How to Use the Breakout Cycle to Make Profits

A Forex trader is always aware of which of the 3 trading cycles (consolidation, breakout, or trend) a currency is before entering a trade. One of the most popular strategies to make a profitable trade is a channel breakout. A channel in Forex trading is created by drawing lines between support and resistance in a…

A Forex trader is always aware of which of the 3 trading cycles (consolidation, breakout, or trend) a currency is before entering a trade. One of the most popular strategies to make a profitable trade is a channel breakout.

A channel in Forex trading is created by drawing lines between support and resistance in a chart when the market is in a consolidation mode. A consolidation is easy to identify in your chart with, the most common pattern being two almost horizontal parallel lines making your support and resistance levels. These two lines form a trading range in which the currency is trading over the period of time set in your chart if it is a day chart or a six month chart or whichever time frame you choose.

As the name suggests, a channel breakout occurs when the price of a currency breaks either of the support or resistance channel lines. When the price breaks the resistance level, the currency is believed to be at the start of an uptrend. On the other hand, if the price breaks the bottom line, the market is believed to be at the start of a down trend.

Keep in mind that not every not every crossover of the lines should be considered a breakout. By using a combination of technical indicators such as Pivot Points, MACD, RSI, and candlesticks to determine price breaks, you should be able to differentiate a false breakout from a real breakout and trend setter.

By mastering this simple strategy you can make significant profits. If you set your trade properly with a tight stop-loss, you will minimize your losses or even make small profits if you entered a false breakout. The profits you make from a real breakout will more than make up for your small losses from the false ones.

Most professional traders use channel breakouts as part of their trading arsenal. By using technical indicators they can tell with almost absolute certainty when a breakout is occurring and, in those few occasions when the signals were false, their tight stop-loss help minimize their losses. When done properly this strategy can lead to great profits.

If you want to make the channel breakout even more profitable, combine it with a trading strategy that will profit during the consolidation cycle. By doing this, you would be adding profits while waiting for the price breakout to occur thus maximizing your profits for the same investment in time.

How To Manage Your Money In Any Market To Make Profit

Many Forex traders are unsuccessful for one reason: they over-trade. If you are not having success trading, you must first determine whether you are over-trading before adjusting your trading strategy. The 3 questions that follow will help you determine whether you are over-trading. Are you using too many strategies? Many unsuccessful traders use between 5-10…

Many Forex traders are unsuccessful for one reason: they over-trade. If you are not having success trading, you must first determine whether you are over-trading before adjusting your trading strategy.

The 3 questions that follow will help you determine whether you are over-trading.

Are you using too many strategies?

Many unsuccessful traders use between 5-10 different strategies and, of course, they do not make any money. The main reason for that is that, the more strategies you use, the less you can focus on the market itself. I am not saying that you should not know the market or master your strategy. Those are essential to become consistently profitable. However, this may be an impossible task if you are trying to master 3, 5, or 10 different strategies at the same time.

Are you risking too much on every trade?

Understanding the amount you risk is of more importance than knowing / setting the amount you are going to make. Money management is the most important step of your trading strategy. Many traders go from being unsuccessful to being extremely successful by simply implementing a sound money-management strategy.

What do you do when you are making money?

Greed is your worst enemy. It is human nature, we often get greedy when profits are running high. I've been there, done that, but, at the end, ended up losing it all. Greed leads many traders to reckless acting and committing mistakes.

After asking yourself these questions you probably know whether you are over-trading. Over-trading is really as harmful as using a strategy that has a low ROI (return on investment).

Now let's discuss how you can prevent yourself from over-trading.

Establish a trading plan: Before you enter a trade you should always know where you are going to exit. You should also have a set of rules to gradually take profits, where your stop loss will be if the trade goes against you, and, as you gradually take profits, where your trailing losses will be.

Your trading style should fit your personality: this is very important because your money management strategy should emulate your personality. Every trader has a different tolerance for risk and, while higher risk may lead to high rewards, it may also lead to larger losses. As a scalper you will probably set small percentages for profit in each trade (0.5% to 2%) and, as a swing trader, a larger percentage like 3% or 4% is the norm.

Your trading style and personality should be the driving force behind the Forex strategy you implement.

What Is The Right Indicator To Achieve Success?

Forex technical strategies are based on mathematical theories to create technical indicators, but do these indicators work? Technical indicators assume that market movement can be predicted if you know the right equation. The one constant the indicators can not account for is how we react to sudden market moves or news, so disrupting any theory…

Forex technical strategies are based on mathematical theories to create technical indicators, but do these indicators work?

Technical indicators assume that market movement can be predicted if you know the right equation. The one constant the indicators can not account for is how we react to sudden market moves or news, so disrupting any theory we are applying to our trading.

Many Forex systems are based on a technical indicator to predict prices in advance. Indicators such as Fibonacci, Gann, and Elliott Wave are commonly used, but you should use them with caution. You should adjust your indicator or automated system to reflect current market conditions because most of those indicators work under the assumption that a set equation works all the time and not just some of the time.

We all know that no theory will ever work all the time. If they did, there would be no market. The reality is that, regardless of the mathematical theory we use, statistically, 90% to 95% of us will fail.

What do we do next?

Since we already established that Forex markets moves are not solely based on theories and certifications, the logical deduction is that the market moves are based on odds and probabilities. When you trade based on probabilities, you shift the odds to your favor. This shift will lead you to profits.

Although I truly dislike the comparison of a professional trader to a gambler, there is a similarity that can not be avoided. Gamblers keep things simple by taking small losses while waiting for a high odd setup that translates to a big win. In that aspect, Forex trading is not much different, by keeping things simple and minimizing your losses, your successful trades translate to big profits.

To be a successful trader, you should be aware of the market sentiment and use technical indicators to help you corroborate the price direction so increasing your odds of a successful trade. Case in point, for many years, we have seen unbelievable advances in mathematics, forecasting, computers, and new investment theories. Still, the ratio of successful traders to those that fail remains the same. To succeed, you must account for market sentiment as it relates to the news and human nature reaction to sharp movements in price and market momentum.

By following this simple, yet often overlooked principle, you will greatly increase the odds of becoming a successful trader to your favor.

Which Is the Best Trading Method for Your Trading?

Trading is summarized by 2 methods, the subjective method and the rule-based method. Both methods have their merits, however, if you are not a seasoned and successful trader, you should strictly use the rule-based method. The thematic trading method combines multiple pieces of information to make a trading decision which can not be specifically defined…

Trading is summarized by 2 methods, the subjective method and the rule-based method. Both methods have their merits, however, if you are not a seasoned and successful trader, you should strictly use the rule-based method.

The thematic trading method combines multiple pieces of information to make a trading decision which can not be specifically defined in rule form. Subjective traders trade based on guidelines and not rules. With an established set of guidelines an expert trader has the flexibility to change a trade when new information is available. In some instances, where a rule-based system may pass on a trade, a subjective based trader may take a trade based on the “feel” for the market. A rule-based system does not have such flexibility.

Unlike the subjective trading method, the rule trading method is simple and, because the rules are specifically predefined, it is mostly stress-free. The predefined rules account for your entry, stop loss, and take profit values ​​among others. All new traders as well as those traders struggling to become profitable should use a rule-based method to refine their trading before ever considering a subjective method.

A rule based trading is designed to “set and forget.” Once your orders are placed, they continue to progress until one of the following happen: you are either stopped out or your target price hits. As a trader, once a trade is placed, you never interfere with it until one of the actions previously mentioned happened. Since all entries are done following a specific predetermined set of rules, these rules must be followed until you exit the trade.

To do this type of trading, you need a system that has a highly advanced and rigorously tested Forex trading algorithm is already developed and predefined for you. The system should provide you easy-to-follow signals that are very precise and clear. Since the system is based on strict rules, whenever a signal is produced you enter a trade. This takes away all the guess work and uncertainties of trading. The system should also do all the analytics for you and give you clear entry, stop loss, and take profit values.

With a rule-based system, all you need to do is follow the signals that the system produce. By doing this, you remain fully in control of your trading account and can have the confidence in knowing you are following signals generated by a strictly predefined set of rules.

With a rule-based system, there is not a guess of what a trade will look like. Your entry and exit are strictly defined by the predetermined rule and, for that reason, the system can be easily tested for profitability.

Which Is the Best Market Cycle to Trade?

Understanding the market cycles and how to trade them is critical to succeed as a trader. What are market cycles? The market is made up of three major market cycles and your ability to recognize and adapt to the current cycle will significantly increase your probability for profits. Regardless of what market you are trading…

Understanding the market cycles and how to trade them is critical to succeed as a trader.

What are market cycles?

The market is made up of three major market cycles and your ability to recognize and adapt to the current cycle will significantly increase your probability for profits. Regardless of what market you are trading or investing, the market can only move in one of these three cycles.

The Three Market Cycles Are:

1. Consolidation

The consolidation cycle has several looks with a parallel line of bars on a chart staying within support and resistance being the most common one. A “flag” is also another for short-term consolidation. Moving rates or other indicators will help you determine whether the market is consolidating or trending.

Tip: If you are using a moving average as your indicator, the line will almost be horizontal when the market is consolidating. you can trade the support and resistance line to make profits in a consolidating market.

2. Breakout

A breakout of the consolidation happens when you have a few bars either at support or resistance of the price and then the price sharply breaks out to make a new high or low.

3. Trend

After a breakout, usually a trend develops with the market moving in the direction of the breakout, whether it's up or down.

Although most traders like to trade trends, the bad news is that currency prices do not move in one direction consistently making identifying up or down trends a form of an art.

How to apply the 3 cycles to your Forex strategies?

For starters, many Forex traders implement a strategy for one and maybe two of these cycles.

On average the Forex market trends about 30% of the time, breaks about 10% of the time and consolidates for the remaining 60% of the time.

Ironically, the two most used strategies are for trending and breaks of the consolidation cycle. That approach accounts for only 40% of potential trades and leaves you out of a trade about 60% of the time. Every trader should have a proven strategy for the consolidation cycle to take advantage of this cycle.

Not one strategy will cover and be effective in all of these 3 cycles. You should have a tested strategy in your toolbox to cover each of these 3 cycles to become a successful trader. Once you identify what cycle the current market is in, just pull out the right strategy from your toolbox and drive it to profits.

These 5 Techniques Will Make You a Successful Trader

The top five techniques that successful traders use to identify where support and resistance lie are Fibonacci Levels, Pivot Points, Moving Averages, Trend Lines, and Chart Patterns. All five of these techniques are time tested and dependable. Fibonacci Levels: Set your Fibonacci to 23.6%, 38.6%, 50.0% and 61.8% as support and resistance levels. These levels…

The top five techniques that successful traders use to identify where support and resistance lie are Fibonacci Levels, Pivot Points, Moving Averages, Trend Lines, and Chart Patterns. All five of these techniques are time tested and dependable.

Fibonacci Levels: Set your Fibonacci to 23.6%, 38.6%, 50.0% and 61.8% as support and resistance levels. These levels will help you determine when the price swings low to high or high to low. Tip: Many traders only trade when the price breaks out of the 61.8% level, which means a reversal of trend.

Pivot Points: This indicator is commonly used by breakout traders or range-bound traders and is based on the previous period. Simply put, prices above the pivot are bullish and prices below the pivot are bearish. To use pivot points, identify the upper resistance or lower support levels and target profit at S1, S2 or R1, R2 respectively.

Moving Rates: This is the most commonly used indicator. A good setup for this indicator is to set your EMAs (Exponential Moving Average) at 200, 100, 62, and 23. Under this setup, you will see the price bouncing off the EMA support and resistance. When the price breaks through the EMA channel, most of the time that means that the price broke through the resistance of support level and you can enter a trade.

Trend Lines: As the name suggests, trend lines show in which direction or trend the market is moving. By drawing trend lines, you can determine both how long to stay in a trade and, also, when to exit or reverse your trade.

Chart Patterns: Knowing chart patterns and how they can help you predict price direction is critical to every trader. Chart patterns come in many different shapes. Some examples are triangles, whether they are ascending or descending, double top or bottom, head and shoulders, and reverse head and shoulders.

As a trader you should be knowledgeable of all these 5 techniques. You will encounter them in many chart systems and expert advisers. Once you master these techniques, you will start making more profits when you trade.

Learning the tools that successful traders use will make you a better trader. Whether you are just beginning or are in the advanced stages of your trading career, acquiring new knowledge and learning new techniques will make you a better trader and, by default, increase your overall profitability.

These Easy 5 Steps Will Make You Higher Profits

This simple 5-step strategy will help you simplify your trading while making you consistent profits. Trading strategies do not need to be complicated to be extremely successful. As a matter of fact, simple trading strategies have proven over time to be more successful that very complex strategies. The reason for this paradox is that a…

This simple 5-step strategy will help you simplify your trading while making you consistent profits. Trading strategies do not need to be complicated to be extremely successful. As a matter of fact, simple trading strategies have proven over time to be more successful that very complex strategies. The reason for this paradox is that a simple strategy is easier to follow and easier to implement.

The 5 step strategy follow:

1. Check the trend using your daily chart. The chart should tell you whether the market is in an uptrend or a downtrend.

2. Once you know what the trend is, check for fundamental news releases that may affect your trade. Do not go to any of the following steps if there are any major news releases within 2 hours of your trade. You can get the current economic news from a financial market news feed of your choice.

3. If there are no news within 2 hours of your trade, execute your trading plan. For example, if the main trend is up, look for “buy” signals from your technical indicators and vice versa if the main trend is down.

4. This is the most important step and your decision on whether to enter a trade lies here. A common strategy is to use the crossing of 4 EMA (Exponential Moving Average) and 23 EMA on the 30 minute chart to decide whether to buy or sell. You should use other indicators like the weekly pivot, Stochastic, and MACD (Moving Average Convergence Divergence) to corroborate your trade. These indicators should also follow the trend and not look flat. You can further edge the trade to your favor by trading only during high liquidity sessions and confirming the trend by using a 4 hour chart. If all looks good, you are done!

5. The last step to manage your money by setting the trade with a tight stop loss of around 35 pips while using one of 2 methods of targeting profit. The first method is to use healthy risk to reward ratio of at least 1: 2 and the second is to use your daily support and resistance.

As you can see, a good trading strategy does not have to be complicated to be successful. By simplifying your trading strategy, your chances of successful trades increase significantly. This five step strategy should help you achieve consistent profits with your trading.

How to Use Crossovers to Make You Profits

Indicator crossovers are the most common and effective strategy to spot developing trends. The more used indicators when applying the crossover method are MACD and moving rates. A good signal provider will help you pinpoint the entry and exit points using this method. How to find the signals A perfect example would have been using…

Indicator crossovers are the most common and effective strategy to spot developing trends. The more used indicators when applying the crossover method are MACD and moving rates. A good signal provider will help you pinpoint the entry and exit points using this method.

How to find the signals

A perfect example would have been using the EMA (Exponential Moving Average) and the MACD. When you have an EMA 6 crossing the EMA 23 that would be an indication of a long term trend crossing a short term trend. Under this setup, you buy when the EMA 6 crosses EMA 23 and sell when the EMA 6 crosses the EMA 23. If using the MACD, the most used value is (12, 26, 9). These two indicators will help you identify new trends early and then maximize the potential of profits.

Another indicator that is commonly used is the ADX. When using the ADX, look for crosses at the 17 to 23 level. Either of these crosses most likely indicate that a trend is starting. Before making a trade on the ADX cross, look for the DI + and DI- lines. The DI + and DI- lines will indicate which way the trend is moving and you can profit by entering the right side of the trend.

Do not rely on just one indicator

Many Forex indicators are based on identifying trends. Any of these indicators when used by itself could be wrong. If you combine at least a couple of these indicators and they show that a trend is developing, your chances for profits grow exponentially. If you want to try different combinations, you should also look to combine MACD with the stochastic oscillator.

The bottom line

This strategy is advantageous because it gives you, the trader, a chance to stay put and wait for the best entry point possible. The strategy works well on either an uptending currency or a downtrending currency and allows you to maximize your profits. Since you should be able to identify when a trend is reversing, this strategy also provides you with your exit or reverse points. You can also turn this strategy into a scan if your drawing software allows for it. With the good also comes the bad when using these two indicators together. Because you will be waiting for corroboration of the best time to enter a trade, the actual trade of the currency may occur with a lot less frequency than by relying on other indicators.

What Is The Best Currency Pair To Trade?

Choosing the wrong currency pair will lead you to losses. Short-term traders should consider the following two points when choosing a currency pair to create a higher number of profitable trades. Is my trading strategy tailor to trade these times? Certain times of the day are better suited for certain trading strategies. High volume trades…

Choosing the wrong currency pair will lead you to losses.

Short-term traders should consider the following two points when choosing a currency pair to create a higher number of profitable trades.

Is my trading strategy tailor to trade these times?

Certain times of the day are better suited for certain trading strategies.

High volume trades for most major currencies occurred between the end of the New York trading session (around 4 pm EST) and the beginning of the European session (around 2 am EST).

Currencies often fluctuate in a range before important US or European economic releases. The worst thing a trader can do is to try to scalp the market tops and bottoms before the economic releases because of the high risk for a loss. If a breakout or trend-following strategy sets up when the European and US markets are both open, then it creates a higher probability trade because there are enough participants in the market to fuel continuation. If a breakout or trend-following opportunity presents itself at any other time, we need to have a bit more skeptical about the quality of the trade.

Is this the best currency pair to trade?

Picking the right currency pair to trade can mean the difference between successful and unsuccessful trades.

There are many cases where the Canadian and US economy data hit the news at the same time. If the Canadian data is weak, common wisdom says that the best currency pair to buy would be the USD / CAD. This also applies if the US economic data is stronger than forecasted.

On the other hand, if opposite is true, then the US dollar and the Canadian dollar could both lower their value, leading to a no-trade of the USD / CAD pair. In that case, it may be better to consider using the US news to trade another currency pair such as AUD / CAD or CAD / JPY, which will be less affected by the US economic data. The same is true if you have a good feel for the European data but the market is bullish toward the dollar for one reason or another. Then perhaps buying euros against the pound is the higher probability trade.

These are litigation calls that short-term traders must make at the time of the trade, and they are important because they can mean the difference between a successful and an unsuccessful trade. It's worth the extra minute you'll take before diving into a trade.

The Key Is Yours

You can never be 100 percent certain about whether a trade will be successful or not, but you can increase the probability of it being successful by looking for only high-quality trades.

This extra effort is important if you value your hard-earned money (and I think you should!). I am a big believer in high-probability trading and the questions in this chapter are the ones that I ask myself before every single trade. Trading will always be risky business, but making sure the fundamentals, technicals, and market sentiment support your trade every time will give you the highest probability of success.

Using the News Will Make You a Successful Trader

When trading the news, there are three questions that we need to ask ourselves before every trade: Is the news important? Is the surprise large enough? And is the surprise in line with the market's sentiment? 1. Is the news important? The first task at hand is to figure out what matters and what does…

When trading the news, there are three questions that we need to ask ourselves before every trade: Is the news important? Is the surprise large enough? And is the surprise in line with the market's sentiment?

1. Is the news important?

The first task at hand is to figure out what matters and what does not. The top three pieces of potential market-moving economic data for any country, which are the employment reports, retail sales, and manufacturing and service sector activity data, also known as the ISM or PMI reports. In addition to these, the Gross Domestic Product (GDP) releases and the inflation reports (consumer and producer prices) are also tradable. What is not tradable are reports like the Beige Book because there is no concrete number for comparison, data is released weekly, and any Japanese or Swiss economic reports are almost always overshadowed by the general sentiment in the market.

If you are having a tough time figuring out if the data is tradable or not, most Forex sites will list the impact that each piece of data may have on the currency. High-impact events are the ones that we want to trade.

2. Is the surprise large enough?

The second question is the trickiest of the three because it is subject to interpretation, but the good thing is that the market will usually do the interpretation for you. As a rule of thumb, if the number is greater or less than the forecast by more than 5 percent, it is considered a big surprise, but sometimes a 2 percent surprise is enough to elicit a big reaction in the currency.

So what should you do? Just wait and see how the market responds to the release. If the currency pair barely budges, then most likely, the surprise is not that significant. If the currency pair immediately shoots higher or falls like a rock, there is a good chance that the market was surprised. The key is to wait five minutes before getting into the trade to make sure that the currency responds the way that it is supposed to. In other words, a positive surprise should drive the currency pair higher and a negative surprise should drive it lower.

3. Is the surprise in line with the market's sentiment?

The third question is important because sometimes the economic data is something that we would normally expect to elicit a big reaction, but for whatever reasons the rally fizzles quickly or traders simply do not care.

This typically occurs when something else is overshadowing the data and driving the general sentiment in the Forex market. It could be anything from the risk appetite to US data or concerns about problems in Europe. If the economic data surprise or “fundamentals” is in line with the prevailing sentiment in the market, it is a stronger trade. In other words, if the market wants to buy dollars and retail sales are strong, it normally gives Forex traders an even better reason to send the greenback higher. However, if the market is worried about the outlook of the US economy because the Federal Reserve is warning that there will be more trouble to come, then good data may not do much for the dollar because it would have looked at with skepticism.

Quantifying the prevailing sentiment in the market can be difficult, but moving benefits can help because they measure the current trend in the market by averaging a certain number of past prices. If the data is good and the currency pair is trading above the 50-period moving average on a 5-minute chart (or the data causes the currency to break above the moving average), then there is a better chance that sentiment and fundamentals will support the trade. However, if the data is good and the currency pair is trading well below the 50-period moving average, then it suggests that the prevailing sentiment does not support the economic surprise. In this case, we will not take the trade because we want to have as many key variables aligned in our favor as possible.

To summarize, we only want to trade economic data that is important, with surprises that are large enough to trigger a reaction in the currency, and only if the economic data is in line with the general sentiment in the market. With these guidelines in hand, let me show you how fast and furious news trading works.