The KISS Forex Trading Approach Part II

So today I am going to continue where we left off last post.  As I was saying, I truly believe the more you can strip down and simplify your trading the more success you will ultimately find.

In my humble opinion I would also say that watching previous support and resistance levels or zones on the higher time frames (4 Hour / Daily) to see how price reacts at those levels can be an extremely powerful and simple strategy when it comes to forex trading.

In my last post I expressed that price can really only do one of three things when it reaches these levels if you think about it.  1. It can push through and keep on going, 2. It can bounce and reverse back the other way, or 3. It can stall out and consolidate for a while (sideways) before continuing in the same direction or reversing.

Take a look at the chart below which shows the UsdChf currency pair from last week on the 4 Hour chart.

20140831_usdchf

The 4 Hour chart is my personal favorite to trade from.  As you can see from the chart above I mark support and resistance levels (ie. bounces).   Once the recent support and resistance levels are marked out you simply wait until price approaches one of the levels.  I usually check my charts twice per day for potential trading opportunities, (once in the morning and once in the evening), which is usually often enough if you are working from the 4 Hour chart.

As you can see from the chart above the UsdChf has been in a bit of an uptrend lately.  There was a recent bounce (support) at about the 0.9135 level on August 26th before it kept going bullish.  Price then retraced back toward this support level on August 28th.  What did price do?  As you can see price temporarily broke through the support level, but then quickly reversed with a nice bullish engulfing bar.  What did this price action tell us?  Well to me, this was a big clue that this support level was likely to hold, and price was likely to continue going bullish.

What did price do next?   Well it did pull back slightly toward the support level again, but then pushed nicely upwards about 45 pips toward a recent resistance level before the market closed for the weekend.

At these key levels I am typically looking for one of several candle patterns as a clue that the level may hold.  One is an engulfing bar that engulfs one or more of the previous bars, and is going in the opposite direction.  This is what happened in the chart above.

Another candle pattern to look out for is known as a “pin bar” or shooting star shown below.

pinbar

This candle pattern forms with a long tail and a small head.  The pin bar on the left is what is known as a bearish pin bar, and the pin bar on the right is known as a bullish pin bar.  A bearish pin bar may indicate that price may continue dropping (bearish) and a bullish pin bar may indicate that price may continue rising (bullish).  Why this pattern is significant is that it also shows that price is moving in one direction, but then quickly rejects that level and moves in the opposite direction.

The final pattern that I watch out for is basically the same as the pin bar, but instead of the reversal action happening during one candle it is spread out over two candles.  This is known as the ‘2 candle reversal” shown below.

2barreversal

The 2 candle reversal patter on the left would be a bearish signal as price moved up but rejected the upper level and moved back down.  The 2 candle reversal patter on the right would be a bullish signal as price moved down but rejected the lower level and moved back up.

Just one more comment about the UsdChf above.  Personally I usually only enter a trade if I can get a 1:2 risk vs reward from the trade.  Most often you will need to wait for a bit of a pull back toward your support or resistance level before entering in order to get in at a good enough price.  In my next post I will talk more about good ways to choose your stop loss and take profit values even before you enter the trade, so that you can get a 1:2 risk vs. reward if the trade is successful.

I also believe that choosing your stop loss and take profit levels before you even enter the trade is very very important, because it takes much of the emotion, decision making and objectiveness out of the trade once you are in.  Believe it or not, but your thinking and decision making process is at its clearest and most objective before you enter the trade and have money on the line.  As soon as you are in the trade your objectivity goes down, and emotions such as fear and greed often begin to take over!  Getting a handle on these emotions can be one of the most difficult aspects of trading.  Well more on these issues in the next post.

I hope you enjoyed this post and if you did I kindly ask that you share, like, or comment.  Have a great day 🙂

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The KISS Forex Trading Approach

Hello all, I hope you are having a great summer!  Summer is a time for enjoying the outdoors as much as possible, which I have also been trying to take full advantage of before another winter sets in.  But now that we are getting closer to fall time, and getting closer to increased volatility in the forex markets as summer comes to end, my attention is turning back to forex trading again.

I just wanted to write a little today about what I believe makes a profitable forex trading plan.  Like most things in life I truly believe that the more simple you can keep your trading plan the more profitable you will be.  I think we all have this instinctive idea in our minds, either consciously or subconsciously, that a forex trading plan needs to be complex in order to be profitable.  However, I personally believe the opposite to be true.  In my humble opinion the more you can simplify your approach to trading the more success you will find.

Keep it Simple

In this blog post I am going to intentionally over simplify things but I plan to get into more detail in my posts to follow.

If you have been following my blog for any length of time you will know that I am a strong believer in trading with clean charts on the higher time frames.  What do I mean by clean charts?  I mean using very few, if any, indicators, and relying on price alone for clues as to what a particular currency pair may do next.

By saying that I rely on price, what I mean is that I am primarily looking at support and resistance levels, and what price is doing at those levels.  As price approaches these historic support and resistance levels we should be getting ready to observe the valuable clues that the market is offering.

Price can really only do one of three things once it reaches a key support or resistance level: 1) break through and keep on going, 2) reject the level and reverse in the opposite direction, or 3) stall or consolidate at that level for some time before moving in either direction.

In my next post I will discuss a little more about the type of candle pattern formations that often occur at these key support and resistance levels, and if carefully observed will provide high probability trading opportunities.

Have a great day and stay tuned for the next post!

 

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Forex Trend Trading: Where it’s at!

Hello all!  Firstly let me apologize for my lengthy absence.  I have simply just had too many irons in the fire over the last couple of months, and my “baby”, this blog has suffered as a result.  But I am back on track and plan to continue providing consistent great forex tips and content.

As you all know I am a big fan of both price action trading and trading with the trend.  “The Trend is Your Friend”, we have all heard this saying over and over, because it is true!  Traders often try to over complicate their trading.

I liken trading with the trend to swimming down a river with the current.  It is infinitely easier to swim with the current then trying to swim against the current, wouldn’t you agree?  Most often when traders try to trade against a predominant trend, and or are trying to pick tops and bottoms, they end of getting “run over” by the market, and have their stop losses hit.

rushing_river

Trading with the trend is one of the simplest ways you can greatly increase your chances of success on any particular trade.  When I speak about trend trading, I am not talking about a trend on the 1 minute or 5 minute chart either.  I am talking about a clear definable trend visible on the daily or 4 hour charts.

All this talk about trend trading is going to lead us nicely in to an exciting post I have planned for next time.  I am going to provide a review on a great forex tool that I have been using to help me simply spot an existing trend and also helps me in an objective manner pick my entry point.  I really have been loving this tool so far and want to share this with you next time.

Again I hope you have enjoyed this post and if so please comment, share and like!

Until next time, have a great day all! 🙂

Serge

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Does the Fibonacci Indicator have Merit?

Today I would like to talk a little about the Fibonacci indicator.   For those of you who are not familiar with Fibonacci,  he was a mathematician from the 13th century who helped come up with a mathematical principal that there are is a pattern or sequence of numbers that tend to repeat themselves and that this pattern or sequence tends to repeat itself everywhere we look in nature.

fibonacci

The theory with Fibonacci sequences as they relate to trading or specifically Forex Trading is that by using Fibonacci numbers traders can potentially predict how far a trend will retrace before the trend resumes and continues on its way, and also how far a trend may potentially run before it is exhausted.  Assuming there is merit to this theory wouldn’t you agree that this would be very very valuable information for a trader?

Now to be honest I have taken a look at Fibonacci a few times over the last 6 or 7 years and I have been rather dismissive.  The problems I always had with Fibonacci is that I found it too subjective and honestly too confusing to be of any value.  I always found myself struggling where where to draw and plot the Fibonacci retracement and extension tools.  Eventually I would give up and continue with other things.

Recently I have given Fibonacci another look and I am really glad I did.  A little while back I came across the website www.fxknight.com which is run by a very well known Forex Trader named Andrei Knight.  I spent some time going through Mr. Knight’s free webinars and tutorials on how he uses Fibonacci to trade and I must say I was blown away.  As I was going through his tutorials and actually plotting the Fibonacci tool on my charts it was scary how often price would come to the levels plotted by the Fibonacci tool and either bounce from these levels as resistance or support, or go through the level and come back to retest them as new resistance or support.

Lets look at an example of how this works on the EurUsd Daily Chart below.

20131026eurusddaily

The EurUsd currency pair has been on a nice consistent uptrend the last few months.  Could Fibonacci be used to predict how far this trend may go or at what levels along the way may act as support or resistance?  Well you be the judge.

You will notice the letters A, B, C, and D drawn in Red.  The idea behind using Fibonacci is you look for the start of a trend which is A.  Then you look for the first major reversal or correction in the trend, which is Point B.  These are the only two points you need to worry about and plot on your chart.  The theory goes that statistically price will most often retrace to the 38.2, 50.0, or 61.8 level before the trend then resumes. You will notice on the EurUsd chart above price retraced to the 50.0 level almost to the pip before the trend continued on its way.  Now take a close look at all the other Fib level drawn by the tool.  Do you notice how price would react with those levels almost to the pip on most occasions?  This really amazed me and caught my attention.

Now you are probably asking how can I use this to predict how far the trend will run before exhausting.  Well according to Mr. Knight and other proponents of Fibonacci here is how it works.  If price retraces to the 38.2 level before continuing on its way, price will most likely make it all the way to the 138.2 level before exhausting and turning around.  If price retraces to the 50.0 level before continuing on its way, price will most likely make it all the way to the 161.8 level before exhausting and turning around.  If price retraces to the 61.8 level before continuing on its way, price will also most likely make it all the way to the 161.8 level before exhausting and turning around.

I would encourage you to go ahead and start plotting some fibonacci’s on your own charts and back test this theory.  I suspect you may be quite impressed and surprised at how accurate this theory really is.

Now at this point you are also probably also asking “how did he get his fibonacci tool to draw the retrace lines and the extension lines all at once like that?”.  Well that is a very good question.  If you are using the metatrader default Fibonacci indicator tools there is one for the retrace and one for the extension but it does not have both combined as it is showing on my chart above.  On Mr. Knight’s website he provides a pdf with step by step instructions how to very easily change the setting on your MT4 Fib tool so that it can be used like this.  Here is the link to his pdf instructions:  click here.

If this post was of interest to you I would highly recommend that you check out www.fxknight.com. He has a ton of free Fibonacci webinars and information to help you navagate your way through this.  The other thing I like about Fibonacci is that it works very well with the price action principles that I usually use in my trading.

Below is a sample of one of Andrei Knight’s great Fibonacci Webinars:

Well if you have enjoyed this post I would kindly ask that you comment, like or share 🙂

Also please remember the information on this blog is for educational purposes only and not to be taken as trading advice.

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Trading the GBPUSD using Price Action Techniques

Hello all, first off I have to apologize for the long gap in time since my last blog post.  I have been very busy with moving and many other things over the summer and as a result my blog has been somewhat neglected.

Now that the summer is over and the big money movers are back from their summer vacations and back in the market things are rolling again.  In today’s post I would just like to walk you through a recent example of a very nice forex price action trade which occurred on the GbpUsd Daily chart.

2013-09-07_GbpUsd

As you can see from the chart above GbpUsd has generally been in an uptrend over the last couple of months.  Personally I generally only stick to trade signals in the direction of the trend as there is less risk involved.

There is a fairly key support zone at the 1.5400 level that price retraced to on August 28, 2013.  When we have a retrace to a recent support level in an uptrend we want to be on high alert for a possible trade opportunity.  The GbpUsd provided us with such an opportunity.

As you can see from the chart a very prominent bullish pin bar developed off of this support level telling us that the support level was likely going to hold and the bears may be losing steam.  The pin bar is one of the key price action signals that indicates price may be about to change direction.  The pin bar occurring at a strong level of support or resistance which also occurs in the direction of the trend is a very powerful setup.

Generally there are two ways you can enter these types of trades.  The conservative approach is to wait for price to break the top of the pin bar which confirms that the bulls are back in control and price is on its way up.  Waiting for price to break the nose of the pin lowers the risk factor somewhat but the tradeoff is that your risk vs. reward on the trade will be lower.

The more aggressive approach is to enter at approximately the 50% retrace level on the pin bar.  In the example above the entry long would have been at about the 1.5500 level.  This is how I chose to enter the trade.  Sometimes price will not retrace at all and will just shoot upward and those waiting for a retrace to enter will miss out on the trade.

As you can see above price has been climbing higher quite nicely over the last 5 or 6 days.  I have marked two key levels of resistance on the chart.  It is wise to mark out these levels even before you enter the trade because you need to plan exactly how you are going to manage the trade ahead of time.  As price reaches these resistance levels it will likely stall or could even reverse on us.  One technique to lower risk is to move your stop to break even as price approaches the 1st resistance level and even take some of your profit.  That way you have taken some profit and now are in a risk free trade.

Now I have to be completely honest here. I did not stick to my trading plan and let price do its thing.  When the two consecutive bearish pin bars formed on September 2nd and 3rd closed out my entire position with a small profit.  I took the two bearish pin bars as a signal that price may reverse on me so I got out.  It is important to plan your trade prior to entering the market and have the discipline to stick to your trading plan.  Had I stuck to my trading plan I would have closed out half my position with more profit, and been in a risk free trade approaching my second take profit level of 1.5700.

If Price Action trading is something that appeals to you I would highly recommend checking out DNB Forex Price Action Membership.  I have been a member of the DNB Price Action War Room for quite some time now and I can honestly say if you are serious about trading forex, the low one time membership fee is totally worth it.

To check out my recent review blog post on the DNB Forex Price Action Membership Click Here.

Well that’s all for now.  If you enjoyed this post please comment share or like 🙂

Cheers.

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5 Essentials for Success in the Forex Market

More and more individuals are taking a look and dabbling with forex trading these days.  Often lured in by the promise of quick and easy returns with minimal work on their part.  The reality is that most new traders eventually blow an account or two before realizing that forex trading is not a short cut to easy money.  Having said that there are a few simple principles that can greatly improve your chances of success in becoming successful in the forex market and achieving your trading goals.

1. Believe in yourself.

As is the case with most things in life, you need to put the initial time and work into developing your craft. But just as important you need to have confidence in yourself to put your education and well thought out trading plan into action.  90% of Forex Trading comes down to psychology and not second guessing yourself part way through a trade.  As long as you have taken the time to formulate a sound trading plan and execute that trading plan, for the most part the decision making is done by the time you enter a trade and you need to have confidence in yourself and your trading decision.  Many a trader have closed out a trade with a small loss only to have the trade continue on in the predicted direction and reaching their original take profit level.

2. Be prepared to invest the time and have losing trades.

You will have losing trades in Forex period.  Anyone who tells you otherwise is lying to you and likely trying to sell you something.  This is why it is important to educate yourself, and perfect your trading plan on a demo account until you have built up the confidence to move to a live, real money account.  This is what is so great about Forex, you can actually trade to your heart’s content without risking a penny of your own money.  Almost every broker out there provides a demo account to practice on, so you really need to take advantage of this.  Now there are some psychological differences between trading demo money and trading with real money which will not be encountered until you shift over to a real money account.  Again it is important to ease your way into this.  Once you have been making consistent and steady profits for at least a few months on a demo account, and feel you are ready to put real money on the line, why not open a micro account.  Many brokers will allow you to open an account with as little as $250.00 and trade micro lots.  This will expose you to the psychological factors associated with trading real money without risking the farm. 

3. What type of trader are you?

There are about as many ways to trade forex as there are people trading the forex market. Some traders seem to need constant action, others are very patient and deliberate in their trading.  Eventually you will need to develop a trading style that fits your personality.  Again you will take this self discovery journey on a demo account, leaving your real money intact until you are truly ready for live trading.

4. Educate yourself on Forex

There is an old saying that “if it sounds too good to be true it probably is”.  Many vendors selling forex software or products play on your emotions by making promises of forex riches with little or no work on your part.  Forex is like anything else in life, you get out what you put in.  Do yourself a favour if you plan to take forex trading seriously and take the time to educate yourself on forex trading strategies. There are a few really great mentors out there, that will provide you with a real education at a very reasonable cost.  I will discuss this a bit more at the end of this article.

5. Avoid the next “shiny object” syndrome

Many new forex traders stumble across a particular trading strategy, try it out for a while, don’t have instant success, and move on to the next “holy grail”.  People can go through this cycle for years, moving from one forex system to the next.  Now assuming you have come across a legitimate forex system, strategy or plan, and not some push button garbage software, it is still going to take time.  As previously mentioned forex trading is more about the trader then even the strategy itself.  A very sound and potentially profitable trading strategy will still not provide profitable results for a trader if that trader has not taken the time to make it their own.  This takes time, and one should demo trade, demo trade and demo trade some more. 

Money management is another key element for success.  Risking too much on a single trade, and proper stop loss placement are essential to long term profitability.  So before you give up on your current trading strategy, and move on to the next “shiny” new system, ask yourself if you have really taken the time to make the system your own and work on yourself as a trader.

DNB Forex Price Action Membership:

If your looking for a great forex mentor, and a place to begin a sound forex education I would strongly suggest checking out the DNB Forex Price Action War Room.  The DNB membership provides a very thorough and complete trading guide (Price Action Protocol), chart of the day analysis, weekly market analysis, an interactive and highly educational chat forum, and much more.  I have previously posted a review of the DNB forex price action membership on my blog which you can check out by clicking here.

You can also check out the DNB Forex Price Action Course directly for yourself by clicking here.

If you have enjoyed this post please, comment, share and like 🙂

Have a great day.

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Has USDJPY Found Support?

Hello everyone how was your weekend? Well its another Sunday and time for another quick chart analysis. Today I will be discussing the USDJPY currency pair with reference to the daily chart below.  Since about October, 2012 this Yen pair has been steadily trending higher, however there has been a fairly serious 600 pip correction over the last 3 weeks to the 97.00 support level.

2013-06-09_USDJPY

As you can see a very prominent bullish pin par at this support zone.  Now some extra caution should be afforded to this potential signal for a couple reasons.  Firstly it occurred on a Friday.  Many traders who were short last week may have decided to take profit before the close of the trading week which could account for the pin bar formation.  Secondly, when the market opened up again about an hour ago we notice that price has gapped up above the pin bar.  I was hoping that price would have gapped down toward the centre of the pin bar giving a better entry point and a better risk to reward on the potential trade.

Having said that the pin bar is very prominent and I will be paying attention to price over the next little while to see if price retraces to provide a tradeable entry point.

We’ll that does it for this post, and if you enjoy this blog please comment, share, like and join our newsletter!

Cheers! 🙂

Serge

Disclaimer: This blog post is meant for informational purposes only and is not to be taken as trading adivice.

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Potential AUDCAD Daily Forex Setup

Hello all I hope you are having a relaxing and restful weekend.

I was looking at my charts this evening and just wanted to throw up a quick post regarding the AudCad currency pair on the daily chart. As you can see on the chart below the AudCad has been in a fairly strong down move for about a month now. I think it is safe to say the current trend is down so personally I would only be looking to short this pair until there is a clear indication that the trend has reversed.

You will also see on my chart below that I have marked the level around 1.0421 as a key level. This level has acted as both resistance and support in the past. So I will be watching this pair closely as it approaches this resistance level in the upcoming days. Assuming price actually continues higher and reaches this resistance zone I will be looking for some clues that price may provide as to whether this pair is continue up and break past this level, or whether the bulls will have lost steam and price will continue back down with the trend.

These clues are based on price action and may include pin bars, dojis, a bearinsh engulfing bar, or price may just possibly consolidate for a while around this zone.

It will be interesting to see what happens with this pair over the next few days and I will do my best to do a follow up post if a trade signal materializes for us!

Well that is all for now. If you enjoyed this post I encourage you to comment, share and like 🙂

Cheers
20130503_AudCad

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Gold Heading South Again?

Hello all, I decided to enter a short order on Gold today at 1459. Here is my analysis and thoughts with reference to the daily chart below.

In my opinion there is a resistance zone at the 1478 region. This level acted as support back in July, 2011. Price is currently in a downtrend but has retraced to this resistance level, and has also retraced to the 20 EMA providing confluence.

We had an indecision bar at this resistance level on April 26th, followed by two inside day candles, one of which was a doji (or almost a doji depending on how picky you are). Today price broke below the low of the first inside day bar and that is what I used as my trigger to go short.

I have set my stop loss above the high of the indecision bar at 1487 and a take profit at 1406. I selected 1406 as my TP because this level appeared to act as brief resistance and brief support on prices way up to 1487 so I suspect price may stall here again. This TP level almost provides a 2:1 risk vs. reward.

Once again this post is meant for educational purposes only and is not to be taken as trading advice.

If you enjoyed this post please post, comment share and like!

Cheers 🙂

20130501_Gold

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Nice Pin Bar on the GBPNZD 8HR

Hello all I hope you are having a great Sunday. I have taken some time to look over my charts today to get ready for another trading week and thought I would draw your attention to the very nice bearish pin bar that has formed at a key resistance level of 1.7800 on the GbpNzd 8 hour chart.

20130414_GbpNzd

As you can see from the chart price has been quite bearish as of late. Not only has this bearish pin bar formed at a key resistance level but it also happens to be a round number which adds to the importance of this level. Of course there are no guarantees in forex, and price may just may reverse, push higher and bust through the 1.7800 level. However, the price action story here would indicate to me that there is a good chance this resistance level will hold and price may continue lower, offering some opportunity.

I plan to get into this trade at the break of the pin bar and set my stop approx 15 pips above the resistance level. The next major support level appears to be at the 1.7769 so this is where I would be looking to either take profit, or move my stop to break even and take some profit.

Hopefully there will not be a large gap when the market opens in a few hours that messes up the trade, but we will have to wait and see.

Well I hope you all enjoyed this quick post, and be sure to comment, share and like if you did as it is greatly appreciated 🙂

Once again information on this blog is meant for educational and informational purposes only, and should not be taken as trading advice.

Cheers.

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