Trading System

Wednesday, May 7, 2008

Sunday, May 4, 2008

The rule is using h1

1. if 2 SMMA WEIGHTED CLOSE CROSS UP the DAY OPEN LINE open LONG
at new candle

2. if 2 SMMA WEIGHTED CLOSE CROSS DOWN the DAY OPEN LINE open SHORT
at new candle

credit to tony_dtrader on forex factory...

u can download the template here Only Pivot (Special Thanks to Steven Ali for this method)

Wednesday, February 20, 2008

Introduction To Forex

Foreign Currency Exchange (Forex) Trading allows an investor to participate in profitable fluctuations of world currencies. Forex trading works by selecting pairs of currencies and then measuring profit or loss by the fluctuations of one one currency's market activity compared to the other. For example, fluctuations in the value of the $ U.S. Dollar are measured against another world currency such as the £ British Pound, € Eurodollar, ¥ Japanese Yen etc. Being able to discern price trends in market activity is the essence of all profitable trading and this is what makes foreign currencies so exciting, currencies are the world's 'best trending' market. This gives Forex investors a profit making edge that is unavailable in most other markets.

Forex Trading is being called 'today's exciting new investment opportunity for the savvy investor'. The reason is that the Forex Trading Market only began to emerge in 1978, when worldwide currencies were allowed to 'float' according to supply and demand, 7 years after the Gold Standard was abandoned. Up until 1995 Forex Trading was only available to banks and large multinational corporations but today, thanks to the proliferation of the computer and a new era of internet-based communication technologies, this highly profitable market is open to everyone. The Forex Trading Market's growth has been unprecedented, explosive, and continues to be unequaled by any other trading market.

Unlike traditional trading which brings buyers and sellers together in a central location (trading floors) in Forex Trading there is no need for a centralized location. Forex is a market where worldwide traders conduct business by high-speed Internet connections with the Interbank Foreign Currency Exchange via Forex Clearinghouses (also called Forex Brokerage Firms). Forex has not only become the fastest growing trading market, but also the most profitable trading marketplace in the world.

Simply stated, Forex is the most profitable because it is the world's largest marketplace. The Foreign Currency market as a whole accounts for over 1.2 trillion dollars of trading per day (as determined by the fourth Central Bank Survey of Foreign Exchange and Derivatives Market Activity, 1998. This figure is understood to be significantly higher today). To put this into perspective, on any given day the Foreign Currency Exchange Market activity is vastly greater than the Stock Market. It is 75 times greater than the New York Stock Exchange where the average total daily value (using 1998 figures) of both foreign and domestic stocks is $16 billion, and much greater than the daily activity on the London Stock Exchange, with $11 billion.

Furthermore, in addition to being the world's largest and most profitable market, The Foreign Currency Exchange Market is the world's most powerful and persistent trading market regardless of negative economic indicators. This is because currencies 'trend' better than every other market due to their macro-economic nature. Unlike many commodities whose supply and demand fundamentals can literally change overnight (as we found in the sudden dot com 'market adjustment' and even more abruptly on September 11, 2001), currency fundamentals are much less random, and far more predictable. This is well illustrated in the way interest rates are changed gradually and only in small increments.

Other examples of fundamental predictability are illustrated by the following statistics. Of the $1.2 trillion day trading in Foreign Currency Exchange, 83% of spot foreign exchange activity and 95% of swap activity involves US Dollars. The Euro is the second most active currency at 37%. The Japanese Yen (24%) and the British Pound Sterling (10%) are ranked third and fourth. The Swiss Franc is 7%, and the Canadian and Australian Dollars account for 3%.

Spot Forex is the type of forex trade in which self-traders concentrate most of their investment activity for reasons that are self-explanatory. By definition, a Spot Forex transaction is a currency trade transaction that has a settlement (liquidation) within a maximum of 2 working days following the closing of the trade. Therefore Spot Forex allows the self-trader high liquidity. Another popular feature for well-advised Spot Forex self-traders is the strong profit potential from continual market fluctuations by buying a specific currency when it is weaker and selling it when it is stronger, and the continual pairing of strong currencies against weak ones. This potential for profit or loss is amplified by the effect of leverage. Leverage is a term that describes what can be achieved when a smaller amount of money controls a much larger amount of money. With regards to Forex Trading for example, a leverage-factor of 100 can allow the trader to hold a 100,000 US Dollar position with a modest 1,000 US Dollar margin deposit. Online Forex day trading focuses its investment activity largely on Spot Forex because of the 'risk manageability' of in-and-out trading plus the potential to generate excellent and highly liquid profits.

"Few financial industries generate as much excitement and profit as currency exchange. Traders around the world enter trades for weeks, days or split seconds, generating explosive moves or steady flows, and money changes hands quickly at a staggering daily average of a trillion US dollars. Forex profitability is legendary. George Soros of Quantum Fund realized a profit in excess of 1 billion dollars for a couple of days work in September 1992. Hans Hufschmid of Soloman Brothers, Inc. netted $28 million for 1993. Even by Wall Street standards, these numbers are heartstoppers".*

Despite its high trading volume and its fundamental role in the world, the Forex Market is rarely in the media limelight because its method of trading transaction is less visible than the Floor of a Stock Exchange. However, trading on the Foreign Currency Exchange Market is today surging into the public awareness, as flocks of internet traders are attracted by the market's inherent profitability and risk manageability. Add to this the absence of geographic or temporal boundaries and vibrantly active Forex market is open to all players.

* "Trading in the Global Currency Markets", Cornelius Luca, 2000

Understand Forex

Forex trading education

Forex trading education helps you to get fundamental information about market peculiarities.

CURRENCY PAIR

Reading a foreign exchange quote may seem confusing at first. However, it's really quite simple if you remember two things when starting your Forex trading education:
1) The first currency listed is the base currency
2) The value of the base currency is always 1.

The US dollar is the centerpiece of the Forex market and is normally considered the 'base' currency for quotes. In the "Majors", this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of 1 USD per the second currency quoted in the pair. For example, a quote of USD/JPY 120.01 means that one U.S. dollar is equal to 120.01 Japanese yen.

When the U.S. dollar is the base unit and a currency quote goes up, it means the dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote we previously mentioned increases to 123.01, the dollar is stronger because it will now buy more yen than before.

The 3 exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.4366, meaning that one British pound equals 1.4366 U.S. dollars.

In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.

In other words, if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Currency pairs that do not involve the U.S. dollar are called cross currencies, but the premise is the same. For example, a quote of EUR/JPY 127.95 signifies that one Euro is equal to 127.95 Japanese yen.

When continuing your Forex trading education, you will often see a two-sided quote, consisting of a 'bid' and 'offer'. The 'bid' is the price at which you can sell the base currency (at the same time buying the counter currency). The 'ask' is the price at which you can buy the base currency (at the same time selling the counter currency).

PIP

Once you start your Forex trading education, you will learn to love this word because it is what you will be seeking for the rest of your Forex career. A pip is the smallest denominator of a particular currency pair, so for the above example, if the EUR/USD moves from 1.2150 to 1.2155 then it has moved up 5 pips.

LEVERAGE

Leverage is a simple concept of Forex trading education. If you have $10,000 to trade with, your Forex broker will let you borrow money from him so that you can trade in larger quantities. They will let you borrow as much as 400 times (400:1) what you put up in a trade. Most brokers allow between 50:1 and 100:1 margin. So, if you put up $1,000, and your broker allows 100:1 margin, then you'll be trading $100,000 worth of currency (instead of $1,000).

That's important, because every pip equals a certain dollar amount. When you trade $10,000, each pip movement equals $1. The chart below shows how it goes from there. If you trade 10,000 worth of currency, each movement would be equal to $1. So if you bought at 1.1445 and sold at 1.1545, you would make 100 x $1, or $100. If you trade $100,000, each pip movement would equal $10 and so on.

LONG AND SHORT

There are 2 different ways to trade on the Forex market and many beginners (or those who continue their Forex trading education) are surprised to learn that they can actually make as much money when currency price moves down as when it goes up. Let's start with the most logical movement, when the price moves up.

Most people are very familiar with the concept of buying something at a low price and selling it when the price increases. So the concept of buying the EUR/USD at 1.2150 and selling it at 1.2160 for a 10 pip gain should seem logical. This process is called going long.

You can also do this in reverse! If you know that the currency price is more likely to go down rather than up, you can go short. This is just the opposite of the above transaction, selling it first and buying it back later in the hope that the price will go down for you to make profit.

This may seem strange at first, but the concept remains the same either way. You always want to buy something at a low price, and sell it expensive. The consecution of actions doesn't matter. You must both buy and sell; as long as you sell at a higher price than you buy you make profit. Let us continue our Forex trading education.

SPREAD

The difference between stock markets and the Forex market brokers, is that in the Forex market, broker commissions are either very low or zero. So how do the ?? make money? They make it from the "spread" - difference between the actual price and the offered price through a broker.

On the right you can see a typical board of currency pairs and their spreads. This one is taken from our feed this morning, and you can see the difference between the Offer (the price you can place on a sell order) and the Bid (the price you can place on a buy order) is 3 pips (the spread).

What does this mean to you though? Well, let's look at the board. If you bought the EUR/USD at 1.2158 as it is offered under the Offer column, and immediately sold it again before the price moved, you would only get 1.2155 as is shown in the Bid column. So the net result is -3 pips, or a loss to you, and a profit to the broker. Remember to always take the spread into account when placing a trade, setting targets and stop losses.

BEARS AND THE BULLS

Once (you have) started your Forex trading education, you will constantly see the terms "Bears" and "Bulls" in Forex books and chat rooms. These are terms that describe the general mood of the market. A "bear" market, is when the general mood of the market is down, i.e. when there are more sellers than buyers in the marketplace. A "bull market" is the opposite, when there are more buyers than sellers and the general mood of the market is up. Forex is a place where bulls and bears struggle, and if you can identify who is gaining the upper hand, then you can identify the direction of the price. Easier said than done, of course. There are many more areas to cover, this should help those only starting Forex trading education.

CALCULATING PROFIT AND LOSS

Forex market, is an around-the-clock cash market where the currencies of nations are bought and sold. Forex trading is always done in currency pairs. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. The value of your Forex investment increases or decreases because of changes in the currency exchange rate or Forex rate. These changes can occur at any time, and often result from economic and political events. Using a hypothetical Forex investment, this article shows you how to calculate profit and loss in Forex trading. Let's push your Forex trading education to a new level together.

To understand how the exchange rate can affect the value of your Forex investment, you need to learn how to read a Forex quote. Forex quotes are always expressed in pairs. In the following example, your pair of currencies is the U.S. Dollar (USD) and the Canadian Dollar (CAD). The Forex quote, USD/CAD = 170.50, means that one U.S. Dollar is equal to 170.50 Canadian Dollars. The currency to the left of the "/" (USD in this example) is referred to as base currency and its value is always 1. The currency to the right of the "/" (CAD in this example) is referred to as the counter currency. In this example, one USD can buy 170.50 CAD, because it is the stronger of the two currencies. The U.S. Dollar is regarded as the central currency of the Forex market, and it is always treated as the base currency in any Forex quote where it is one of the pairs.

Planning Forex trading strategies

Forex trading strategies are based on fundamental and technical types of analysis. This article gives you a better understanding of both types and ways of implementing them into your Forex trading strategies.

FUNDAMENTAL ANALYSIS

Political and economic changes are the basis here as they frequently affect currency prices. Traders relying on this analysis gather information about unemployment forecasts, political ideologies, economic policies, inflation and growth rates from news sources. Most traders combine Forex trading strategies to plot actual entrance and exit points and double-check the information.

Forex trading strategies consider that just like most markets the market is controlled by supply and demand. The two most critical affecting factors for them are interest rates and the strength of the economy that is affected by changes in the GDP, trade balances and the amount of foreign investment.

There are many indicators released by government and academic sources on a weekly or monthly basis. The most important and commonly followed are: interest rates, international trade, CPI, durable goods orders, PPI, PMI and retail orders. These are pretty reliable measures of economic health and are closely followed by all traders that rely on fundamental analysis while mapping out their Forex trading strategies.

Interest rates can strengthen or weaken the currency. In some cases high interest rates attract foreign money, however high interest rates frequently cause stock market investors to sell off their portfolios. They do so believing that the higher cost of borrowing money will adversely affect many companies. If enough investors sell off their holdings it can cause a downturn in the market and negatively affect the economy. Which of these two effects will take place, depends on many complex factors. Usually economic observers agree on how the current change in interest rates will affect the general economy and currency prices.

International Trade. If there is a trade deficit, it is usually considered a negative indicator, as more money is leaving the country than entering it. This can have a devaluing effect on the currency, but usually trade imbalances are already factored into the market consideration. If a country normally operates with a trade deficit, currency price should be unaffected. It will change if the deficit is greater than expected.

The cost of living (CPI) and the cost of producing goods (PPI) are important indicators as well. You should also watch the GDP (the value of all the goods produced in the country) and the M2 Money Supply which measures the total amount of currency for a country.

In the US alone there are 28 major indicators that have a strong effect on the financial market and should be closely watched. This information can be found on the Internet and is provided by many brokers. Use it for working out your Forex trading strategies.

TECHNICAL ANALYSIS

It is based on the following assumptions:

1. Combined market forces (political events, economic conditions, seasonal fluctuations, supply and demand) cause currency price movements considered in Forex trading strategies.

2. Currency prices on the Forex market follow trends. Predictable consequences have been linked with many recognized market patterns.

3. Forex trading strategies can rely on historical trends to predict current price movements. Forex market data has been collected for the last 100 years, over that time certain patterns have become emergent. Human psychology and the way people react to certain circumstances are the basis of these patterns.

Most traders consider technical analysis to be of critical importance even though they may also use fundamental analysis to support and confirm their Forex trading strategies. Unlike fundamental analysis, technical analysis can be applied to many currencies and markets at the same time. Since fundamental analysis requires detailed knowledge of the economic and political conditions of a certain country, it is nearly impossible for any single trader to perform it properly on more than a few countries.

Forex beginners may consider the complexities of technical analysis overwhelming and even unnecessary but if you wish to ensure the success of your Forex trading strategies do not ignore both analysis types.

Any quality online Forex broker should be able to supply you with a large variety of online charts for technical analysis. Working out your Forex trading strategies, you can purchase in-depth professional charts, there is usually a monthly fee involved in gaining access to this information. There is also free software available to help you with charting. Good charts are updated in real time.

Mapping out your Forex trading strategies, you should learn the market and study trends before you begin active trading. Most brokers will provide you with a practice account where you can place "paper trades" - practice trades where no real money is made or lost. But they act just like a real trade, so you can see exactly how your trade would have turned out if you had placed it for real. This allows you to become familiar with your broker's system as well as learning about the market without risking any money.

The second part of this article explores various charts and indicators you need to use while planning your unique Forex trading strategies.

READING FOREX CHARTS

Price charts can be simple line, bar or even candlestick graphs. They show prices during specified time intervals that can be anywhere from minutes to years.

Line charts are the easiest to read, they give a broad overview of price movement. They only show the closing price for the specified interval and make it easy to pick out patterns and trends.

With a bar chart the length of a line displays the price spread during the time interval. The larger the bar, the greater the price difference between the high and low price for that interval. It is easy to tell at a glance if the price rose or fell, because the left tab shows the opening price and the right tab the closing price. Then the bar will give you the price variation.Pprinted bar charts can be difficult to read but most software charts have a zoom function so you can easily read even closely spaced bars while mapping out your Forex trading strategies.

Candlestick charts are very similar to bar charts - they both show high, low, open and closed prices for indicated time periods. Originally developed in Japan for analyzing candlestick contracts, they are very useful for analyzing Forex prices and are therefore a handy "tool" in Forex trading strategy planning. However the color coding makes it easier to read the chart, green candlestick indicates the rising price and the red - the falling price.

The actual candlestick shape in reference to the candlesticks around it will tell you a lot about the price movement and will greatly aid your analysis. Depending on the price spread various patterns will be formed by the candlesticks. Many of the shapes have exotic names, but once you learn the patterns, they are easy to pick out, analyze and use while working out your Forex trading strategies.

Price charts are not usually used alone. To get the full effect, you need to combine them with some technical indicators: trend, strength, volatility and cycle indicators. The most commonly used indicators are:

Average Directional Movement Index (ADX) helps indicate if the market is moving in a trend in either direction and how strong the trend is. If a trend has readings in excess of 25 then it is considered a stronger trend. Effective "tool" when planning your Forex trading strategies.

The Moving Average Convergence/Divergence (MACD) shows the relationship between the moving averages which allows you to determine the momentum of the market. Any time that the signal line is crossed by the MACD it is considered to be a strong market.

The Stochastic Oscillator compares the closing price to the price range over a specific time frame to determine the strength or weakness of the market. If a currency has a stochastic of greater than 80 it is considered overbought. However, if the stochastic is under 20 then the currency is considered undersold.

The Relative Strength Indicator (RSI) is a scale from 1 to 100 that compares the high and low prices over time. If the RSI rises above 70 it is considered overbought where as anything below 30 is considered oversold.

The Moving Average is created by comparing the average price for a time period to the average price of other time periods.

Feel free to use these indicators to map out successful Forex trading strategies.