What makes a good Trading Strategy?

Ask most NEW traders, and they will tell you about some moving average or combination of indicators or a chart pattern that they use. This is, as the more experienced trader knows, an entry point and not a strategy.

Any trader who is more experienced will say a strategy should also include money management, risk control, perhaps stop losses and of course, an exit point. They might also say that you must let your profits run and cut your losses short. A well-read trader will also tell you that your strategy should fit with your trading personality.

BUT there is one other vital ingredient that many traders forget - and that is to fully understand the "personality" of what you trade. Some traders specialise in say, gold or Brent crude or currencies or they might specialise in a particular index such as the FTSE 100 or the Dow but many traders choose to trade shares. Indeed some traders dabble in a bit of everything. I think this is the area that causes many traders to fail or at least not reach their full potential.

In my view: You absolutely MUST specialise.

I am sure that on the surface most people would say that sounds sensible but here is why it is a MUST!

Superficially, many charts look the same. I bet if you had not seen the charts for some time and someone where to show you a chart of Brent Crude over 6 months and then a chart of Barclays PLC over the same 6 months you would be hard pushed to say which was which purely on the look of the chart.

However, I bet that if you found a trader who trades ONLY Barclays day in and day out and also found someone who trades ONLY Brent Crude day in and day out, both of them would easily identify which was which. WHY?

Because every share, index or commodity has it’s own "personality".

Some will be volatile intra-day, some will follow their sector or the main index (market followers), some will do their own thing, some will spike up and down regularly, some will stop at key moving averages and some will just plough through. Some will move by 5% on average before they retrace and some by 2%. Some will gap up or down regularly, some will not. You get the idea!

Therefore, no matter how good you are at analysing indicators, moving averages, trends and patterns, the same strategy WILL NOT work for everything. I would go so far as to say that a strategy that works well for Bovis Homes, for example, is likely NOT to work for BT Group - they have very different "personalities".

So let’s return to our question: What makes a good trading strategy? Let me answer with a series of ten questions that you need to find answers to, in order to build a REALLY GOOD strategy.

1. What do you want to trade (share, index, commodity, currency, etc)? If your
answer is shares (plural) I would urge you to pick one typical share at this
stage to really specialise. You can add more later.
2. What "personality" does that share, index etc have?
3. What entry system is the most reliable for that share?
4. What stop loss system is the most effective for that share?
5. What average risk will a typical trade carry?
6. What exit system works well for that share?
7. What is your trading personality (attitude to risk, losses, discipline, how
much do you worry etc) and can you trade that strategy without overriding it?
8. What timescale do you want to trade? (Using intra-day or end of day data)
9. How much data do you keep on past trades to help identify strategy weaknesses?
10. How does all this fit with your trading objectives?

Once you have an answer to each question you need to do one final thing. Make sure all those things fit together and complement each other. For example, if the ideal stop loss position represents a big average risk and conflicts with your own attitude to risk, you need to start again. If you will override your exit point because greed makes you hang in for more, you need to think again. Perhaps you shouldn’t trade that stock in the first place - look for one with a different "personality" which will lead to a strategy you can trade comfortably.

It is a long and sometimes painful iterative journey. You might need to go round and round in ever decreasing circles over a long time. Testing and refining, testing and refining before you can truly have a reliable and repeatable strategy that REALLY WORKS for you.

THEN, you can look for other things to trade that have the same "personality" as your specialist stock, index, commodity or currency.

But if it were easy, everyone would be doing it right?

Good luck and enjoy your trading.

David Graeme-Smith
Short Swing Trading
http://www.shortswingtrading.com/

Lines of trends, support and resistance

The trendline. A trendline is a main initial element for the price chart analysis. While the market moves in any direction not along a straight line but along a zigzag, the mutual placement of upper and bottom points of those zigzags permits to plot a line connecting the significant highs (peaks) or the significant lows (troughs) of an appropriate zigzag using technical tools of the computer program.

To draw a trendline only two points are necessary and the third one is the contact point confirmation. On a bullish trend chart it should be drawn using troughs, on a bearish  using peaks. The trendline and a line which is about parallel to it and drawn on the opposite side (through peaks on a bullish trend and through troughs on a bearish) form the trade channel. Both lines are then channel's borders.

Lines of support and resistance. The upper and the bottom borders of trade channels are called accordingly support and resistance lines. The peaks represent the price levels at which the selling pressure exceeds the buying pressure. They are known as resistance levels. The troughs, on the other hand, represent the levels at which the selling pressure succumbs to the buying pressure. They are called support levels. In an uptrend, the consecutive support and resistance levels must exceed each other respectively. The reverse is true in a downtrend. Although minor exceptions are acceptable, these failures should be considered as warning signals for trend changing.

The significance of trends is a function of time and volume. The longer the prices bounce off the support and resistance levels, the more significant the trend becomes. Trading volume is also very important, especially at the critical support and resistance levels. When the currency bounces off these levels under heavy volume, the significance of the trend increases.

The importance of support and resistance levels goes beyond their original functions. If these levels are convincingly penetrated, they tend to turn into just the opposite. A firm support level, once it is penetrated on heavy volume, will likely turn into a strong resistance level. Conversely, a strong resistance turns into a firm support after being penetrated. In general, to evaluate the reliability (that is the possibility of a break) of the trade channel borders taking a decision to close or to save an existing position one should govern himself with following rules:

1. A channel is the more reliable the longer it exists. Hence, the solidity of very old channels (e.g. existing more than 1 year) decreased sharply.
2. A channel is the more reliable the more is his width.
3. The resistance may be broken if it is bounced on the background of a growing volume.
4. A steep channel is less reliable in compare to a gentle one.
5. The support may be broken independent on the volume.

About the Author

Tomas Anderson is the editor of www.go-see.info - a free Article Directory, where anyone can submit articles or find free content for the website.

Forex Trading: The Perfect Forex Trading System

Trading the Forex market has become very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only about 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.

Most Forex trading systems are made off technical indicators. But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.

There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as "the MA crossover made the price go up," but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.

Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.

Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.

So, how to create a perfect Forex trading system?

1. First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.

2. Secondly, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.

3. Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.

Forex Trading System: Discretionary vs. Mechanical Systems

There are basically two types of Forex trading systems, mechanical and discretionary systems. The trading signals that come out of mechanical systems are mainly based off technical analysis applied in a systematic way. On the other hand, discretionary systems use experience, intuition or judgment on entries and exits. But which one produces better results? Or more importantly, which one fits better your trading style? We will first analyze the pros and cons about each system approach.

Mechanical systems

Advantages
This kind of trading system can be automated and backtested efficiently. It has very rigid rules. Mechanical traders are less susceptible to emotions than discretionary traders.

Disadvantages
Most traders backtest Forex trading systems incorrectly. In order to produce accurate results you need tick data. The Forex market is always changing. The Forex market (and all markets) has a random component. The market conditions may look similar, but they are never the same. A trading system that worked successfully the past year doesn’t necessary mean it will work this year.

Discretionary systems

Advantages
Discretionary systems are easily adaptable to new market conditions. Trading decisions are based on experience. Traders learn to see which trading signals have higher probability of success.

DisadvantagesThey cannot be backtested or automated, since there is always a thought decision to be made. It takes time to develop the experience required to trade successfully and track trades in a discretionary way. At early stages this can be dangerous.

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

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

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

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

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

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

By: Raul Lopez

Forex Trading Fundamentals: Good News for the Dollar

By: Andrew Shiveley

Over the past six months it seems like almost every major finance magazine has published an article related to the weakness of the dollar. If you are a currency trader like I am then this topic is particularly relevant to you because you need to know what the long-term trends of each currency are so that you can make profitable trades.

What you probably have not been reading about in the news are some of the events that have been happening behind the scenes or that will be happening in the near future, and why the American economy will ultimately regain its strength.

The single most significant factor affecting the American dollar is the trade balance, and the biggest portion of this problem is related to our war in the Middle East that should never have been authorized, yet is still costing us billions of dollars every single day. I will not spend a lot of time talking about the horrendous actions of the Bush administration (namely that they defrauded their way into office in order to wage a cultural genocide for the sake of gaining control over oil), but there are truly good things that have been happening behind the scenes and that will be happening in the near future.

You will not hear about many of these things in the mass media news outlets in America such as CNN and ABC, and there is an exceedingly simple reason why these manipulated news networks try to convince the American people that there is a threat of danger when really none exists at all: War is profitable. There are powerful groups in our world today whose agendas are motivated by greed and control, and these people engage in heartless wartime profiteering so that they may satisfy their lust for power. But it is not all bad: I will discuss some of the wondrous events that are causing these groups to rapidly lose their power, and what all of this information means for the currency markets.

The Bush Administration has dropped to single-digit approval ratings, and millions of Americans have gone to websites such as Impeach Bush and spoken out about their opinions of why this man is no longer our leader. Dennis Kucinich, a representative from my home state of Ohio that I have had the pleasure of meeting, is leading the way for the eventual impeachment and forcible removal from office of Bush and his war-mongering cronies.

The Bush Administration has inadvertently caused a global recession with their desire to wage a heartless war, and the signs are strong that the global community has finally come together and told these warmongers "Enough!" They are rapidly losing power as people are becoming more conscious and aware of the fact that they have been lied to by the controlled mass media outlets.

If you are looking for really good forex trading opportunities, I would be willing to bet that when the news releases come out stating things such as Bush's impeachment or other things that peace-loving people the world over are working to create, there will be a large jump in the value of the dollar in the window of a day or two.

The really good news for the dollar and for the American people is coming from Japan. The Japanese are the largest holders of foreign dollar reserves (around $5 trillion dollars), and they have openly declared that they will no longer fund the American war effort.

The reason why I remain optimistic about the future of the American economy is because of the two main presidential candidates that have come forward to lead our country. In my mind (and in accordance with recent political data), the two main candidates in the 2008 presidential election will be Barack Obama and Ron Paul. Both of these men are benevolent leaders and are sufficiently equipped to rectify the errors of the Bush Administration, and Ron Paul has openly stated that he will abolish the Federal Reserve and the IRS to create a more prosperous America.

In the last paragraph, notice that I said the "American economy" and not the dollar. This is an important point, because many benevolent and powerful leaders are discussing new potential monetary systems for the United States that can lead to greater prosperity. The Federal Reserve system is based upon perpetual debt, and it is not sustainable because it steals wealth from the American people and puts it into the pockets of a few. This is all very good news, and so you may be wondering how this plays into your forex trading.

The dollar will continue to go down so long as our war is not stopped, and so for the next few months until the Bush Administration is forcibly removed from office or until they simply fade away to be replaced by a new leader, there will still be a downwards trend for the USD.

After our war ends due to internal political pressure from our benevolent leaders as well as financial pressure from the Japanese, many Japanese leaders are discussing the possibility of using their foreign dollar reserves to create a global humanitarian mission where they can bring knowledge and modern telecommunications access to countries that have not been able to provide it for themselves.

As this happens the American economy will regain strength because our trade balance will become much more sustainable. So ultimately for your forex trading, the downwards trend for the dollar will continue until these big benevolent changes occur, afterwards the American economy (as well as the global economy as a whole) will regain its stability.

Article Source: http://www.tradeforex2000.info/forexarticledirectory

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Forex Scalping: Fast Precision Forex Trading for Profit

By: Jason Fielder

If you've looked around online for information about Forex and Forex trading strategies, then it's likely you've come across the practice of "scalping."

In the Forex market scalping is an extreme example of day trading which involves traders who buy into a position intending to see a quick market movement, and then sell. Most scalping trades last only a few minutes, and none more than a day.

While technically some one or two hour trades can be considered scalping, generally that's just referred to as normal day trading. When someone in the Forex market mentions scalping, the image is of that "surgical precision" trade. The scalper who is trading the Forex is a trader who opens and closes a position in literally minutes - or in rare cases maybe even less than a minute.

The theory behind scalping is that by anticipating an immediate surge to a news release or other evens, a trader can jump in, and since the movement is so quick, they can show a profit, then immediately exit to help minimize the risk. By doing this effectively, a trader in theory could collect smaller profits bit by bit while avoiding any large violent market swings that could cause you to lose a lot of pips.

One of the most important parts of scalping is to have a stop and exit in mind before entering into a position. That way as soon as the market moves in either direction, the position is immediately closed. Even a few pips difference can be a big deal, since the leverage in the Forex market allows them to make a profit off even the smallest pip gains.

Scalping may limit potential losses, but since all transactions are so quick, it can also limit potential profits, since it would require a quick exit from what could end up being a breakout market.

So like any trading strategy, there are positive and negative points to this strategy. While scalping my be a favorite practice among some day traders, if you're just starting in the Forex market, it's best to find a solid Forex trading system that concentrates on long term strategies.

Learning to use a dependable long term system is the first step of profiting from Forex trading, and needs to be taken before even considering moving on to anything else, especially to something like scalping, which is an extreme version of day trading and not an easy skill to learn effectively.

Article Source: http://www.tradeforex2000.info/forexarticledirectory

And now I would like to offer you free access to a Forex trading system that is 89.1%accurate, so you can literally start trading the Forex today. You can access it now by going to: www.foreximpact.com/reports/89percent/ From Jason Fielder - Founder, ForexImpact.com

Is Forex Better Than Stocks? 3 Reasons Why It Is

By: Jason Fielder

If you're looking for the ultimate trading market, forget Wall Street. The Forex Market is where the largest volume in trading is going on, with an incredible amount of nearly $2 billion worth of trading in a 24 hour day. Why is the Forex Market better than stocks? Why is a dollar better than a nickel? Because it's worth a lot more. That is one of the most basic and obvious answers to this question. There is a fortune that can be made in trading Forex because the Forex market is constantly trading.

Reason #1 Why Forex is Better Than Stocks Because:
The Forex market trades a larger volume than any other market in the world. The stock market trades roughly $10 billion in volume a day. That's not bad at all, but it isn't even 1% of what the Forex market trades daily. Not even close.

The Forex market trades an average of $1.8 TRILLION dollars of currency a day. No other market in the world comes remotely close to this figure. $1.8 Trillion dollars is only the first reason that the Forex is better than stocks.

Reason #2 Why Forex is Better Than Stocks:
No Enron, no WorldCom, no Tyco. These currencies are based on the strength of an entire nation's economy, not the reports of one company. This doesn't mean there isn't risk - every market has risk and Forex is no exception, but usually stable countries don't fall overnight.

I had a friend who went to college, got into stock trading, and had a personal stock portfolio worth six figures by the time he was only 27. Not bad. But almost all of it was McCloud, Enron, and MCI WorldCom. Nearly overnight his small fortune was worth less than $20,000.

All because of false stock reports from CEOs. This can't happen in the Forex. While economies can go up or down, there is both technical and fundamental analysis that can help you identify ahead of time the potential for a currency that is going to drop. Forex trading has risks like anywhere else, but one corrupt CEO is not one of them.
Also, when one currency goes down, the other in the pair goes up, so being on the right side can mean that one country's misery can still makes you a fortune.

Reason #3 Why Forex is Better Than Stocks:
There's always action. Unlike the stock market, which has a daily close to the market day, the Forex market is open every day, except Saturday. There is only one close in the Forex for an entire week, meaning almost any day, any time, you have the ability to trade. This allows a great flexibility in when, where, and how you can trade. Options are good.

These are only three of several reasons why the Forex is better than stocks, but if you want to trade where the most action is, there's no question you want the Forex market.

Article Source: http://www.tradeforex2000.info/forexarticledirectory

And now I would like to offer you free access to a Forex trading system that is 89.1%accurate, so you can literally start trading the Forex today. You can access it now by going to: www.foreximpact.com/reports/89percent/ From Jason Fielder - Founder, ForexImpact.com