Figure B, the market has been rallying, but a clear decision has been made by the bears to take over, observed via the formation of tweezer tops. As the market was moving up, bullish candles were forming.
Then all of a sudden, an indecision candle appears, which means more bears have stepped in selling. There are now equal buyers and sellers.
A tweezer top formation starts out with a bullish decision candle, followed by perhaps one, two, three, or even four indecision candles, as seen in Figure A. A tweezer top appears when the bulls attempt to take prices higher and bears step in and sell more than the bulls, creating a long wick on the north side of a small-bodied candle. A second attempt is made by the bulls to take prices higher, with the same results, leaving another indecision candle with a long wick, on the north side of the small body of the indecision candle next to the last one.
The highs of the two candles, as displayed by the wicks, are usually at the same price or within a couple of pips difference, which now creates a new level of resistance. Anyone wanting to make a profit in this next dip needs to start selling right now!
Because lower prices are likely to follow the formation of this pattern, as shown in Figure B. Indecision candles have formed next to each other and, in this case, three in a row, as seen in Figure B. With such resistance, the market collapses. With increased bearish participation, bears enter the market charging, and the result will be a dip. Shortly after the dip, the bulls try one last time to see if they can attract any more buying interest. It is important to note that the failed attempt of the bulls to create higher prices formed the tweezer tops, although they do not need to be side by side.
Your common sense is an excellent guide as well. For example, your common sense should tell you that in a downtrend, only trade bearish candlestick formations, not bullish. Because you are trading in the direction of the trend where the market strength is. You have a greater probability of the market moving in your direction after entry versus fighting against the trend. Obviously, you would do the oppo- site in an uptrend. When you trade in the direction of the trend, you will always have the market movement on your side, pushing the market in the direction of the current trend.
In trading any candlestick formation, you must wait until the last candle closes before you enter the market because the market may not necessarily react immediately after the candlestick formation has formed.
Keep in mind that as long as you have your stop-loss orders in place, you are protected. The market will move on its own timetable—not yours. You have no control of the future movement of the market. No one knows where the next pip will go.
As long as the candles are above the outer moving uptrend line, you should enter buying bullish candlestick formations and exit selling bearish candlestick formations; the opposite applies in a downtrend. When the candles are below the outer moving trend line, enter selling bearish candle- stick formations and exit buying bullish candlestick formations, as shown in Figure Trading is a game of probabilities and to put the probability of success in your favor, it is always helpful to compile more than one piece of evi- dence that the market will potentially U-turn and move in your direction at the price level you enter.
In other words, success is increased if you have more than one educated reason to enter the market. When you have more than one good reason to enter a trade, that is what is called creating a con- vergence. This is, in essence, nothing more than building a case as to why the market is going to turn at that location.
Why is it that all of a sudden, at one number, the market creates a candlestick formation and changes direction or U-turns? It is almost as if there was a conspiracy taking place among a group of traders. We all know that is impossible, because there is no Forex building or pit filled with Forex traders who could manipulate prices. My sense is that nature must stay in balance, and nature takes whatever course it must to remain in bal- ance.
As human beings, we are part of nature and because we are the ones trading in the market, it is our buying and selling that make the movement in this market. The market is part of nature and will take whatever course it must to remain in balance, as you will see in Chapter 9.
Nature can provide signs on our path to success of which I know most people never think about it. However, those individuals who try to understand it and tap into the potential it holds are the people who will benefit most and live fulfilling and wonderful lives. I thought about all the trading opportunities I had missed over the years, due to the fact that I was not educated or ready to read the signs of success the market provided, like the evening stars and morning stars.
If learning to become a successful trader is something you really want to achieve, you will need to prepare yourself to read the signs of the market. It is there you will find success. It is a game played on a daily basis by two teams, or two types of investors on opposite sides of a trade. The bulls want the market to go up. The bears want the market to go down. The two sides are in constant, unrelenting bat- tle, fighting for control of the trading territory.
Some make millions while others keep hoping the market will turn in their favor as they continue to root for their team—the bulls or the bears. It sounds crazy when you hear that a trillion-dollar financial market works this way, but it does. Like any game in our lives, there are objectives, rules, and penalties. Each side is trying to get ahead by scoring points, following the rules of the game.
You must obey the rules if you are planning to succeed in trading. If you break them, you are more than penalized— you fail. It is a fascinating book that relates how, at one point, the president of the bank had not placed the proper controls over what his Forex traders were doing and describes the calamity that resulted.
Because of the lack of rules or oversight, a rogue group of Forex traders began to take huge financial positions in various currencies. In time, they started adding to their losing positions in hopes that they could cost average down which is the term used in a trading strategy where additional positions are taken in the same direction at lower prices from the original entry, in an attempt to average out your buying price.
Like any group of kids that find themselves in major trouble, the traders agreed to hide their misdeeds. However, as is usually the case with wrong- doing, one eventually will become so guilt ridden that the individual has to spill the beans, and this situation is no different.
At the beginning of the investigation, it was determined that no real crime was committed by the traders—they were just irresponsible.
The shareholders of the bank immediately demanded that the bank president be fired because of his lack of control over the bank. As the investigation continued, many believed the only real crime committed was that of ASIC, which demanded the bank liquidate its positions. This was clearly unfortunate for the bank, because soon after all positions were liqui- dated and losses realized, all the currencies took off in the opposite direc- tion.
If the four rogue traders had maintained their silence and just held onto those positions for one more month, they would have recovered from all their unrealized losses and probably would have made millions for the bank. This would have turned the bank president into a hero instead of a fired zero!
The reality of the market and the amazing part of this story is that rule breakers are just as necessary as rule makers, and in the end the disciplined trader who abides by the rules makes a profit. Pension plans? Brokerage firms? Investment firms? Financial institutions?
Individuals trade in the financials markets—human beings with human thoughts, human feelings, human emotions, and human fears. Humans who represent the organizations listed above make multimillion-dollar financial decisions. THE GAME Here is how it works. Bulls and bears fight aggressively to make the mar- ket go their way.
For the Forex market to trade, there must be someone buy- ing and someone selling simultaneously. In other words, one trader must be a bull going long and one must be a bear going short. It introduces each strategy, before outlining its pros and cons. Currency Trading For Dummies is a hands-on guide that explains how the Forex markets work and how you can become part of it.
It touches on currency trading conventions, terminology, the characteristics of successful traders and risk management rules to protect your capital. The third edition of Day Trading and Swing Trading the Currency Market describes technical and fundamental trading strategies to help you succeed in the Forex market.
It touches on inter-market relationships, interest rate differentials, option volatilities and news trading. The author also covers the best time to trade currencies and the unique characteristics of certain currency pairs. In this factsheet, the U. Securities and Exchange Commission touches on the unique characteristics of the Forex market, and draws attention to its inherent risks. It explains why leverage matters, and how it can bring about losses that exceed your entire investment in the absence of negative balance protection.
In this presentation, IFC Markets provides a high-level overview of the many different Forex trading strategies you may encounter. It organises these into different families, such as trading strategies built around technical analysis, fundamental analysis, trading style and order types.
In this article, GFT introduces Forex trading and explains the meaning of 'pips', 'leverage' and 'lots'. It maps out the steps you can take to make your first trade, and suggests ways to create a trading plan.
In this hands-on guide, IFC Markets explains what every new Forex trader should know about the currency markets. Understand how to read a Forex quote and place an order. This guide also introduces fundamental and technical analysis concepts, and highlights popular indicators.
The Little Book of Currency Trading explains how you can make the most of opportunities possible in the Forex market, from short-term price swings to long-term trends.
It also highlights specific instruments that can help you achieve success, such as currency-based ETFs. In this factsheet, the National Futures Association highlights issues you should consider before trading Forex.
It helps you answer simple questions such as how much money you should invest, how to calculate your profit and close a trade. It also highlights risks that are specific to Forex trading. Disclaimer: TrustedBrokers.
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Laszlo Erdelyi. Sidik Prihantoro. wilson putra. this is something you have looking for when making serious decision about Dollar investment stuff. Log in with Facebook Log in with Google. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link.
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This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise. DOI: We hope you enjoy this McGraw-Hill eBook! Dedication I T IS WITH THE utmost respect and my sincere admiration that I dedicate this book to my wife Susan; who has helped me watch my thoughts as they became my words, helped me watch my words as they became my actions, helped me watch my actions as they became my habits, helped me watch my habits as they became my character, and most importantly helped me build my character, which ultimately protected our destiny.
She is my partner for life! I further dedicate it to our eight children and three grand children, who have been a miracle in my life and forced me to stay humble. Thank you for being the grinding stone in my life. some days you really ground me down, but most days, you really polished me up allowing, me to shine. May you all enjoy each day of your life—I love you all!
In addition, I would like to thank all our staff and worldwide partners at MTI for their dedication, support and belief in our vision.
You are not only great business partners, but have become some of my best friends. I want to give special thanks to the founding members of our MTI team: Jonathan Schneider, Pedro De Sousa, Jeff Todd, Mauricio Passaro, Rob Rawson, Frank Josenhans, Sam Sego, Rick Purifoy, Nickie Hube, Rachael Martinez, Ricard Mouton, Kevin McGowen, Dennis Du Plessis, Cassie Van Wyk and Hector Ruiz.
I am deeply grateful to Jeanne Glasser and all the staff at McGraw-Hill who have participated in bringing this book to market. Thank you for believing in me. I cannot finish my acknowledgements without recognizing my parents who constantly grounded me in an attempt to harness my adventurous spirit.
I give tribute to you all! For more information about this title, click here Contents Dedication v Acknowledgments vii Introduction xv 1 So You Want to Trade FOREX? Forex, or the foreign exchange market, offers incredible financial opportunity for those who are ready for the adventure, but it can be disastrous and financially devastating for those who are unprepared.
My focus as an author is to be a mentor to those readers eager to enter the world of Forex trading. Some of the material in this book took me years to discover, develop, and just plain figure out. I hope you will realize that this book, although written primarily for traders, is ultimately about self-improvement. I have discovered that no one can become successful at trading, or for that matter at anything, without first establishing their personal constitution. It is this aspect of yourself that either destroys you or allows you to succeed in life, and that includes Forex.
To be successful in your financial journey, you will need to be prepared for what the market demands the most—change and discipline! If you can- not find the courage to change and then remain disciplined to that change, you will be unable to develop a trading strategy that aligns with your per- sonality and your perception of life.
If you can learn the when and the why, you will be able to make market movements work for you allowing you to capture the majority of potential profit from the move. When you do this, you have discovered your personal holy grail in trading!
I believe this book can become your holy grail if you let it! Trading needs to be fun, emotionally exciting, personally and finan- cially fulfilling, and stress-free. If you are going to be successful at trading, you will need to acquire a trading strategy that is easy to execute, easy to Copyright © by The McGraw-Hill Companies, Inc. You will also need to master your emotions. Success lies in mastering four skills, three of them technical. These technical skills include knowing: 1.
How to find market direction in any time frame, anytime, 24 hours a day. How to establish a successful entry strategy that works consistently. Every trader wants the market to move in his or her direction from entry.
How to create two solid exit strategies: one to protect yourself financially should the market not go your way, and one to capture profit if it does. The remaining skill is more difficult; it is learning how to overcome the battle that takes place in your mind. Believe it or not, our daily destructive habits hold us back from achieving what is rightfully ours in this life. Learning to become a successful currency trader is a dream highly sought after by countless people around the world.
I am here to tell you that it is a worthy and attainable dream. Dreams are attainable! However, there is a set of steps that needs to be mastered in order to make your dreams come true.
This book will help you to learn these steps and to acquire the courage and commit- ment to take them. Always remember that man was not created to just get by—he was created to reach his highest potential! TWO WOLVES One evening, a very wise, old Indian chief was speaking with his grand-son about life, telling him about the internal battle that goes on inside all people.
One wolf is very evil. It forces you to deal with anger, envy, jealousy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, and a self-centered, destructive ego. The other wolf is good. It helps you to experience joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, compassion, faith, self-respect, and to develop a giving, constructive ego.
These materials are created by professionals whose guidance 1 Copyright © by The McGraw-Hill Companies, Inc. There are successful people who have either been taught by a mentor, acquired some special knowledge, or implemented disciplines that enabled them to achieve their financial goals.
The saddest part about this process is that most people do not display the sufficient humility and open-mindedness to acquire all this information and mentorship at an early stage in their lives. I am adamant about one thing: if you are on the hunt for success in any field or any walk of life and have not yet acquired it, then perhaps you have been looking in the wrong places. The reason is universal: successful people focus on feeding the good wolf. Individuals who manage their mediocrity or poverty in life are focused on feeding the wrong wolf—the evil wolf.
They carry around past emotional baggage and, in time, it becomes so heavy that all they can think about is survival. This mindset seriously affects their personality, performance, and ability to maintain emotional control, which is essential for success in life and success in trading.
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Forex is an acronym for foreign exchange, a market where people exchange the currency of one country for the currency of another in order to do busi- ness internationally. This PDF contains Chapter 5 from Mario Singh's book titled 17 Proven Currency Trading Strategies. As you see in Figure , all the icons to the left, top, and right of the actual chart are your trading tools. Humans who represent the organizations listed above make multimillion-dollar financial decisions. This training manual also comes with practice questions. You can create a trading strategy that aligns with your personality, program it into a system, back-test it, and, if it is productive, have the trading system send you alerts via e-mail or cell phone when an entry and or exit signal is triggered see Figure How to establish a successful entry strategy that works consistently.He also pointed out that during the last year of school, 48 percent of the students in the graduating class had dropped out. To break even, the market would need to move up 4 pips in your direction. I called your office and they told me all about you, so I came here because I was told you could teach me how to trade on the Forex and make money. This labor-intensive step, forex trading ebook free download, as well as the fact that many Japanese traders could not properly communicate or forex trading ebook free download their trading methods due to language barriers, meant that the use of Japanese candlestick formations could not become widespread until recent times. Avoid this fate—be a promise keeper.