Currency Trading Strategy

A forex trading graphic.

Image via Pixabay

Trade Like the Big Dogs

(A 20-Minute Read)

The Forex in a Nutshell
26 Reasons to Trade FX
The Best Forex Trading
Easy With Smart Phones
Forex Time Zones
Trading Order Flow
The Big Dogs Strike
Knowing Currency Pairs
In Sum

(Click on any link in the table above to go to your area of interest.)

The Forex in a Nutshell

Almost 15 years ago, after I had written my book, a trader in California, who had bought a copy, sent me an e-mail suggesting that one of my strategies outlined in the book worked better in the forex.

Up to that point, I had never given the forex a second thought.  I thought it was over there somewhere for traders who were a lot smarter than me.  It was a total mystery to me.  I was even afraid to go there.

Well, I gave it a whirl and, lo and behold, that guy was right.  I couldn’t believe how easy it was to trade that market, and how much money was there to be made.  It sure beat the other markets – by a mile.

I have never looked back.  It is now my market of choice, hands down.

Don’t get me wrong… I like the other markets too – but, the forex just makes trading so much easier and much more profitable.

I still trade stocks, but occasionally get grumpy over how little you make compared to the forex.  Some stocks will move only pennies a day versus 111 pips on average for the euro.  Arghhhhh… !!!!!

If it’s simple forex trading strategies that work, forex trading strategies for beginners, or just a secure investment that you are looking for, then you have come to the right place.

Later on, I am going to show you my all-time favourite currency trading strategy.  Talk about forex trading systems that work.  I’m going to keep you guessing until you get there.

The forex is sometimes referred to as the cash market, the spot market, or simply FX.

My simple forex trading strategies work effectively and efficiently at any hour of the day in this market.  Read on, and see my favourite currency trading strategy in action.

As reported in my blog on after hours trading, after hours trading doesn’t exist in the forex per se, the largest financial market.  That’s because, unlike other markets, it is always on six days a week, and it is always liquid.  It cannot be engineered by any one entity. 

Most professional traders are lucky if they catch three-to-four really great trades a week!  But, with the forex, things speed up, and that many trades can be had in just one day.

A trader only has to work with a small number of pairs – not thousands of stocks or a myriad of commodities.  And, my currency trading strategy rocks around the clock.  No need to worry about fundamentals or news.

Unlike the other markets, the forex has a much longer ‘length of line’ (intraday swings).  With a wider average daily range, more ‘swing-trading’ opportunities prevail.

A specialist firm acting as a market maker is non-existent in the forex.  It is an OTC all-electronic model.  As such, there are no execution costs.  Nor are there any commissions.

Unlike other markets, gaps are infrequent.  This is because the forex puts in US$5.3-trillion per day – making it the sleeping giant of finance – putting all other capital markets in the world to shame. 

Yes, you heard it right.  That’s up from US$1.3-trillion some ~15 years ago, when I first got involved with this market. 

That makes it 30 times larger than all U.S. equity markets put together (50 times the NYSE).  Compare that to the measly US$30-billion-per-day futures market.  Despite its massive size, the forex market is easy to trade with my currency trading strategy. 

My forex trading systems are quite simple and easy to learn, and I will help you master them.

To further put it in perspective, the forex accounts for about half of all U.S. volume and 23 per cent of all FX turnover in Canada. 

That makes the forex market the quiet giant of finance, dwarfing all other capital markets in the world.

Currency trading for the most part is conducted over the forex – to the tune of 95 per cent – while the currency futures market is in decline, coming in at roughly one per cent the size of the forex.

Trading stocks is a tough slog.  You’re lucky if you can grab a tiny move in price on any given trading day.  Not so with the forex.  The ~average daily ranges for the major pairs are:

AUD/USD (Aussie) – 85 PIPs
EUR/USD (Euro) – 111 PIPs
GBP/USD (Pound) – 156 PIPs
NZD/USD (Kiwi) – 81 PIPs
USD/CHF (Swissy) – 127 PIPs
USD/JPY (Yen) – 102 PIPs

(Source:  fxfred.com)

Contrast those numbers with the measly price movements with stocks.  It’s hard to get excited when Starbucks moves only 15 cents in one day.

Given that the average dollar value per pip in a standard lot is US$10, you do the math.  For the euro alone, the average daily length of line of 111 pips translates into US$1,110 maximum income potential per lot, if you were able to grab the entire move in one day.

Now, we know that’s not possible, unless you’re a better trader than I am but, nevertheless, if you are able to grab just a fraction of that move, you’re way ahead of anything you could pull off in the stock market.

With my currency trading strategy, you should be able to eke out at least 20 pips a day.  Using standard lots, that translates into US$4,000 a month, which is more than most people make in their day jobs.  I can help you get there.

How I came up with that rationale is something I will cover in a future post.

One of the things I love about the forex is, once a pair gets in motion, consistently trending up, it’s then just a matter of applying the Golden Rule – buying the dips in the uptrend. 

Currencies trend well, and hold their trend much better than any other tradable asset class.  More on that too in a future post.

I don’t ever consider shorting currency pairs, as there are just too many opportunities to go long.  

If you like trading futures, you’ll really love the forex.  The markets are quite similar, except for the sheer size of the forex – meaning that there are relatively few gaps there, unlike what you get in after hours trading with futures. 

If you can trade futures, you can absolutely trade the forex without any difficulty.  There isn’t much of a learning curve.  The trading concepts are very similar.

And, of course, stock traders can make the transition too.  A long-time stock broker told me he wished he had made the switch to the forex a lot sooner.

And, here’s what a futures trader had to say:  “I’ve recently converted to the forex.  That has turned out to be the right move in order to achieve consistently profitable results.  What got me to switch were your book and e-books.  Thanks for opening my eyes to this incredible market.  It’s by far easier to trade the forex than E-mini contracts.” 

That is just one of the many testimonials I have received over the years from my loyal fans. 

If you’re fed up with being fed up over your trading results in the other markets, and are desperately looking for a secure investment, then get on board with the forex and my forex trading strategies that work. It’s the place to be these days.  It will really get your trading mojo revved up into high gear. 

I am here to help you all the way to the bank.  See you at the top my friend!

And now, let’s get down to the nitty-gritty stuff.

26 Reasons to Trade FX

The forex is the…

A list of the stats about the forex showing its sheer size and volume compared to other markets.

A list of the 26 reasons to trade the forex.

As stated above, forex trading is the world’s largest financial market.  According to the Bank for International Settlements, it puts in US$5.3-trillion each and every day.  That’s beats the total daily dollar volume of the New York Stock Exchange 100 times.

Currencies trade 24 hours a day, six days a week – pausing on Friday, and starting up again on Sunday – unlike bonds and stocks.  The forex market pauses twice a day – moments known as ‘the fix.’

A crucial time in currency trading is 4pm.  That is when the market uses a benchmark price – known as the ‘fix’ or ‘fixing’ – the price many clients request, due to its perceived transparency.  The risk is less the closer you get to that time – that is, the less chance price will move against you.

Given that the forex is a 24-hour market, it is difficult to ascertain how much it is valued at on any given day.  Accordingly, institutions take a snapshot of how much is being bought and sold every day during the 30 seconds before and after 4pm in London.  London is the epicentre of foreign-exchange trading.  

The result is referred to as the ‘4pm fix,’ or simply the ‘fix.’  It is the peg on which many financial institutions depend, and it is therefore very important. 

Professionals, who trade as much as US$10-million or more for pension funds and multinational corporations, dominate this market.

It is estimated that twenty million individual traders trade US$400-billion a day globally – some placing bets as low as a few hundred dollars.  This is per Javier Paz, who is an industry analyst at Aite Group LLC, a Boston-based financial research firm.

What is perhaps most attractive about the forex is the high leverage it offers – as high as 1:1000, in some cases.  Using just 50:1 leverage, a trader can employ a US$5,000 bet with only US$100.  That translates into doubling an investment on a two per cent currency move to the good.

And, it equates to turning US$20 into US$1,000 in hard cold cash.  Or, to put it another way, in the forex market, US$2,000 has the buying power of US$100,000.

Even though the forex only moves in tiny increments, calibrated in fractions of cents, leverage turns it on its head by making big gains possible.

This kind of leverage vastly exceeds that available to stock traders.  The U.S. Federal Reserve sets their margin requirements at 2:1.  A trader effectively borrows the leveraged amount from the broker.  Contrast that to forex traders, who don’t have to borrow any money, when they use leverage.

Looking at a typical OTC forex trade, a trader goes online, and scans the bid and offer prices for a currency pair, which could be the yen paired with the U.S. dollar.  With just US$1,000 to play with, which can even be funded by credit card, the trader can wager US$10,000 that the yen will rise against the dollar – using just 10:1 leverage.  Being open-ended, it can be closed by the trader at any time to realize the gain or loss.

OTC trading isn’t done on an exchange and, as such, the forex broker is the client’s counterparty, who takes the other side of the trade.  With the trader betting the yen will rise, the broker on the other hand takes the sell side.

The broker can maintain the trade on its own books, match it with another trader, who is trading in the other direction or, in some cases, pass off risk by hedging with a bank.

Info via David Evans, as reported in Bloomberg Markets, December 2014, TheGuardian.com and BBC.com

The Best Forex Trading

Tallinex Forex Trading

How would you like upwards of 1:1000 leverage?  Then, head on over to Tallinex Forex Trading – where it’s yours just for the asking.  You’re not dreaming.  That’s a fact.  No BS, no strings.  On any of their platforms, you can trade the forex better, faster and easier.

And, I’m always here to help you, if you get in trouble, or if you just want my help.  I have been with the forex for ~15 years – so, I know that market cold.  My currency trading strategy and forex trading systems have evolved during that time. 

Check out what Tallinex Forex Trading has to offer:

  • 1. Signals – free
  • 2. Software – MT4
  • 3. Raw spreads – ECN
  • 4. Apps – mobile and tablet
  • 5. Managed accounts (a real plus)

I am sure you are stunned and amazed by all these amazing features and the ones I’ve listed below.  This is the icing on the cake you’ve been waiting for.  It is the place to be in forex trading.  Jump on the bandwagon at Tallinex Forex Trading, where your FX trading will catch on fire.

You can practice with fake money using a demo account.  You don’t need any previous trading experience.  And, I’m only a message away from helping you.

You can trade six days a week non-stop.  But, sorry to disappoint you friend – Saturdays, Tallinex is closed.  Time to wash the clothes and the dishes, clean up the place, and spend some time with your beloved family and friends.  And, oh yes, have some fun – as if trading the forex isn’t fun enough.

Don’t be bashful.  If you have any questions, or would just like to get my attention, please contact me at the Contact link on this site.  I would love to hear from you. 

Check them out at Tallinex Forex Trading.  You will be pleasantly surprised.  Just look at the many options listed below:

Screen shot of the nine offerings of the Tallinex forex broker.

(Disclaimer:  Please make sure your country of residence allows you to trade at Tallinex.)

Easy With Smart Phones

Everyone loves a smart phone, and everyone loves an app.  Well, here’s a way to put both to good use on the road to attacking the forex with some serious attitude.

The big international banks no longer rule the forex.  Anybody with a smart phone can now seize the power to deal currencies.  Mobile trading apps enable traders to gain access to the same technology used by the big banks.

The lines between institutional and retail trading are now way more blurry.  No longer are the best forex trading systems in the marketplace the preserve of the institutionals.

Sixty per cent of transactions are now attributable to mobile trading.  This is up from 10 per cent just four years ago – at just one broker.  As a matter of fact, they claim that a lot of their clients are not only mobile first, but mobile only.

At yet another broker, they claim that 40 per cent of trading on their platform is done on mobile devices – up from approximately 20 per cent around 2010.

You can even use a trading app on the Apple watch.  It vibrates when a price is reached that is set by the user.  And, then there is an app that has the look and feel of a computer game, and comes with music and sound effects.  How about trading directly from analysis apps and news, as opposed to through a separate broker’s app?  That you can do too.

The new generation of smart phone apps provide a less complex and safer environment to trade simple forex trading strategies than desktop sites.  You can even check the market when you are out and about, and be more successful than trading at your desktop.

Smart phones are fuelling the growth of forex.  Back in 2013, the Bank for International Settlements put the value of retail currency trading at approximately US$185-billion a day (yes, a day) – that’s 3.5 per cent of the market.  Industry analysis Web site Finance Magnates put that number even higher at US$320-billion.

Info via Jemima Kelly, Reuters, as reported in The Globe and Mail, October 21/15

Forex Time Zones

“Never warp your brain with time zone math again.”  Just go to EveryTimeZone.com.

It’s important to know when the various trading centres are active day or night.  In the chart below, you can see those centres listed over on the left, with their active times over to the right.

The most active session is the London market, which is active from approximately ~3 am ET to ~11:30 am ET.  More often than not, you will see swings in price in and around those times. 

I know of one forex trader in particular who trades only the London close, because it is such an active time of the forex trading day, as is the London open.

Based on the West coast of the U.S., she starts looking at her charts well in advance of the London close, doing her homework, and getting ready to trade during that timeframe.  Once she is finished with her trading, she then has the rest of the day to relax and enjoy other things.

As a matter of fact, in addition to being an uber-trader, she is also a realtor.  So, that career takes up a good part of the rest of her day.

Other active times are ~8 am ET (New York open), ~4:30 pm ET (New York close), ~8 pm ET (Tokyo open) and ~9 pm ET (Singapore open).  These times, in addition to the London times, represent the best times to be looking for swings in price action.  That’s where the money is.

There is no need for you to sit at your computer or with your hand-held device all day long or throughout the night looking for trades.  You may as well go where the action is, and work those swing points.

Chart of the 7 forex time zones around the world with open and close times & transactions per hour.

Trading Order Flow

I am a pure market technician and, as such, I don’t use order flow data.  Besides which, brokers (broker dealers) don’t share their their order-flow data freely, because that would more than likely indicate that they are running a full/partial B Book (internalizing or aggregating client trades).  

In trading circles, this is a sensitive topic, given that some traders may ‘manipulate your trades,’ or ‘trade against you.’  

Order flow is a variable across brokers, even with an A Book because, before reaching its final destination, aggregation can pass through several liquidity providers.

A Book vs. B book:

Trading the forex differs from equities or futures trading in that your broker may trade against you.  This is called ‘B booking.’  

A Booking, on the other hand, is where your broker elects to send all your trades to their liquidity providers or the real market.

Equities or futures trading entails your trades being sent directly to the exchange, where they are matched with other buyers or sellers.

In forex trading, your broker may keep your trades ‘in house,’ deciding not to send them to the real market, and then betting against you – i.e., taking the other side of the trade.

Info via AbundanceTradingGroup.com

Sources of Order Flow Data:

MyFxBook community outlook for real time stats on (retail) forex order flow – as close as you’re going to get.  They track stats by sampling volume from real (verified) trading accounts that connect to them.

ICAP Monthly Volume Data and Reuters FX Spot Volumes represent more comprehensive surveys of daily volume from the institutional side.

The Bank for International Settlements – (BIS) Semi-annual and Triennial surveys – keeps track of nearly all daily foreign exchange notional volumes on a regular basis.  The often-quoted stat that the ‘forex does north of US$4-trillion dollars a day in volume’ originates with the BIS.

Integral FX TradeVault – a paid service – is one of the larger aggregators in the industry.

LMAX Exchange is the first transparent ‘exchange’ for spot forex (no last look order book), but they do not, as yet, publish their daily volumes to the general public.  As they become a larger player, it should be interesting to see the related stats from their order flow.

ForexMagnates:  Within a few days of the previous month close, many of the larger brokers and players from around the world post their individual monthly volumes.

FXCM Real Volume and Transactions indicators:  FXCM is a big player in the institutional and retail realms and, as such, has a lot of combined order flow.  That said, the indicator only does retail order flow from FXCM customers.

As the industry encourages more transparency, more and more brokers will begin posting their order flow.  Dodd-Frank and LIBOR manipulation regulations encourage institutions to accurately report trades for OTC products.  Accordingly, more frequent volume data or real time is the next logical step.

Info via quant.stackexchange.com

Last Look:

In forex, ‘last look’ is where the liquidity provider filling your order rejects it, even though you might already have hit his price.

The origin of this practice has its roots in the decentralized nature of the spot forex, and it is designed to counteract high frequency trading firms (HTFs) picking off lagging quotes.

Last look orders are also used by HFTs to flash orders and gauge where the general market sentiment is.

Info via Abundance Trading Group

The Mechanics of Order Flow:

Most traders in the retail forex market, be they hedgers, investors or retail traders, trade long or short – that is, they place directional trades to the long side or the short side.

Order flow or transaction flow takes place when a trader decides to act on the belief that price is about to move, executing an order (transaction) in the market.

This can take the form of a market order, wherein the trader moves aggressively, and pays the spread.  Or, that trader can enter a limit order or   stop order (a passive form of order flow), specifying the price at which the order flow or transaction is to be executed (limit order), or the price the order flow or transaction is to be executed at after a certain price is encountered (stop loss order).  These are both different forms of order flow.

What moves price is traders executing enough market orders in sufficient size to consume the liquidity of the best bid/offer.  They are generating order flow through their orders.  As long as they are of sufficient size to overcome the best bid/offer, that is what moves price.

In other words, in order to move price, traders have to execute enough orders to consume the liquidity at the best bid/offer.  Without any orders executing, price remains stationary.

Order flow trading means being able to predict future order flow, and taking advantage of that order flow, which will move the market.

As I said at the outset, I am a pure market technician and, as such, I don’t pay any attention to order flow data – nor do I engage in fundamental analysis.  I place directional trades, based on my currency trading strategy.

I just haven’t taken the time to understand order flow trading, and understand the underpinnings of liquidity – not that I am particularly interested.

Fundamentals:

A word on fundamentals… as a general rule, I don’t try to understand fundamentals.  They don’t drive my trading.  That said, I do listen to/read the news, so I have a cursory knowledge of what is going on in world events that shape currency movements.

Unless you are going to devote a lifetime to becoming a pure fundamentalist, understanding all of the ebbs and flows and machinations that come with trying to know what the fundamentals really mean, you’re better off sticking with applying forex trading strategies that work to the forex, like my currency trading strategy and forex trading systems.

The Big Dogs (institutional traders), who trade thousands of lots worth millions of dollars, know more about fundamentals than you and I ever will.  They have access to information that we don’t.  And, they have teams of people working for them, who do all the analysis.

In addition to my report coming up below, over time I will provide in-depth coverage of how they move the markets, and how you can ascertain what their positions are any given week.  Given the sheer size and volume of their trades, they are a force to be reckoned with and, as such, should command our attention, and deserve our respect.

Info via OrderFlowForex.com

The Big Dogs Strike

If you’re tired of forex trading systems that don’t work, then read on, because I am going to show you one that will crank your wheel.

One of my favourite topics in forex trading is the power of the institutional traders – aka, Big Dogs.  As just stated above, they trade thousands of lots worth millions of dollars.  As such, they wield a pretty big stick, and move the markets.

Now, it should be noted that commitments of traders data – aka, COT – is futures data, but it is also a good proxy for the forex.  You will find that the two markets move in tandem.  A word on pairs later on.

So, let’s have a look at what this all means.  Let’s start with the daily chart for the GBP/USD pair. 

The Daily Chart:

GBP/USD daily chart screen shot shows divergence between Big Dogs & hedge funds & MACD divergence.

Chart via ProRealTime.com and graphs via COT-Futures.com

Here, you will notice divergence on MACD to price, signalling a price reversal to the upside.

By divergence, I mean price cycling lower, and MACD waving higher.  You can see what I mean by looking at the red lines I have drawn underneath price and the MACD indicator on that chart.

This coincides nicely with what we see in the COT graphs on this chart and the two that follow below.  You can see the extreme divergence between the Big Dogs and the hedge funds.  When you see such wide divergence at the 100 and 0 levels, you know that price is destined to reverse course, and head in the opposite direction – in this case UP.

By extreme divergence, I mean the Big Dogs are at the 100 level (orange line) in the graph, and the hedge funds are at the 0 level (green line).

It should be noted that a shift in price direction doesn’t usually happen instantaneously.  Once the Big Dogs show their hand, it can take upwards of three months, give or take, before price reacts in kind.  This is not day trading information.

Given what we see with divergence between MACD and price and in the COT graphs, we can now look for a sustained rise in price – rising above the red 50 EMA – and for the 50 EMA to stop heading down.

Ideally, we would like to see the red 50 EMA punch up through the blue 200 EMA in the form of a Golden Cross, proving the trend reversal.

First 1 Hour Chart:

Now, let’s take a look at the first 1 hour chart below.  On it, you will see that price has already formed a Golden Cross – the red 50 EMA having punched up through the blue 200 EMA.  In Japanese trading circles, this is considered a bullish signal.

GBP/USD 1 hour chart screen shot shows Golden Cross and MACD heading down to the waterline.

Chart via ProRealTime.com and graphs via COT-Futures.com

Even though the trend is up on the 1 hour chart, and price is above both moving averages, we want to pay close attention to the behaviour of MACD.  You will notice that it is heading down towards the waterline.

As indicated on that screen shot, we should wait for MACD to stop going down, turn around, and then punch up through its trigger line, before pressing enter on our trade.  That would be MACD’s buy signal.

Second 1 Hour Chart:

If you now have a look at the second 1 hour chart below, you will see that MACD did do exactly that – issuing its buy signal, after price had swooned to below the 50 EMA.  You should always buy on weakness – i.e., buy the dips in an uptrend.  That is the Golden Rule, which is as old as trading itself.

GBP/USD 1 hour chart screen shot shows MACD buy signal and 60-pip trade with entry and exit points.

Chart via ProRealTime.com and graphs via COT-Futures.com

Let’s not forget that the trend at that point was up – as evidenced by both moving averages trending up, and with the 50 EMA above the 200 EMA, following the Golden Cross.  The 200 EMA is the trend indicator.  Years ago, it was voted the number one indicator out of the 99 indicators available to traders.

By waiting patiently, we jumped on board the trade, as illustrated on the chart, at the spot marked ‘Buy,’ to grab the run of 60 pips.  Not too shabby.

It’s always best to be the early worm, and execute the trade before the MACD cross takes place – after MACD has made the turn up, heading towards its trigger line.  According to DiNapoli, a famed trader, you should expect the cross to take place, and not feel that you have to wait for it to happen. 

Given that we are on the 1 hour chart, where you have to wait for an hour before the next candle forms, it’s always best to execute a trade off the 5 minute chart to get a better entry point with limited risk – and even get in earlier.

Let’s explore that notion right now.

5 Minute Chart:

Please study the 5 minute chart coming up next.  There’s a lot to digest on that chart, so just relax, and I’ll walk you through it.  Here, we are talking about executing a trade off the 5 minute chart versus the 1 hour chart.

GBP/USD 5 minute chart screen shot shows inverted divergence & trade entry & exit for 111 pips.

Chart via ProRealTime.com

Once you know the trend is up on the 1 hour chart, it’s then time to check out the 5 minute chart, and get ready to make a trade at that level.

To start things off, you will notice that we first have inverted divergence – price cycling higher, all the while MACD is trending down.  You can see that phenomenon illustrated in the chart that follows below – in the box over to the right outlined in red.

The trade is then entered at 1.4159, when MACD turns the corner, and heads up to intersect its trigger line.  That’s the buy signal.

One of the questions traders ask me is, once in a trade, how long should you hold it.  The easy answer is, it’s a simple matter of staying in the trade as long as MACD is above its trigger line.

When MACD punched down through its trigger line, it was time to reap the rewards of our astute technical analysis – closing the trade at 1.4270 – for a profit of 111 pips.  Notice that this was after the Golden Cross had taken place.

You can see how much better we did by taking this trade off the 5 minute chart versus the 1 hour chart – 111 pips versus 60.

The Shotgun Trade

I should point out another aspect to this trade – ‘The Shotgun Trade’ – which I am particularly proud of, given I created it.  It is one of the many simple forex trading strategies that I have developed over the years, but the currency trading strategy which has proven to be the most fruitful.

By that I mean, going back to where we entered the trade at the 1.4159, you will notice that price on the 5 minute chart was below the 200 EMA.  But, on the 1 hour, it was above the 200 EMA.  And, the trend on the 1 hour, as delineated by the 200 EMA, was up.

Translation:  that’s a form of divergence – price effectively going the wrong way on the 5 minute.  It was just a matter of waiting for price to wake up at that level, and get going in the right direction – UP!

Gotta love it – one of my many forex trading strategies revealed here for the first time at TradingSmarts.com.

I almost forgot to mention that, whether you are trading off the 1 hour chart or 5 minute chart, you should always use 30-pip stops.  If you trade the way I laid it out for you above, you will not get stopped out because, in either instance, you are effectively trading with the trend.

You may take exception to that statement in the case of the trade we took off the 5 minute chart, in that we engineered it when price was below the 200 EMA, which was trending down at that level at that level. 

But, the overall trend, as reflected by that moving average on the 1 hour chart, was up – not to mention the Golden Cross – the 50 EMA having already punched up through the 200 EMA. 

We were simply trading the divergence between what that chart was telling us, and what we were seeing on the 5 minute.  That’s the Shotgun Trade in action.  Pretty neat, eh?

Exponential Moving Averages (EMAs)

BTW, EMA stands for Exponential Moving Average.  It is better than the Simple Moving Average, in that it pays closer attention to more recent price action – i.e., price movements near present day.

I only use the 50 EMA and 200 EMA, excluding the 100 EMA, because those two forms of EMA give me the outer extremes that I am looking for.  As previously stated, the 200 EMA is the trend indicator. 

The 50 EMA turns out to be the trend reversal indicator, when it penetrates the 200 EMA in the form of a Golden Cross (or Death Cross in a down-trending market).

Regarding the 50 EMA, when you enter a trade in an up-trending situation, you should hold it as long as MACD is above its trigger line.  When MACD eventually punches down through its trigger line, signalling that you should exit the trade, have a look at the attitude of the 50 EMA.

If it is still trending up, you could consider holding the trade longer – even as long as the 50 EMA continues its upward trajectory.  Currency pairs trend well, so it may turn out that you have a very profitable trade on your hands – the longer you hold it.

Of course, once the 50 EMA turns down at some point, consider exiting the trade at that time – taking other factors into consideration – like the behaviour of MACD, candle reversal formations – hammer, railway tracks (tweezers), spinning tops, etc.

Inverted Divergence

Diagram shows standard and inverted divergence and the significance of each.

Knowing Currency Pairs

I promised you a word on currency pairs.  This is in relation to a comment I made earlier about the forex and futures markets moving in tandem.

Let’s take the USD/CAD pair, for example.  In the futures market, let’s assume the CAD (Canadian dollar) is moving up.  In the forex market, you would see the USD/CAD pair moving down.

That’s because of how the CAD is paired with the USD (U.S. dollar) – it being the second currency in the pair.

The net effect is the same.  While the CAD is getting stronger in the futures market, the U.S. dollar is able to buy less of it, and hence the weakness in the USD/CAD pair.

In Sum

Summing it all up… In my opinion, based on my 15 years of involvement with the forex, the forex is the best market to trade for the 26 Reasons to Trade FX I listed earlier on in this post.

Here are some of the salient points:

You can trade it 24/6 around the clock, it is always liquid, and it offers incredible leverage – can you believe upwards of 1:1000?

It cannot be engineered by any one entity.

It is the largest financial market and, as such, offers incredible trading opportunities, in that it is a technical trader’s dream – limited slippage, as with after-hours futures trading.  It is the closest thing to ‘what-you-see-is-what-you-get’ trading you’ll ever find.

A star stock like Starbucks may only move pennies on any given trading day – maybe even down a whole lot more – whereas the GBP/USD pair has an average daily range of 156 pips.

Let me put that into perspective for you.  Multiple that by $10, which is the average price of a pip in a standard lot, and you get $1,560 maximum potential profit for you to grab each and every day.

Now, I am not suggesting for one minute that you will achieve that much from trading that pair, unless you are an uber-trader, but the potential is there for you to snare a good chunk of it.  Ka-Ching!

Can you believe it… no clearing/execution/transaction costs, commission fees?  Yup, you got it right.  That’s not a typo.

And, you don’t have to scratch your head, as you wade through a myriad of commodities or thousands of stocks.  You only have to worry about a handful of currencies to trade in the forex market.  Talk about KISS!

As I said at the outset, if it’s simple forex trading strategies that work, forex trading strategies for beginners, or just a secure investment that you are looking for, then the forex is your ticket.

Or, it could be that you are just looking for a broker that handles managed accounts or for a secure investment.

I hope you enjoyed seeing inside the forex in my opening remarks – The Forex in a Nutshell – and especially seeing how the institutional traders operate in The Big Dogs Strike section.  And, don’t forget The Best Forex Trading section, if you missed it.

Give the forex a try my friend.  You’ll thank me.  Promise!  

You can always contact me if you get into trouble, or just want to talk things up.

Risk Disclosure

As with all trading, there is a risk in trading the forex.  I consider it my duty and fiduciary responsibility to help you manage that risk through proper education, and by just being there for you when you need my help.  There are many ways to mitigate risk, and that comes in the form of employing my currency trading strategy and forex trading systems.

It means doing your homework, trading the right pairs at the right time, and knowing what to look for in trade set-ups.  It also means using tight stops religiously.  I recommend 30-pip stops.  And, it means using the right indicators, and not getting involved in indicator fascination – all of this covered in The Big Dogs Strike section.

Words of Inspiration

“Stay the course.  Your investment split should be 60 per cent stocks, 40 per cent bonds.  Stocks will do better in the long term.”  John C. Bogle, Founder and retired CEO of the Vanguard Group

His 1999 book Common Sense on Mutual Funds:  New Imperatives for the Intelligent Investor became a bestseller, and is considered a classic within the investment community. 

“The person who says it can’t be done shouldn’t interfere with the person who is doing it.”

“The path to success is to take a massive, determined action.”  Tony Robbins.

“Paint in bold colours, not pale pastels.”  Ronald Reagan

“Risk comes from not knowing what you are doing.”  Warren Buffett

“JOB stands for ‘Just Over Broke.’”  Ryan McFarland

“SYSTEM stands for ‘Save Yourself Time, Energy and Money.”  Ryan McFarland

“Mortgage in Latin stands for ‘death pledge.’”  Ryan McFarland

“It’s not over till it’s over.”  Yogi Berra

“In a crowded marketplace, fitting in is a failure.  In a busy marketplace, not standing out is the same as being invisible.

The problem with competition is that it takes away the requirement to set your own path, to invent your own method, to find a new way.

Being aware of your fear is smart. Overcoming it is the mark of a successful person.” 

Seth Godin

“Change your thinking… and, you will change your life.”  Brian Tracy

“It’s easier to accumulate wealth, if you don’t live in a high-status neighborhood.”  Thomas J. Stanley, The Millionaire Next Door

“The more you believe in your ability to succeed, the more likely it is that you will.”  Shawn Anchor, The Happiness Advantage

“If you believe you can do it, or you think you can’t do it, you are right.”  Henry Ford

“Don’t let good get in the way of great.”  Scott McGillivray, host of HGTV’s Income Property and Co-founder

“Brevity is the soul of wit.”  Rush Limbaugh

“Those who play it safe don’t win wars.”

“If you’re not in love with the one you’re with, love the one you’re with.”

“Criticism is the engine of truth.”

“The definition of insanity is to keep doing the same things over and over with the same negative results.”  Albert Einstein

“Think awesome.  Be awesome.”  Muhammad Ali

“Value as a factor has now underperformed for most of the past 10 years.”

“Every bull market starts with short covering.”  Jason Mann, partner and chief investment officer of Edgehill Partners

“Our competition is the status quo.”

“Don’t rush into a burning building.”

“The Ides of March have proven to be a boon for the stock market.”

“23 chromosomes make you who you are.”

“The perfect is the enemy of the good.”

“Have a come to Jesus moment.”

“If you can be right even 60 per cent of the time, you’re doing well.  That’s my goal – to be a bit more accurate than a coin flip.”  Peter Lynch

“Wall Street makes money on activity.  You make your money on inactivity.”  Warren Buffett

“A rising tide lifts all boats.”  Warren Buffet

“It’s not the will to win, but the will to prepare to win that makes the difference.”  Paul Bryant (American football college Coach 1913-1983)

“Long ago, when I was 30 and he was 66, the late Donald Richie, the greatest writer I have known, told me:  ‘Midlife crisis begins sometime in your 40s, when you look at your life and think, is this all?  And, it ends about 10 years later, when you look at your life again and think, actually, this is pretty good.’

In my 50s, thinking back, his words strike me as exactly right.  To no one’s surprise, as much as my own, I have begun to feel again the sense of adventure that I recall from my 20s and 30s.  I wake up thinking about the day ahead, rather than the five decades past.  Gratitude has returned.”
From Jonathan Rauch in The Atlantic

In the meantime… if you want to know more about me, please check me out at that link.  And, if you haven’t already done so, please take the time to visit my previous blogs:  VIX, AfterHoursTrading, TradingVolume, and StockTradingStops.

If you would like to help me start a forum and be a moderator, I would love to hear from you.  Just drop me a line using the Contact provision at the bottom of my site.

If you would like to be featured in my blog, I would love to share your success story – or even your trading experience.  Please send me a message using my Contact form at the bottom of this page.

I won’t live long enough to know it all, and I won’t live long enough to make all the mistakes myself.  So, hearing your story will be most helpful not only to me, but also for my other beloved readers.

Please share this post.  Sharing is caring.  Thank you!

I look forward to your articles, feedback, ideas, stories, and suggestions for my blog.  Please post these on my blog at the Contact link below.  

HAVE FUN and ENJOY LIFE!  Remember – FAMILY comes first!

Here’s To Your Success and Quality of Life,

prbain

Peter R. Bain
PS:  Don’t let them steal your dreams!
PPS:  I will help you achieve your dreams!

About Peter R. Bain

Picture of Peter R. Bain, founder of www.TradingSmarts.com – the go-to site for all things trading.

Peter R. Bain

I am a speaker, trader, writer, aviator, car nut, Harley enthusiast but, above all else, I am here for you at TradingSmarts, which I founded some 15 years ago.

TradingSmarts is your best friend when it comes to finding anything and everything to do with trading.  Through my blog you will always find guides, news, reviews, tutorials, and much, much more.

TradingSmarts is a ‘NO-BS, No-Holds-Barred, Take-No- Prisoners’ site for traders who want the straight-bill-of-goods on how to make a full-time income trading less than part-time. 

Noel Aranas of New Jersey:  “It is my pleasure being a client of yours.”

Take your trading to the next level…

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Peter R. Bain

I am a speaker, trader, writer,
aviator, car nut, Harley enthusiast
but, above all else, I am here for you.

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