In the spot forex market, all trades must be completed within two business days. A rollover is the process of closing open position for today's value date and the opening in the same position for the next value date at a price that reflects interest rate differentials between two currencies.

According to international banking practice, the Forex broker automatically cancel all open positions at a later date at 17:00 EDT for settlement.

Rollover involves changing the position held for the position following the completion date expires. For example, for surgery on Monday, the date is Wednesday.

However, if the position is opened on Monday and held overnight, the present value on Thursday. The only exception is the open position and held on Wednesday night. Normal exchange date will Saturday, because the bank is closed on Saturday the true value of the following Monday. Since the weekend, positions held during the night or the support to get two extra days of interest Wednesday.

Trade with a value date that falls on a holiday will also incur or earn additional interest. Merchants can earn interest on rollovers, depending on their position and direction of interest rate differential between two currencies involved.

For example, the main interest in the UK is much higher than in Japan, if a trader buys GBP, he / she will earn interest at 5 pm. On the other hand, if he / she sells GBP in this currency pair, he / she must pay interest at 5 pm ET.

Overnight interest / rollover automatically paid to the customer after buying a currency with higher interest rates in the nation, on behalf of a client if the country issuing the currency rate of major concern.

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Market knowledge and ability to understand further analysis in forex trading but without the courage to actively compete risking your own money in the process can never be a successful trader.

Large amount of money bet on the market is very sensitive to change is likely to cause a range of opposing emotions, fear, excitement and anxiety to name a few. Battling your emotions to complete a successful transaction is one of the biggest hurdles to overcome if you become the operator can reach an agreement and to obtain large amounts of money. If you can overcome or even to use emotions to make trades in Forex then a successful career can be exciting, but to do so will almost certainly cost you large sums of money and end the persistent desire to advance in the animated world of commercial exchange.

Early and close the trade at the right are the backbone of becoming a successful trader. If someone can not execute the agreement in a timely manner, psychological and financial damage can be overwhelming. Lost a major trend or sitting for a long time for a good price, can be a daunting experience, but many are in a career in forex trading.

Enter the time to do one thing correctly, but if you can not leave on time or keep them quiet during operation, the consequences are serious. Such as accepting a small loss before leaving the market can lead to terrible proportions a large margin of profit / loss. Just sit on the price of the currency is in free fall for too long can be financially crippling. Understanding the Forex market and have faith in your ability to assess trends will pay dividends if you hold your nerve, back at the wrong time could be disastrous mistake.

The fear generated by investing your own money is the main thing that must be addressed. Guilty of failure are so many stories of people who can not cope with their anxiety investing unwisely, pulling at the wrong time, the lack of overall improvement, all the results in a failure and is caused by fear. Acceptance of this fear and use it to its full potential will make you a stronger trader, able to trade freely and enjoy the excitement of change. Fight will get you nowhere, understanding and improvement are the best solution to this emotion-based.

Trading strategies will help you through the tough times and enjoy the good. Sometimes, just take a step back and accept the losses will be given the strength and knowledge to attack a currency with a new spirit, and make some serious profits. Accept that sometimes you lose, you should be able to take the punches and roll with the punches, there are no guarantees in the commercial market, to be able to move and start again is a very important skill to produce success.

Analysis and graphics can only go so far. First, you need to master these things, and can correctly interpret these figures to identify trends and make your move. But all that means nothing if you do not have the courage his conviction. If you are afraid to buy and do not know when to sell and then a successful career in market transactions is likely to run away. "The trend is your friend", but it has no meaning if the first one you can not see and others do not have the courage to save. Knowledge, and strategies to overcome the fear of maybe 3 to be the best way to open the door to become a successful trader. Without the 3 more often than not take off, to prepare, train and evaluate everything before taking the decision into the complex world of Forex trading.

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Many people have been 'burnt' from scam operations on the Internet. Their sites may look so perfectly legitimate that you doubt they would have gone through all that trouble building a trading platform just to steal your money. Be careful.The first thing I look for is the broker location. If I find they are based in a country where the financial sector is, in my opinion, relatively unregulated, and not, I quickly forget to sign up. This is bad news for honest brokers in those countries, but your job as a trader is to protect your capital. If you lose, you can not negotiate. The onus is on them to convince you they will do the right thing by you as an investor.I started with a broker in Australia. I am currently using an American. I have not tried to negotiate based on the UK, but the British financial industry is one of the best.Companies based in countries like Japan, Germany and France could also, if their website speaks your language.Note the license number they may have registered with a regulatory body that acts as a government watchdog overseeing the financial sector and investment. This is an organization that has strict rules to protect your investment. Some of these rules may include requirements that all funds brokers' client funds separate operating company.Your money is needed to put in a very reputable bank and the funds are withdrawn from these accounts on specific withdrawal requests.Note that there are some fake regulatory bodies being thrown around in cyberspace as well. Look how long they have been operating. Try to find comments or observations about them. See if you can find forums where traders discuss their broker.Here is a list of things to keep in mind to help you avoid becoming a victim of a scam:Stay away from opportunities that sound too good to be trueThere are people who have recently acquired a large amount of money just and recently are the same and go around safe investment vehicles. They may be retirees who have access to their pension funds. It is easy to see why retirees would be interested in high yield, low risk investments. This is also what makes them very vulnerable. If you identify with one of those people, be careful. Many crafty character of your money. Furthermore, only a small amount of money you allocate to trade until you can begin to grow. Not everyone can successfully negotiate, so it's a business, you need to take arbitrary. This is your savings at risk.Prevent individuals or organizations that claim to predict or guarantee Great AdvantagesAny form of trading is difficult. Currency trading is no different. Be wary of statements that make it look easy. Statements such as:"Whether the market moves up or down, in the currency market, you will make a profit";"Make $ 1,000 a week, every week";"We outperform 90% of the investment in the country";"You will make a profit of 70% per year";"This is a strategy without risk."If they can get such results, why did they bother to tell you about it.Businesses are wary of the risks discouraging investmentBrace yourself and purse zipper bag when companies say that written agreements risk disclosure are routine formalities imposed by the government. Be careful with statements like:"With a deposit of $ 10,000, the maximum you can lose is $ 200 to $ 250 a day";"We will recover the losses you have."Beware of companies claim to trade in the "interbank market"Do not believe when some people say they have access to the "interbank market" or they can give you access to trade in this market because it is cheap can be obtained.This is not true. The "interbank market" is not a place, it's not a physical building. This is just a loose network of currency transactions negotiated between big financial institutions and other large companies.Ethnic minorities are often targetedEthnic newspapers and infomercials' are sometimes used to draw the Russian TV, Chinese and Indian minorities. Sometimes these ads offer so-called employment opportunities "for account executives to trade foreign exchange," where "executives recruited into account" are expected to use his own money for currency trading and are often encouraged to recruit members as friends and family do the same thing.Search for Company HistoryCheck the information you receive to ensure that the company they claim to be. If possible, try to get the background of the company's operations. Do not rely on verbal statements and promises made by company employees.If you are in doubt, it is not worth risking your moneyIf after trying to seek information and at the end of it all, you are still uncertain about the beliefs of a given society, my advice is to start looking elsewhere.You can find more information by calling the "watchdog" of government because they keep abreast of trends and reports of fraud and other fraudulent activity. Please see the Resources section of this site for more information on the agency that regulates the securities industry, sorted by country. There is also a list of brokers that you may want to see.This is an excerpt, modified from the book: The currency trader part time.

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The origin of the FOREX trading traces its history to long time ago. Different currencies and the need for change existed since the Babylonians. He is credited with the first use of paper notes and receipts. Speculation hardly ever happened, and of course an enormous speculative activity in the market today would have liked.

At that time, the value of output expressed in terms of other goods (also known as the barter system). Obvious limitations of the system is required to build an exchange more generally accepted. It was important that the common base value can be determined. In some countries, such things as teeth, feathers even stones served this purpose, but soon various metals, gold and silver, established themselves as some form of payment accepted and reliable store of value . Trade between the peoples of Africa, Asia, etc. through this system.

Originally printed in metal parts and elections in a stable political system, the introduction of the role of public debt during the Middle Ages also gained acceptance. Types I.O.U. intrusion more success than through persuasion and is now the basis of modern currencies.

Before World War I, most central banks supported their currencies with convertibility to gold. However, the gold exchange standard is a weakness of boom-bust pattern. As an economy strengthened, it will import a large quantity abroad until it ran its gold reserves required to support the money, therefore, decreases the money supply, interest rates have and increased economic activity slowed to the point of the recession. Ultimately, prices have hit bottom, appearing attractive to other nations, to be held in a buying frenzy that is injected into the economy with gold to increase its money supply, the rate of lower interest and wealth in restoring the economy .. However, for this type of gold exchange, not necessarily the central bank to the extent of government's exchange reserves. It does not happen very often, but when a group mentality promoted the idea of ​​a disaster convert gold in mass, panic resulted in so-called "bank run" The combination of increased supply of paper money without gold cover led to devastating inflation and resulting political instability. The Great Depression and the removal of the gold standard in 1931 created a meaningful peace in the Forex market activity. From 1931 to 1973, experienced a series of changes in the Forex market. These changes greatly affect the global economy at the time and speculation in the Forex market is still weak.

To protect local national interests, increased foreign exchange controls to prevent market forces from punishing monetary irresponsibility.

Towards the end of World War II, the Bretton Woods agreement was reached on the initiative of the United States in July 1944. Conference held in Bretton Woods, New Hampshire, rejected the suggestion of John Maynard Keynes to a global reserve currency in favor of a system built on the U.S. dollar. International institutions like the IMF, World Bank and GATT were created in the same period emerged victorious from World War II to find a way to avoid a crisis of stable exchange leads to war. Bretton Woods fixed exchange rate generates the return of the gold standard, in part, is set at $ 35.00 USD per ounce of gold and the establishment of major currencies against the dollar, initially intended to be Standing.

Bretton Woods system was under increasing pressure as national economies have taken different directions in 1960. Some rearrangement of the system are kept alive for a long time but eventually Bretton Woods collapsed in early 1970 after President Nixon suspended the gold convertibility in August 1971. The dollar is no longer adequate as the international currency at that time was under heavy pressure from increasing U.S. budget and trade deficits.

Recent decades have seen foreign exchange market became the largest in the world. Restrictions on capital flows have been eliminated in most countries, allowing market forces free to adjust the exchange rate according to their perceived values.

European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. Search continues in Europe for currency stability with the 1991 signing of the Maastricht Treaty. This is not only to fix the exchange rate, but also actually replace many of them in the euro area in 2002. London, and remains the main market abroad. In the 1980s, became an important center in the Eurodollar market when British banks began dollars of credit as an alternative to the pound to maintain its leading position in global finance.

In Asia, the lack of sustainability of fixed exchange rates has gained new relevance to events in Southeast Asia during the second half of 1997, when it devalued the currency after currency against the U.S. dollar . States., Leaving other fixed exchange rate changes, especially in South America also looking very vulnerable.

While commercial companies have to deal with the foreign environment is much more volatile in recent years, investors and financial institutions have found a new field. Forex currency market worked initially at the central bank and government institutions, but later accommodate the various institutions, now also includes the boom of the dot-com and the World Wide Web. Size of the Forex market is now far superior to other investment markets. The foreign exchange market is the largest financial market in the world. About 1.9 billion traded daily on the forex market. It is estimated that more than Rs 1,200 million traded daily. Can we say easily that FOREX market is a lucrative opportunity for modern intelligent investor.

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As you know, the currency market (Forex / FX) is an unregulated market is not traded on exchanges, which means that the price you see and get a dealer may vary from those of other riders . There are mainly two types of runners. One type is the ECN (Electronic Communications Network) and other market-maker.

Market makers "make" or set prices on their systems based on what they think is best for themselves as compensation. This is because every time you sell, you should buy, and when you buy, have to sell. That is why we can offer fixed spreads, as it is setting the supply and demand prices. Many of them, then it is to "protect" or "cover" in order to transmit it to others, however, some may decide to take your order, and thus trade against them. This can lead to a conflict of interest between the retailer (you) and market makers.

NEC, however, delivered prices of some banks and market makers and other traders in the ECN, and display the best bid / offer on the basis of this input. That's why sometimes you can get no spread in the NEC, especially in a highly liquid currency pair. How to make money ECN? They still charge you a commission for each transaction.

Here are some pros and cons of ECNs and market makers:

Market makers

Advantages:

• Usually provide free graphics software and news service
• The price may "soften" and less volatile than ECN prices (this can be a disadvantage if the resale or trading very short)
• Often has an interface more user friendly trading and analysis

Disadvantages:

• They may trade against them. In this case, there will be a conflict of interest between you and them
• The bid price may be worse than what could be in REC
• It is possible that can trigger stops or not let your trade reaches its target level of profits by manipulating prices
• During the stories, there will usually be a large amount of slip, the system can also lock or impossible to put in hours of high volatility
• Many of them to prevent damage and to resellers in "manual execution", which means that orders can not be met in the price you want

ECN

    Advantages:

• Generally, you can get a better supply / demand, because they come from various sources
• The differential between supply and demand can not spread or spread small, sometimes
• If they are true ECN, they will not work against you, but you deliver your order to a bank or other clients at the end of the transaction.
• You will be able to offer a price between supply and demand with the possibility of filling
• If they support Stop-Limit Order, may prevent it from slipping during the news, to ensure that your order will be executed at the price you want or not at all
• The price may be more volatile than it would be better for scalping

Disadvantages:

• Many do not offer integrated graphics
• Many did not offer new integrated
• Many of the trading platform is less easy to use
• Variables because of differences (between supply and demand), may be more difficult to calculate stop loss and profit target in pips in advance.

Summary

It is important that you observe carefully the pros and cons of each broker before choosing the one that best suits your needs. You can also have a number of brokerage accounts to reduce risk, and so you can compare supply / demand and trade in the hallway the best price for the direction you want to trade. Due to the unregulated nature of forex, U.S. officials are not required to keep your money in an intangible asset that you can access if they collapsed. As customers of Refco (was one of the largest brokers in the world) found that reporting unprotected unsecured creditors, and therefore tend to get their money than those who had obtained loans to Refco. What this means is that customers' money to pay other creditors.

Moral of this story:

Less money deposit with your broker that you need to trade and take profits when they exceed a certain amount. Keep the rest of your trading capital in your own bank account can be provided by the government.

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The last time I say that with the use of clarity, we must distinguish between what is available (100:1, 200:1, 400:1, 500:1) and what you can choose to use. I show how the marketing people deceive operations assistant with very high leverage, and assured them that this is a good thing. These people are not aware of the adverse effects of leverage on your account. It's like speeding on a mountain pass, but I think they are on the floor. You can terminate a way ... disaster.
We conclude that:

• What is commonly known as leverage is really necessary margin expressed as a ratio if you use all the power brokers will allow you to borrow.
• The real influence is determined by dividing the capital into the value of your position.
• Real influence will vary from trade to trade and promote trade with the simultaneous (open position).
• The margin requirement has no effect on the risk, if the trade properly with modest influence within your means and should not be used as a principle for calculating the risk margin.

I also want to cover, on the more fundamental question of leverage, ie the exact calculation.
Leverage is about to borrow money. To calculate the leverage you need to know first how much you have, and then divide the amount to be negotiated with (a measure of where purchased, or in substance, loans).
Say you have € 20,000 and make a change (buy EURUSD 100,000). The lever is 100,000 / 20,000 = 5.1. For each € 1.00 you really trade with € 5.00.
Now, more precisely, the euro is one example I want to make sure they understand the difference between "leverage operator" and "use the teacher". I saw this in part 1, but only in passing, and this is important because I want to make very sure you understand what I mean.
I think many readers BWILC (book) has adopted Part 3 - "All that Jazz" or flipping quickly and missed the part where I explain leverage. Also may have lost a very important little paragraph in the base currency and exchange agreements. Distributors for real money in the room of the bank comes to these things are very important and it is second nature to them, but for some reason, to retail currency speculators see as less important and therefore creates a major error in the calculation of risk.
You see, if you look at the operations to leverage on the futures market or the stock market is really the only calculation - as in the example above. If you live in India and make a leveraged transaction in the stock market of India and the rupees you got a few rupees and you trading stocks listed on the stock exchange. This is a very obvious calculation: divide what you have in the value of your offer. But things are not so simple in the currency market.
Minor complication is making sure you know what you have. In other words, the currency of your account? Suppose the U.S. dollar. (I think a lot of traders in the United States should diversify their trading accounts to other currencies as a way to reduce the risk of having all your eggs in one basket.)
The problem with the calculation of debt in foreign currency must be divided apples to apples. Accordingly, you should express the base currency of the currency pair you are trading in the currency of your account.
So, back to basics. What the hell is the base currency? This is not the currency of your account. The base currency is the currency called for the first time in the quote currency. When we say that EURUSD, Euro is the base currency. When we say USDJPY, the U.S. dollar is the base currency.
When we say that the price of the EURUSD is 1.2755 / 8, then it means that for every dollar you have to pay U.S. $ 1.2758 if you buy euro and sell euro if you do, you will receive 1.2755 U.S. dollars. Say it with a $ 10,000 account to trade our money to buy a "standard lot" of (€ 100,000) EURUSD. The value of transactions in U.S. dollars is $ 127, 580. We have $ 10 000 and because our loan is 127580/10000 = 12.75:1. For every dollar that we are negotiating $ 12.75 - made use of, or 12.75 hours directed to our account. (There is no difference between "influence" and "loan".)
However, it has become commonplace in the world of Forex retail to express this operation just to get leverage of 10:1. This ignores the fact that there are two apples and pears and divide only 10K to 100K. It is interesting to ask why it has become common practice, and I take the time to explain why I think it is.
A little history
In December 2003, the U.S. regulator, TFCC, which in terms of the Commodity Futures Modernization Act (2000) began to oversee the OTC (Over The Counter) rules on the exchange of foreign bank issued new requirements. I think so far assistant advertising marketing leverage of 100:1 or 200:1 (or a margin requirement of 1%) without understanding what is the base currency of a particular transaction has a significant impact on the the margin they need. They do not care. All the money in U.S. dollars and charge only 1% of the total 100,000 units of currency and U.S. dollar both. At that time, most of the currencies traded in the pair - EURUSD - worth less than a dollar per euro, this has no effect, because the margin was more than 1% of the contract value. For example, when negotiating EURUSD at 0.9250 a contract valued at $ 92 500 and $ 1,000 more than the 1% ($ 925).
That changed when the euro has significantly increased in value by $ 1.00 per euro, and suddenly the margin they charge less than 1%. CFTC also issued rules in 2003 that the margin requirements for retail Forex broker OTC (OTC vs exchange-traded) must be compatible with currency futures. This caused a stir because of the margin required to be up 4% - 8% and minds marketing wizards who lose money to companies that are not regulated.
The objections which they work (as we all know now), because the margin requirement is only 0.25% depending on the size of the transaction, the most common of about 1%. What the regulator does the force calculation (exact) in the right margin as a percentage of the amount of the basic contract.
Understanding the initial amount is fairly substantial trade, people will think. You might also think that retailers pay a good price for business advice, or training, e-book for a classroom course or courses of study at home, receive the proper guidance in this area . Unfortunately, this rarely happens.

Using very strong trading career kills potentially promising

Leverage amplifies the volatility in the market trading account with leverage by leverage.
Let me explain this with the story of two friends, Frank Buck and Sterling brands.
Frank was a professor of history and do a PhD on ancient civilizations and Buck is a computer programmer. Annual leave, Frank decides to visit Stonehenge in England, and has consulted Buck began exploration in currency trading, helped by the eBook "Forex Trading for idiots."
They went to a free seminar, but Frank is not decided by him. Buck, but branched over $ 1500 for a weekend, with free prices, charts, without that, and the system is to raise $ 3,000 to $ 1,500 for trading days through the open book "in London "thereof.
Buck struggled at first, but recently, they have no control and earn less than $ 70,000 demo. Frank Buck asked a little surprised at how well he did and what the essence of this system. Bucks respond? "The rules of the game to their friends, the leverage effect". (I should also add that Buck had a gambling $ 50,000.)
So Frank, consciously delayed his trip to England to ask Buck to let you know when it is best to change money per pound and requires Buck, he showed 5 minutes, 15 minutes and 60 minutes, when the current graph was to buy sterling - stochastix screaming "buy" and Fantastix promises of wealth. At the top of the hour, Frank was quick to the Exchange Office and pay $ 1.88 for each of its 5,000 pounds. Global paid $ 9400. Buck, who wrote a software demo money on your Easy-Forex has just 15,000 pounds of money overnight. Frank becomes jealous.
Buck explained to Frank that the crocodile was reversed with a white flag hanging from the rope that hung Doji yesterday, the resistance is the launch of their weapons, while support is building new bases close to the action on the daily chart, and lucky star was in the right iliac fossa, because the Czar became paralyzed right hand brake. Translated, the Frank Buck said, means that if Frank bought another € 5000 when I was in what he will make a small profit, because "" the trend is the pound sterling and the trend is your friend "said Buck paging through Forex for idiots.
Frank rushed to the Exchange Office and others to buy £ 5000. Buck is right now, Frank paid $ 1.89 per pound. Total income: $ 18 850 to 10,000 pounds. At the time of Frank on the plan, Buck launched the careers of real money trading, commission free funds, two pips on the majors, commercial accounts 200:1 leverage Capital Partners money to a deposit of $ 20,000.00 clock.
A few weeks later, Frank had a wonderful time in England and decided to revisit one week before the Arlington Racecourse and play the horses. USD is currently trading at 1.95. Of course, Frank Buck think rolling in money - the trend is a friend. Frank has his fortune and win £ 10,000 by Long Shot Pick Six after winning 6 races with a wet nose.
At home a few days later change (10,000 euros) for a dollar at the airport to the level of 1.92. Frank has received $ 19 200. He made $ 350 after a holiday. Not bad. Buck, however, have to be a millionaire today!
First day back at work by Frank Buck is absorbed into a computer program. Trade in the second blank screen.
"You're right," Frank said with admiration. "The trend is your friend." He put the gift on the desktop brand of Arlington. "I have an exciting vacation and after that I was in the dark, thanks to you are a genius .. What the book trade at the moment?"
"I do not know," said Chief Buck.
Frank asked a little surprised by the Tsar paralyzed, if the resistance is still building a base, and if the executioner was very busy. "I do not know," says Buck, "I'm not interested." He looks sad. Wed to Frank.
"How much is lost Buckey?"
"Twenty-K". Frank Buck was surprised to delete an answer.
"The rules of the game to their friends, the leverage effect".
Then, a conversation between two with more detail and reveals the sad story. Buck said:
"The problem is that at first I was a little too conservative I made a bargain with a leverage of 50:1 few .. In other words, I made $ 100.00 per pip . Success 1.9500 pounds, I have $ 40 000. So I decided to up the ante a bit and I took advantage of the 40K 80:1, in other words, I will 320.00 $ per pip. I have to put the stop bit closer, because it is the work of an idiot Money Management. So I put a stop 15 pips idiot, what happens first? I can get 3 times the same day, U.S. $ 14.400 in the tube .. What happens next market turned? and head toward me, just after he leaves aside. In fact, my third stop took place in the march down and 20 minutes of the last two I will be trading in the money ".
"Well, the next day and bought the tendency of 80:1 Now another 30K, 240.00 per pip then I realize that this is a bit volatile EUR - The King and I always stop, this time Well call 30 pips stop me .. I did for only 5 pips This is worth $ 7200, I realized that the double top at 1.95 and has a sign that the trend has changed - .. Parabolic SAR. . min 15 is very clear to me ..... time selling $ 200 per pip.
So what happens then? I'm not sure at some point, I was 50, then all hell broke loose and good, I left the road well. It is $ 6000 and from there more or less long. I have to use a tight stop because I did not do much in my account and is thus held time and again. I began to realize that the volatility of the real money is a bit different from the volatility in the money demo. I can not explain, it seems larger. I stopped looking like a magnet attracts the market. Ping! Order, the market turned and went my way. Well, two days after he left 3K. The Capital Partners own cash-for-clock the rest.
Let me tell you something Frank, leverage is a double edged sword -. It is the bloody guillotine and my head on the block"
Buck has faced changes in your account has been created by market volatility and amplified by leverage. Frank apparently kicked the ball, and Buck lost money in a hostile market. In fact, both are games of chance, the only difference is that Frank knew that his victory in the horse is a matter of luck. This is part of our psychology that we do well when you consider that with our talent and when we do wrong is supposed to bad luck. Often it is just luck, nothing more and nothing less.

The cost of debt

This story, with different nuances, but the same theme, repeated every day, as on behalf of a prospective forex trader on the fire.
Besides the fact that high leverage to force him to stop coming - the bread and butter income forex broker - and dramatically increase your chances of being victim of a random very short-term foreign currency market, but also cost you a stroke.
Many traders think that there is no cost to trade because of the spread does not look good, other than loss or glitches glitches they do. This is wrong because the transaction has two parts. The cost and income below. Cost is the amount deducted from its capital account, if you close your trade is opened immediately, without any change in market prices.
Say you have an appointment GBPUSD 1.8650/55. You buy at 55 and if you sell will sell quickly at 50. The cost of management is 5 points. His agent sold to 55 and you buy at 50. We can say that the real market is 5 points from your position. You can not ask spread, unless you perform a winner - if the market moves in your direction, it becomes widespread. But if you make a losing trade is 5 pip cost, in addition to what has been lost due to adverse price movements. The higher the cost of distributing more debt than you are, bleeding money from your account
Let me give you a concrete example. Currency speculators leveraged very detail will jump at the opportunity to use the trading system is not 35% of the time, but due to reduce losses and run profits are sure will succeed. They are wrong.
If you're anti-leverage, the only way you can lose all your money if you keep the currency loses value.
Operating expenses from the perspective of Frank, when he bought it possible to pay £ 15 pips on the Office of images. Because he lost all his money on something that would have happened in sterling made him lose all their value - a meteor in the sky to eliminate England. It's impossible. Thus, the value of GBP Frank remains relatively stable. But when you add a lever to strengthen their own, creating instability, as the story of Frank Buck and illustrated.
But what I really want is this: If you take a high degree of leverage from a dealer who is not on, say, in the 40 months of trading on the leverage of 20:1, the real cost of trading before gains or losses due to price fluctuations start to play a role. Mathematics is as follows: trade 40 pips x 5 x 20 (min) = $ 4,000 lot. If he had used the wrong trading system for 35% of the time (which stands for a short stop) costs which can not afford the $ 1.400 or 14% of its capital. This is a direct cost to your business, and it is these costs that the attack - this is the "head" is very questionable if you think that trade is a business.
If a trader uses a trading system equilibrium point is a very good operator. But in the long run end up losing support, in addition to everything he does, which deplete the account.
If you understand the randomness of you know that are 35% of the trading loss can come at any time. They can be the first 14 months of negotiations. The impact of the loss of high indebtedness of operator actions, once by running very bad, can destroy your account. To maintain the "system" that it should drop the size of your transactions, especially after a difficult period. Therefore, there will be many more to make a loss. In this process, despite their small transactions, leverage its always the same (very high), because of its low margins.
If you really want to work with you, then you have to work the back, is not expressed as a percentage of their range, but as a percentage of the value and the total cost of the transaction.
Leverage amplifies everything in your account - at the same time, we have not changed much in the market.
Another consequence of the influence is that it strengthens its capital variance account. And it (the variance) has nothing to do with an ongoing lucrative business.
In the short term, days, weeks, months, (some would say a few years) if you see the results of the company, there is a good possibility that everything you see is random variation hidden under the appearance of the system commercial smart. The data are insufficient to show that what you see is the result of any edge or skills you have.
Go absolutely crazy for Frank, after a visit to Arlington, to begin a career as a bet. But as it was just a little less naive Buck thought he had broken several weeks of positive change in the demo account.
If you know something about the possibilities that you know the chances are very high that a series of coin tosses will expire 50/50, either heads or tails. But did you know that if you take a series of 100 develop the range of 50/50 will be mainly between the 38/62 with very little outside of this parameter.
Unfortunately, it seems part of human nature (behavioral psychology has shown that) that we tend to see a model or series that do not exist. And we used to do on the basis of insufficient data. Novice traders who so dearly want to do well are very likely to read a brief set of benefits that have a certain edge and the edge of the success of long-term career in commerce. Once you open a real account, the possibility of lifting the head and bite.
I want to be very practical.
8:01 p.m. Say you use the lever to all trade shows and reached a circulation of good luck and a positive end, so that 20% this month. Remove the harness and reinforces the variance of the equity in your account and earnings may be 2% - and is good for the short term. What if you have a longer period, say, four months with three "bad"? Where are you from. If you maintain a high degree of leverage that will be losses in bad times that may outweigh the benefits for good racing.
With the task of deciding the final good leverage height is now ready for real trade is exactly the kind of thing that Capital Partners money-for-clock wants you to do, because they know they will receive money for jam - of you.
What I mean is how the change in the strength of your account after changing your thought patterns and negative. You can not focus on the market, which is a trader should always be done. Instead, they are obsessed with the clutter in your account. What is the price you have, what factors you should know about? I do not know. Your energy is used in the wrong place altogether. In short, you have lost a kind of perspective you need to trade successfully.
You are in a situation where you can not manage the natural changes that occour and setbacks in market trends.
The variance of this magnitude due to the increase not only steal from your cash account, which deprives them of the opportunity to negotiate meaning. In short, be able to buy low and sell high, you must have an idea of what is base and which is high on the market. But, is that you lose perspective, paralyzed by fear of further losses on their own instead of "losses" in other currency markets.

Can you make money trading with low leverage?

Well, some would say, with low leverage of the system, do not miss much, but can you really make money? The value of your time? I think I can, and most of the trajectory in BWILC where I show how I do 74% in two months because of trade with low leverage, which can show how others are doing. To make the strategy forex money trading should be based on the original edge to overcome the possibility of 50/50 on a commercial basis.
I developed a strategy that offers benefits. I call my strategy 4x1: one currency, one way, a lot-one percent. This is my E = mc2 and Einstein's formula was like some of the things taken for granted the positive side, this formula is the kind of orthodoxy and wisdom in books sold as Forex trading for idiots.
The following is an interesting story, if one of my clients. When he started with the mentoring program to answer the question - assuming that you fought so far, what do you think of that? - East:
Most of the struggles that I have to believe what I read in the trading system. The biggest problem was stopping too close to random price moves to limit my risk% of the general account. You are the first to expose this madness to me. However, now worry about how to make "real" money with so little gear.
That was in January 2006. In March 2006, funded a trading account of $ 5,000 in late August 2006 and his account is already high. After five months of negotiation, using the above formula and low leverage right saw an annual return of 278%. Your actual result is 129% - in the book to all who should be considered as money "real".
Oh, and accuracy of their trade is 90% (eg 10% loss of trade), operating loss is generally higher than the typical commercial profit and the biggest benefit is 4% of capital investment original, indicating that there is a real advantage, not a one night stand on a large scale operation which ensures the "brightness" had just discovered.

Read more...

Leverage is not even a double-edged sword, the guillotine - and head on the block - PART 1

Dr Forex says - Let me explain once and for all the influence that is not what the broker allows you to use, is what you decide to use.

I'm finally at the point where bird watching in Lion Country newsletter is ready for publication. If you have not received one before, do not start watching the mail spam filter. This is the first newsletter.

Choice of subject is a difficult problem, but the "leverage" is always high on the priority list for the first edition. Recently, once again realize clearly how misunderstood the concept is important for all aspects of money. In my mind, there is no doubt that most of the problems that traders have begun to exploit. I dedicate this first newsletter, then this concept - and the destructive power of influence in the world of retail forex trading.

Some data

I have not personally seen a trading account deletion does not use too high.

There is also no record of profitable trading account and trade-oriented and sustained high leverage, short stop.

I ask my clients since the early mentoring what they believe is the reason why the earlier losses. Most answers are something to do with leverage, I do not understand at all, or only partially, or underestimating once they understood.

The leverage is so, it is ...?

I receive many questions as follows:

I read your book and I liked it. You give me information where I can get 1:01 of the company to exploit you mention on page 108 of your book? I use a demo with only $ 1,500 in the account with 200:1 leverage, and I am a bit worried by this contract, including a mini with a coin.

Or:

I am advised to contact your agent can operate with less than $ 10,000 with low leverage, but only offer a leverage of 50:1 to 3:01, and not as you suggest.

It is clear that leverage is misunderstood and this misunderstanding is the source of forex trading and the loss of a vain attempt to overcome these losses without tackling the root causes.

Regulatory warnings that leverage is a double edged sword that can work for or against going completely ignored and a warning "past performance is not indicative of future performance" is flatly ignored.

Using the most misunderstood by the marketing wizards of forex (the friendly forex broker) have a little trick of the hand that moves the focus of this very important fact of how many of the levers for the operator amount of trading capital forex marketing wizard is ready to provide the merchant.

Everything you read on the influence to do with the maximum leverage you can achieve, and very little about the application of prudent leverage in the forex trading system. In other words, the agent tells you how so you get if you want, not how much you should take, if you know better.

Warren Buffet said - "The risk of not knowing what you do."

People talk about 100:1 leverage - "I trade with 100:1" without knowing what it means. I'll show you later how this is his greatest enemy by being stupid about this important concept. I hope that many of you will get a big "AHA" experience of the newsletter.

Definition of debt

This is a general definition:

The mechanical strength or the benefit obtained by using a lever.

The definitions contained in www.investorwords.com said lever is:

The extent to which an investor or business is using borrowed money.

Closer to forex trading: www.thefreedictionary.com

The use of loan funds or loans to improve its ability to speculate and to increase the rate of return on investment, like buying securities on margin.

Introduced the concept of "margin". Make sure we understand what the margin is:

Definition of margin

Number of customer deposits with the guarantee broker when borrowing from a broker to buy securities.

Here's what to do if you open a forex trading account. Your deposit guarantees to request foreign currency trading. In fact, you do not need to borrow, but you can if you wish.

When the loan is at stake is public knowledge that the amount the lender will be willing to lend has certain limitations. Obviously you can not lend in unlimited amounts.

Something that most traders is that connects the marketing wizards use the term "influence" and "margin" very loosely and interchangeably. This causes much confusion. I'm sure this is done deliberately, as forex broker interest that traders do not see high leverage as a problem of destruction, but as an opportunity.

Make sure we understand first "leverage" and "margin".

To understand the use for marketing purposes, we will use the well-known concept. Want to buy a house, you do not have the capital available, but you must pay the salaries and fees on a regular basis, then go to the bank and borrow money to pay for the house. So, increase your income / salary. There are limitations based on, among other things, the income which means that the amount you can borrow based on your income is limited. There is a maximum you can borrow. Obviously, yes, but very important concept for the lender - the maximum that should be given to maximize the return on capital without overexposing the same risk of default on their side.

(Think of the touchline. If forex trading is largely with borrowed funds why not call upon the agents of interest .... Think about it?)

Remember this: The lender focuses on high, while the borrower should be concerned with the minimum - to borrow unless it can, but still get a bang for the buck.

We now return to your trading account: Want to improve your speculative capacity by leveraging their investment, therefore, borrow money to negotiate with your agent.

Before your broker will lend you money to put aside, you want the lever. His agent, being a prudent businessman has calculated the risks in advance and quick to tell you what is the maximum that you can borrow. In forex is typically a few hundred times their capital, but also could be two hundred times their capital, even four times its capital. It is a part of the equation:

"Dear customer, you will be able to use your money (200:1, 400, 1) 100:1. Hope we can have one. Long and mutually beneficial"

The other side of the equation is how many of these loans are available to use in efforts to speculation.

What influence is to apply its own decision and not something you can force the broker to you.

Here's a test:

We start with an example of the stock market.

You open an account with a stockbroker, with say $ 10,000. You can buy the stock worth $ 10,000. Say you do. Do you use your funds?

No, you did not borrow a penny from a broker. You have $ 10,000 to the value of your shares when you buy is $ 10,000 (not counting the cost for the moment).

How is the leverage?

It divides the capital into the value of the transaction and to declare that the report of the "transaction value": "Capital".

In the above example splits $ 10,000 / $ 10,000 = 1:01

Well, your online broker an easy day to send the message that now allow trading on margin, and you can borrow money to buy shares at the current value of its shares. For convenience, we say that the value of its stock is still $ 10,000. In other words, you can now buy another $ 10 000 worth of shares, while its capital contribution remains at $ 10,000.

How, after you have just received a hot tip and now has a transaction value of 2 x $ 10,000 = $ 20,000 divided by $ 10,000 of capital leverage = 2:01. Or you can choose not to you. Vital for the broker: do as much as possible

Maximum leverage can be applied (as opposed to how much you want to implement) is the decision of its agent:

It is important that you should look at the example above is that you used all the influence which is authorized by the broker. This is very important. Officers take a big risk of lending money and therefore have certain rules they must obey. There is a limit to what you can borrow. The upper limit is used 2:1 or from another angle range of 50%. You must be at least half of the total value of transactions available in the margin (collateral in other words, if you're not as hot as you think traders).

Reach is typically expressed as a percentage, while the use expressed as a ratio.

Marketing assistants currency realized the fact that they can offer very high leverage to your advantage to attract investors online in traditional markets. In addition, many online investors that hold the shattered by the fall of 2000 and the loss of up to 90% of previous profitable stock portfolios became commonplace - more leverage with plans stock options stock.

As a result, began to look on the roof of the lever of 100:1, 200:1, and with the introduction of mini accounts, even 400:1 and 500:1 are available.

Terms such as "trade with 100:1" leverage became the agenda.

An uninformed public trading and do not include online swallow this hook, line and sinker, and is negotiating with "100:1 to 200:1 leverage," do not understand what they do.

In fact, the agent would only say "that will lever your margin up to 100:1, 200:1 or 400:1 at the absolute maximum, if you use all the capabilities of your loan with us."

But you must remember leverage is a double edged sword. You can work for you and against you. Then began the race in the forex losers out there: where is the highest leverage, lowest margin and spreads narrow on the offer? As if this lethal combination that contribute to the success of the ...

So if you go to a nice corridor that offers lots of 100K and 10K mini lots you will find that many of 100K typically have a maximum of 100:1 and 200:1 leverage on mini accounts 400:1 or .

Therefore, it is the point of online currency: It allows a maximum leverage of 100:1, 200:1, 400:1. Vital for the trader: minimum necessary harness

Last seen in (dealer) on your side?

The questions asked by your side is: How many rooms for what I need to trade a certain value of the transaction? The answer is simple, if they offer what I can lever my funds 100 times, then it is 1/100 = 1%, 1/200 = 0.5%, 1/400 = 0.25%.

Returning to the example of the stock market does not at least a question of leverage, because if you have limited funds, then it would be wise to buy shares at low prices in order to invest in basket of shares.

But in the currency market, where the value of the transaction was 10K or 100K minimum initial and shocked online trading public is attracted to use the "advantage" of the high leverage to account for only $ 2000 - $ 3,000 or mini accounts from $ 200 - $ 300, the minimum leverage certainly played role.

For all this, I will stick better to use concrete examples:

Several years ago a company now defunct tip service has made a study of market Forex trading has many typical 100K. Average account size was $ 6,000.

There is no doubt that the average trader would have to borrow money by the broker, the use of funds. The question is "how"? To perform a minimum transaction is divided 100 000 100 000 to 6,000 and that's the answer: 100000/6000 = 16.67.

In other words, it must borrow 16.67 times his money to do a minimum of a transaction and then use a minimum leverage of 16.67:1. Just to make a ridiculous trade. Commercial success: Know your real influence

I would not be too technical about the exact influence in this example.

In fact, if you have an account in U.S. dollars, must disclose the transaction value in U.S. dollars before calculating the appropriate leverage effect. So if you trade 100,000 GBPUSD trades in dollars to the value of £ 100,000, which is both writing about $ 190,000. There is a difference between $ 100,000 and $ 190,000. (As Warren Buffet said: Risk of not knowing what you do ...)

With the flexibility offered by mini lots (10k), many micro (1k) and many variables (size of the operator sets), it is easier today to determine the real leverage of a person, as they operate in extreme cases of indebtedness minimum maximum leverage.

Let us return to the previous question:

You give me information where I can get 1:01 of the company to exploit you mention on page 108 of your book? I use a demo with only $ 1,500 in the account with 200:1 leverage, and I am a bit worried by this contract, including a mini with a coin.

"Can you give me information where I can get one one lever?"

Given the influence that is the transaction value divided by capital is an important aspect of the capital and size of the minimum position, because to be able to negotiate 1:01 You must be at least the same minimum capital transactions. In your case, you will have to negotiate with a broker that offers a large number of variables or batches of not more than 1500 micro-units.

"I use a demo with only $ 1500 in the account with 200:1 leverage"

You see here to get the maximum, or the maximum amount you can borrow. This is a fixed amount (percentage) applicable to the entire transaction and the transaction is not affected at all as long as you stay within this limit.

"I'm a little worried about it, even on a mini contract with one currency."

First do not have to worry about "200: 1. Leverage" simply means that the maximum allowed for trade, not what you have to negotiate (it's your choice!). For maximum trade is completely ridiculous. His real influence if you trade a mini contract with $ 1500 will be in the region of 6:01 or 7:01. (10000/1500).

It is interesting that you mention one currency also, because you should know that if trade 2 or 3 pieces of greater influence. Say you trade a mini lot EURUSD, GBPUSD and USDCHF, the total value of units = 30,000 (3 mini lots) and its capital is $ 1500.

The leverage is 30000/1500 = 20:1. He was raised. You borrow 20 times what you have. To trade forex profitably, you need a calculator for $ 3.00 is $ 300.00 per month mapping service.

Here's proof:

Speak of "leverage" 200:1.

I hope you understand now that this refers to the maximum the marketing wizard will allow you to borrow and you can borrow much less to maintain its influence healthy and your account afloat. But if you go to extremes to be really desperate or stupid, and for all practical purposes already on the way out.

So what is the currency of the marketing wizards call "leverage" actually expressed by the ratio of margin requirements, rather than as a percentage, the more reasonable and have no impact on their business, unless removed or , essentially, about to be.

Let's say a trader has $ 10,000 and trade in the corridor that offers "flexible leverage".

You can select the "leverage" its, 400:1, 200:1, 100:1 or 50:1. What this means is that you can choose your margin requirement (which will determine the maximum amount you can borrow from them) to 0.25%, 0.5%, 1% or 2% of transaction value.

Trader decides to buy 5 mini lots EURUSD, is € 50,000 and the transaction value of the value of a pip on this transaction is $ 5.00. Let's say he made a profit of 100 pips is $ 500 or 5% of its capital.

Is the margin requirements are flexible, generally called "leverage" on this result?

The answer is "no."

• Leverage = 400:1 = 0.25% = $ 25 X 5 = $ 125. After 100 pips move Trader makes $ 500.
• Leverage = 200:1 = 0.50% = $ 50 x 5 = $ 250. After 100 pips move Trader makes $ 500.
• Leverage = 100:1 = 1.00% = $ 100 x 5 = $ 500. After 100 pips move Trader makes $ 500.
• Leverage = 50:1 = 2.00% = $ 200 x 5 = $ 1000. After 100 pips move Trader makes $ 500.

It is important that you understand this:

Only variable in global trade this year is the real influence, no margin requirement.

In the example above the market moves 100 pips, regardless of the margin requirement.

The only distinguishing factor is the amount of the operator borrows from what is available. Depending on the amount that the trader will have different results.

In the example I gave you five times the capital, was in debt and 5.1 is $ 500.00. If you paid ten times its capital and leverage of 10:1, to be held in the same market moves U.S. $ 1,000 or 10% of its capital. If paid twice his capital 2:1, 2% and so on.

Margin - Leverage - Risk

People mistakenly think that to assume the risks associated with margin requirements, the "leverage" market participants exchange.

How many times have you found a money management or risk management system that says you should not risk more than x% of their capital in a trade?

Let's say our operator uses this technique and not "take the plunge over 10% of its capital" in commerce.

In the example above, in the case of the 2% margin (50:1 "leverage") Trader "uses" 10% of their capital (as margin). (I hope you now realize that in fact runs the risk of their capital 10 times!)

So if this approach is that the risk has been defined in terms of margin that is "prepared" in trade for the following cases: using a calculator!

Trader has $ 10,000 and is willing to "risk of 10%"

• Leverage = 400:1 = 10% 0.25 / 0.25 = 40. That is, 10% "risk" will be a great 400K 40. Leverage real = 400/10000 = 40:1. The pip value = $ 40.00.
• Leverage = 200:1 = 10% 0.50 / 0.50 = 20. That is, 10% "risk" will be 20 lots or 200K. Real increase = 200/10000 = 20:1. Pip value = $ 20.00
• Leverage = 100:1 = 10% 1.00 / 1.00 = 10. In other words, 10% "risk" will be 10 lots of 100K. Real increase = 100/10000 = 10.1. Pip value = $ 10.00
• Leverage = 50:1 = 2.00% 10/5 = 2.00. That is, 10% "risk" will be 5 lots or 50K. Enjoy the true = 50/10 000 = 5.1. Pip value = $ 5.00

The strategy of risk management itself, and then said in general, do not risk more than x% of their capital in potential losses, therefore calculate your stop loss points before a percentage of capital. Therefore, the stop loss is usually set at 2% or 3% of the capital.

In this case, if 2%, the maximum loss would be $ 200 (2% stake in $ 10,000). However, as is currently the first to calculate the pip value based on the false principle (for the influence of traders), while the traders who are considered "at risk" of 10% stake in four cases.

• Leverage = 400:1, the pip value = $ 40.00, "the risk of 10%." The stop-loss of 2% must be 5 points.
• 200:1 Leverage = pip value, = $ 20.00, "the risk of 10%." The stop-loss of 2% should be 10 points.
• Leverage = 100:1, the pip value = $ 10.00, "the risk of 10%." The stop-loss of 2% should be 20 points.
• Leverage = 50:1, the pip value = $ 5.00, "the risk of 10%." The stop-loss of 2% should be 40 points.

About clearly indicate that the lack of understanding of leverage can destroy your chances of success.

It also shows that the call management system of money is totally wrong - the theory of the spreadsheet - and it has nothing to do with real profitable business.

Suffice it to say that while "400:1 and 200:1" option is not used much, you'll be tempted by the selection of 100:1 and 50:1 as suggested by most experts there below, accompanied by the required 20, stop 30 pips and 40 all time hit (followed by the direction of market movement inevitable sooner than expected).

Summary

• What is commonly known as leverage is really necessary margin expressed as a ratio if you use all the power to borrow agent allows.
• The real influence is determined by dividing the capital into the value of your position.
• Real influence will vary from trade to trade and commerce with a simultaneous increase.
• The margin requirement has no effect on the risk, if the trade properly with modest influence within your means and not to be used as a risk to the calculation of principle.

Read more...

As we learned in the last section, the best trading opportunities present themselves just after a breakthrough in price consolidation.

Not every consolidation pattern; however, is tradable. There are additional patterns, which significantly increase the odds of the trade following through in the desired direction.

The tools, which we present, are:

1. support/resistance
2. trends
3. moving averages.

Support and Resistance

Support and resistance are general price areas that have halted the movement of stock in the past.

Support lines are horizontal lines that correspond with an area where stock previously bounced.

Resistance lines are horizontal lines corresponding with an area where stock resisted moving through.

Support and resistance lines are used to help access how much the stock price will remove before it is halted.

There are two main types of support and resistance;

1. Major price support/resistance
2. Minor price support/resistance

Major Price Support/Resistance

Major Price Support is an artificial horizontal line representing an area where a stocks downward movement was halted to give way to a new upward movement (Figure 16).

Figure 16

Therefore, the price level is supporting the price of the stock.

Similarly, Major Price Resistance is an artificial horizontal line representing an area where a stocks u ward movement was halted to give way to a new downward movement.

Therefore, the price level is resisting the price of the stock.

When considering a stock as a trading opportunity it is important to note the location of the nearest support and resistance levels.

Stocks near areas of support make for better buy opportunities and stocks near areas of resistance make for better short opportunities.

In the same way, the trader should be more cautious about shorting stock above areas of support, and buying stock near areas of resistance.

Minor Price Support/Resistance

Minor Price Support is an artificial horizontal line representing an area, which previously served as price resistance, but has now transformed to price support ( Figure 17).

Likewise, Minor Price Resistance is an artificial horizontal line representing an area, which previously served as price support, and has now transformed to price resistance (Figure 18).

Figure 17

Figure 18

When considering a stock as a trading opportunity it is important to note the location of the nearest support and resistance levels.

Stocks near areas of support make for better buy opportunities and stocks near areas of resistance make for better short opportunities.

In the same way, the trader should be more cautious about shorting stock above areas of support, and buying stock near areas of resistance.

Trends

Figure 20

Every stock is in one of three states (Figure 20):

1. Up Trend
2. Down Trend
3. Sideways Trend

An Up Trend is defined by a series of higher highs and higher lows.

A Down Trend is defined by a series of lower highs followed by lower lows.

A Sideways Trend is defined by a series of relatively equal highs and lows.

Even the strongest stocks will need a period of rest through a pullback in price or a period of marking time with little to no price movement.

A strong stock will often pull back in price as short to medium term traders take their profits off the table, and in the process, increase selling pressure, which will temporarily push the stock lower.

A strong stock, after rest will often resume its rally after these slight pullbacks.

The trader has better odds in his favor by playing the stock in the direction of the trend.

For example, stocks in and up trend can be bought, and stocks in a downtrend can be shorted (Figures 21 & 22).

Figure 21

Figure 22

A stock in a sideways pattern can be either bought our shorted if the stock ison strong price support or resistance.

In otherwise, the trader should enter long positions only on up trending stocks that have pulled back for rest ready to resume the rally.

Likewise, the trader should enter short positions on down trending stocks that have pulled back for rest ready to resume the decline.

Moving Averages

The most basic form of moving average, and the one we recommend to all our traders is called the simple moving average.

The simple moving average is the average of closing prices for all price points used.

For example, the simple 10 moving average would be defined as follows:

10MA = (P1 + P2 + P3 + P4 + P5 + P6 + P7 + P8 + P9 + P10) / 10

Where P1 = most recent price, P2 = second most recent price and so on

The term "moving" is used because, as the newest data point is added to the moving average, the oldest data point is dropped.

As a result, the average is always moving as the newest data is added. Moving averages can be used as support and resistance levels.

Stocks tend to rebound off of moving averages much in the same way that they rebound off major and minor support and resistance lines.

A moving average can be plotted using any period; however, the periods that seem to provide the strongest support and resistance for short term trading are the 10MA, 20MA, 50 MA, 100MA and 200MA.

Figure 23

Figure 24

Read more...

Throw a baseball straight up into air. As the ball approaches the top of its projectile path it will decelerate to a speed of zero, and then reverse downward picking up speed as it approaches the ground.

Now imagine yourself drilling into a piece of wood. You suddenly hit a hard spot in the wood at which time bear down with all of your might to overcome the temporary resistance created by the knot in the wood.

When you penetrate the knot you surge forward and quickly poke through to the other side. These are two analogies to help explain the patterns of stocks as they transition between one move and the next move.

When a stock is completing a move, it experiences a period of deceleration, which is referred to by chartist as price consolidation.

Consolidation is one of the most important signals that a stock is about to begin a new move.

The move can be a continuation in the same direction, or it can be a reversal in the opposite direction.

The area of consolidation represents a battle zone where the bears are at war with the bulls.

The outcome of the battle often defines the direction of the next move.

As short-term traders, it is important to identify these areas of consolidation and enter a trade just as the new move is beginning.

During the consolidation period or 'battle zone', traders, both long and short are patiently waiting on the sidelines watching to learn the outcome of the battle.

As these winners emerge, there is often a scramble of traders jumping in with the winning team.

The candlestick patterns gives the trader excellent clues on when this move is about to take place, and helps the trader time his entry so that he can get in at the very beginning.

There are four different consolidation patterns experienced by stocks, they are:

1. Bearish Continuation
2. Bullish Continuation
3. Bearish Reversal
4. Bullish Reversal.

The Bearish Continuation Consolidation Pattern

Several strong bearish candlesticks precede the Bearish Continuation pattern where the bears are clearly in control (Figure 12).

Figure 12

The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.

The narrowing size of the candlesticks toward a line of support indicates that the bears are winning the battle. The bulls finally weaken and allow the bears to penetrate the line of support, at which time the bears quickly conquer new territory by taking the stock to lower prices.

By recognizing the consolidation pattern the trader is able to short the stock just after the stock breaks the line of support, and profit from the sharp move downward.

The cause of the sharp sell off is fueled by the emotions of the traders watching for the outcome of the battle. Traders who bought the stock in the area of consolidation in hope of a rally off of support, are now scrambling to exit their losing positions.

Traders who are short from the period before the area of consolidation are realizing that their original entries were correct and are adding to their winning positions.

The Bullish Reversal Consolidation Pattern

Several strong bearish candlesticks precede the Bullish Reversal Continuation pattern where the bears are clearly in control (Figure 13).

Figure 13

The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.

The narrowing size of the candlesticks toward a line against upward resistance indicating that the bulls are winning territory from the bears.

The bears finally weaken and allow the bulls to penetrate the line of resistance, at which time the bulls quickly conquer new territory by taking the stock to higher prices.

By recognizing the consolidation pattern the trader is able to buy the stock just after the stock breaks the line of resistance, and profit from the sharp move upward.

The cause of the rally is fueled by the emotions of the traders watching for the outcome of the battle.

Additional traders who jump in to buy the stock now that its strength has been confirmed fuel the sharp upward move.

Traders who are currently short the stock in the area of consolidation waiting in hope of a breakdown, are now scrambling to cover their short positions.

This buying action also fuels the fire pushing the stock to higher prices.

The Bearish Reversal Consolidation Pattern

Several strong bullish candlesticks precede the Bearish Reversal Continuation pattern where the bulls are clearly in control (Figure 14).

Figure 14

The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.

The narrowing size of the candlesticks toward a line of support indicates that the bears are winning the battle.

The bulls finally weaken and allow the bears to penetrate through the line of support, at which time the bears quickly conquer new territory by taking the stock to lower prices.

By recognizing the consolidation pattern the trader is able to sell short the stock just after the stock breaks the line of support, and profit from the sharp spike downward.

Additional traders who jump in to short the stock now that its weakness has been confirmed fuel the sharp sell off.

Traders, who are currently long the stock in the area of consolidation waiting in hope of a breakdown, are now scrambling to sell their long positions.

This selling action also fuels the fire pushing the stock to lower prices.

The Bullish Continuation Consolidation Pattern

Several strong bullish candlesticks precede the Bullish Continuation Consolidation Pattern where the bulls are clearly in control (Figure 15).

Figure 15

The bears and bulls then begin to battle by pushing the stock up and down in price in a tightly formed consolidation zone.

The narrowing size of the candlesticks toward a line of resistance indicates that the bulls are winning the battle.

The bears finally weaken and allow the bulls to penetrate the line of resistance, at which time the bulls quickly conquer new territory by taking the stock to higher prices.

By recognizing the consolidation pattern the trader is able to buy the stock just after the stock breaks the line of resistance, and profit from the sharp move upward.

The cause of the sharp sell off is fueled by the emotions of the traders watching for the outcome of the battle.

Traders, who shorted the stock in the area of consolidation in hope of a sell off in the area of consolidation, are now scrambling to exit their losing positions.

Traders who are long from the period before the area of consolidation are realizing that their original entries were correct and are adding to their winning positions.

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From the previous section, we determined that price movements result from massive emotions of fear and greed regarding trader's position in the market with a given stock.

Recognizing the footprints of greed and fear is not difficult. Recognizing the signs that the rally or decline before it happens is the difficult part of trading. How many times has this situation happened to you: You enter a trade based on a bullish reversal signal, but then exit on a slight pull back only too see the stock rally to a new high after you exit.

Or how often have you held on to a stock that experiences a bearish pull back in hopes that it will turn around, only to see the stock plummet to new lows before you finally concede to defeat and exit.

Unfortunately, there is no system that can predict with 100% accuracy exactly where a greed rally or fear sell off begins. There are; however, techniques based on candlestick patterns that help us locate probable areas for these turning points. The rest of this section will explore the techniques in identifying those probable areas that properly managed will result in profits for the trader in the long run.

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There are only two forces behind the supply and demand forces that drive a stock's price higher or lower.

Those forces are the emotional forces of fear and greed. To illustrate this point we refer to Figure 11.

Figure 11

Suppose you are a trader observing the bullish rally of Stock XYZ at the beginning of the 3rd bullish green candlestick, and considering an entry.

You have witnessed the stock rally huge for two days and know that each trader who entered on the first two days is now a big winner.

Based on the emotion of greed you decide to enter at that beginning of the 3 day, and mentally count your profits as the price rallies to a new high.

After the stock closes, you brag to your friends at the golf course regarding the great trade that you made that day.

You go home from the golf course and celebrate the victory with your spouse and maybe even discuss how you will use the extra money that you have earned through the trade.

Now keep in mind that the profit is only on paper and not one penny has been earned yet.

The next morning you check the price of your position, with expectations that your bullish stock will rocket to the moon! Now imagine the emotion that goes through your mind when your position not only fails to go higher, but also opens below your entry price.

What is the emotion that flows through your body as you not only see your profits erode before your eyes, but now rob your account of precious capital?

The emotion that you will experience is undoubtedly fear and will prompt you to scramble to liquidate your position as soon as possible to minimize your losses.

Now consider that there were also 2 or 3 thousand additional traders who entered the same stock at around the same price with the hopes of the gaining the same profit.

All of these traders will be tripping over themselves trying to get out of the stock.

As was illustrated in the previous section, this increase in fear results in an increase in supply of the stock relative to the increase in demand, and triggers the sharp decline in the price.

The deeper the red candlestick cuts into the bullish green candlesticks, the more traders are thrown into loosing positions, and thus the further the price decline.

Perhaps you are beginning to realize the power of emotions in price movements of a stock.

The technical analyst through candlestick reading is trained to read this greed and fear emotions in the market and capitalize on them.

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Figure 7

A stock's price will adjust to higher or lower prices based strictly on supply and demand principles.

In Figure 7 is shown a diagram of a green candlestick. The green color of the candlestick indicates that the closing price of the stock at the end of the day is higher than the opening price at the beginning of the day.

As you will see, the candlestick's color and size provide very important clues regarding the TRADER'S SENTIMENT toward a given stock's future price.

Notice that 'trader's sentiment' is the key phrase here. In short term trading, it is critical for the trader to have a clear understanding of what other traders are thinking. As you will see, the most direct way to get that understanding is through proper interpretation of the candlestick.

Let's look at an example. In Figure 8 is shown a candlestick of XYZ Company, which opened at 25 and closed at 25 3/8.



Figure 8

The candlestick is green in color, which gives us a quick visual signal that the stock price has rallied higher during this period.

How can we use this information to help us understand what other traders are thinking? To answer this question, we will follow the candlestick's changes step by step to understand the mechanism which is driving the stock price to move higher.

In Figure 8, we see the stock opens at 25, and then quickly rallies to 25 1/8. The reason the price moves to 25 1/8 is because there is a high demand to buy the stock at 25 1/8, and a short supply of sellers offering stock at 25 1/8.

Once all of the stock available at 25 1/8 is snatched up, the next group of sellers steps up to offer their stock at 25 1/4. All of the 25 1/4 stock is quickly snatched up because there are still a larger number of traders willing to buy at 25 1/4 than sellers willing to sell stock at 25 1/4.

Once the 25 1/4 stock is gone, the next group of sellers steps up to offer their stock at 25 3/8. The 25 3/8 stock is quickly snatched up too.

This process will repeat itself until the buyers loose interest in buying the stock resulting in a reduction of demand.

The result of combining these steps is a green candlestick with an opening price of 25, rallying to a closing price of 25 3/8.

During the rally period; however, the astute candlestick reader will be able to observe the long green color of the candlestick, and deduce that buyer demand is high.

Figure 9

Now there is only one reason why traders would increase demand by stepping up to buy the stock, and that is because they think that the stock will go up in the near future. So by observing the candlestick color and size, the astute candlestick reader is able to deduce exactly what other traders are thinking, and that is that they think the stock price will go higher in the future.

In Figures 9 & 10 we show an example of how the same principle in reverse applies to the analyses of a red candlestick.

The red color of the candlestick indicates that the closing price of the stock at the end of the day is lower than the opening price at the beginning of the day.

In Figure 10, we see the stock opens at 25 3/8, and then quickly drops to 25 1/4.



Figure 10

The reason the price moves to 25 1/4 is because there are many sellers looking to unload there stock at 25 1/4, and a low number of buyers willing to buy at 25 1/4.

Once all of the buyers have bought the stock at 25 1/4, the next group of buyers steps up to bid for stock at the lower price of 25 1/8.

The desperate sellers quickly sell all of the stock at 25 1/8, and then the next set of buyers step up at the price of 25.

This process will repeat itself until all of the sellers have unloaded all of the stock that they want to sell, resulting in a reduction of supply.

The result is a red candlestick with an opening price of 25 3/8, falling to a closing price of 25. During the stock's price fall; however, the astute candlestick reader will be able to observe the long red color of the candlestick, and deduce that demand for the stock is low.

Now there is only one reason why traders would increase the supply of stock to sell, and that is because they think that the stock will go down in the near future.

So by observing the candlestick color and size, the astute candlestick reader is able to deduce exactly what other traders are thinking, and that is that they think the stock price will go lower in the future.

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