Forex Trading, Forex News, Articles and Trading Strategies

The term “FOREX” stands for Foreign Exchange
FOREX (or FX as a short abbreviation) is a global currency exchange market where foreign currencies from all over the world are bought and sold for profit.

FOREX is the largest and most liquid market in the world
Forex is the largest and most liquid market in the world where trillions of dollars exchanges take place every day. That’s an enormous money flow. No stock market exchange in the world come close to these numbers.

Currencies in the Forex market are traded 24 hours a day 7 days a week. Market literally follows the sun around the world. Trading moves from major banking centers of the United States to Australia and New Zealand, then to the Far East, gets to Europe and finally returns back to the States.

Trading FOREX is all about exchanging currencies
Trading on Foreign exchange market simply means buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for currency of another country at the current exchange rates.

Foreign currencies are always traded in pairs - EUR/USD, GBP/USD, EUR/JPY etc. Around 70% of all transactions made with major currencies like U.S. dollar, Australian Dollar, British Pound, Swiss Franc and Japanese Yen.

Nowadays FOREX is available to small investors
While in the past Forex market was not available to small investors (individuals) due to large minimum transaction sizes, today Forex brokers are able to break those large sizes into a smaller unit lots and thus offer small investors an opportunity to buy or sell currencies side by side with regular core Forex market investors such as large banks, central banks, multinational corporations, hedge funds and other financial institutions.

If you want to catch the big profits in forex trading you need to trend follow forex trends which are longer term. Here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every major forex trend and lead you to long term currency trading success.

Most novice traders don't bother trying to trend following forex longer term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profits however as most short term moves are random, this leads to equity wipe out.

The other choices are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long term trends that last for months or years. These moves can and do yield big profits - here we will outline a simple method to catch them.

Breakouts

By far the best way of catching the big moves is to use a forex trading strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most major moves start from new highs or lows.

While it might appear that you are not buying or selling at the best level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The reason for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is broken, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the wider the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout continues and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your trading signal.

These indicators give you an idea of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the best are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop levels are easy with breakouts - Simply behind the breakout point.

If you have a big trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a big move, trailing stops should be held a long way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a big back, as that's the nature of trading forex. Keep in mind if you got 50% of every major trend you would be very rich. When you are long term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend follow forex and catch the high odds moves that yield the big profits. If you are learning forex trading and want a simple method that is robust and will help you catch every major move, then you should base your Trading on the above method.

The majority of Forex Trading Systems that are used by beginner traders are focused towards short term trading strategies, which aim to take small risk and promise to pile up massive profits and regular income. So we will look at how to succeed.

The major challenges that Forex day trader face are the following:

There are millions and millions of individuals will all different views, skills, knowledge, who think very differently so what Forex Trading System can predict reliably what will happen in the next minute, next hour or next day?

Lets be honest not one of them can reliably predict this.

From experience this is simply the silliest way to be trading forex, with all of the differences and variables it is impossible to know what is going to happen in the coming minutes, hours, days, and here is why.

Fact: All volatility in short term time frames is random and you cannot get the odds on your side, you can't win long term it is as simple as that!

Most of the forex day trading strategies, systems that have ever been purchased have ever made any really gains, sometimes random luck will see people profit. Most of them show back tests of the past, this is easy to show positive as you already know the outcome and can adjust the test accordingly.

Most of the systems are just incredibly brilliant sales pitches that work on peoples greed, and create a good story like Mary Poppins.

All is not lost you can win Best Forex Broker, but it is not as simple as turning on computer and putting in a program, it does take some skill and knowledge. You need to get the odds stacked in your favor and one strategy to be able to do this is through swing trading or long term trend following. Remember trend is your friend, so if you follow your system it can mean big profits if you have a great forex system and have the knowledge to be able to do it.

Do not make the mistake of day trading or forex scalping, get the right Forex education and trade long term and you can soon be enjoying currency trading success to get more Free Education feel free to visit the CFD FX REPORT they can provide you with valuable education lessons and help you find the Best Forex Broker in the Market.

Happy Trading

you want to catch the serious profit in forex dealing you need to trend watch forex trends which are worse term. here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every superior forex trend and lead you to long-term term currency dealing success.

Most beginner traders don't bother trying to trend following forex lengthier term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profit however as most short term moves are random, this leads to equity eliminate.

The other alternatives are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long-term term trends that last for months or years. These moves can and do yield serious profit - present we will outline a simple method to get them.

Breakouts

By far the best way of catching the serious moves is to use a forex dealing strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most leading moves start from new highs or lows.

While it might appear that you are not buying or selling at the greatest level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The grounds for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is ruined, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the greater the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout keeps and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your dealing signal.

These indicators give you an estimation of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the greatest are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop points are easy with breakouts - Simply behind the breakout point.

If you have a serious trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a huge move, trailing stops should be held a long-term way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a serious back, as that's the nature of trading forex. Keep in mind if you got 50% of all leading trend you would be very rich. When you are long-term term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend watch forex and catch the high odds moves that yield the serious profit. If you are learning forex dealing and want a simple method that is robust and will help you get every major move, then you should base your dealing on the above method.

Many forex traders find themselves asking the age old question what's the best forex strategy? To know the answer to that question, one must look at the history of trading. Not just forex trading, but trading, in general.

The moment that the first bell rang on the stock market floor, traders were coming up with strategies to beat the market. Obviously they didn't have the technology that most of us have at our disposal. They didn't have the thousand dollar charting platforms that so many traders are overpaying for, just for the privilege of using them, nowadays. So how do you think the successful traders of the past made their money?

Well, one way was through fundamental analysis. They were able to comprehend a company's financial statements such as balance sheets, income statements, statement of cash flows, etc. to know a bargain when they saw one. But these kind of people would be categorized as investors, not traders. Traders generally believed in technical analysis over fundamental analysis.

So how did traders of that generation made their money? Simple. They understood the concept of price action. Plenty of floor traders became rich just by paying attention to how the other floor traders were trading the respective stock.

How come a concept as simple as price action has been pushed back in favor of all the technological bells and whistles that most people use in their day to day trading?

People, today somehow feel that the best forex strategy has to be in these maze of indicators,colors, noises,and whatever else is en vogue nowadays. Its really quite sad that it has gotten to this point.

Traders used to pride themselves on how they were able to truly understand the market, but in the present time we live in, they are more worried about understanding what their indicators are telling them.

If you want to learn forex, then its a good idea to learn from our ancestors. The less is more approach has and will always result in more success. To find out more about price action and to get a forex trading education, make sure to visit Trading In The Buff.

Some traders prefer the monthly, weekly or daily trade forex strategy. Others consider that the best forex strategy is the intraday trading, and probably none of them is the absolute best.

In reality, there can be profits in any forex strategy as long as you are well aware of the market movers and signals at any given time, and you have a clear understanding of all the elements that support your forex strategy.

Some traders base their forex strategy in long term investments (monthly or weekly positions), while others will build their forex strategy around daily or intradaily positions that might be open no longer than a few hours or even minutes (this traders are known as scalpers).

A long term forex strategy will probably earn you 100 or 200 pips in one trade, but that is probably all you will gain within a month or a week if your forex strategy gravitates around monthly or weekly positions, But on the other hand, a well carried scalping forex strategy can deliver many little 10 or 20 pip trades during a day, meaning that maybe you can total anything between 80 to 160 pips in one day using this forex strategy.

The intraday forex strategy benefits from the fact that the forex market, whether moving up or down within any particular currency pair, will always make small fluctuations that you can profit from using an intraday forex strategy.

Which forex strategy is best for you will depend greatly on your personal investment and risk management style, and also on how much time you can dedicate during the day in order to follow the market trends and spot the right entry points for a profitable trade.

I prefer the intraday forex strategy because of its profitability and because frankly I have some time to spare, but mostly because I have the assistance of a software I discovered a while ago, which places trades by itself based on the market trends occurring both during the day an during the night.

So even when if am not in front of my pc, I can go on trading all day and all night, profiting from of every little window of opportunity to scalp a few pips out of the market. With this approach, my intraday forex strategy delivers about 120 pips daily, which in my particular case means I earn about $3,000 per month with a 5,000 investment.

So the intraday forex strategy can indeed be the most profitable one, but it will demand that you stay very attentive at what is going on within the market on a minute by minute basis, unless of course you have a software that stays on guard while you are busy with your job or anything else that might keep you from continuously analyzing the market trends.

If you are wondering about the software I use to help me with my intraday forex strategy, I will only tell you that it does work and that its called the FAPS.

The Forex trading strategy enclosed can be learned in a few weeks and can make you huge profits in around 30 minutes a day. It's easy to understand and have confidence in so let's take a look at it.

The methodology we are going to look at here is long term trend following with breakouts.

The one constant in Forex markets is they will trend for long periods of time in a sustained direction and as these trends reflect the underlying health of the economy, they will last for weeks months or years. If you can lock into these trends and hold them, with leverage on your side, you can make a lot of money but how do you get in on these trends and ride them?

The best way to get in on any trend is to buy a break of support or resistance, to a new chart high or low. You generally, want a level that has been tested at least twice and the more times the better. What you are looking for is a level which the traders consider important.

If the break is a good one the following will occur:

As soon as the level is penetrated, stops behind the level are hit and push the price further in favour of the breakout, technical buying kicks in and pushes the price further from the breakout point and then as the new trend develops retail buyers want to get on board pushing the trend even further.

It sounds simple and logical and it is but most traders have a problem with taking breakouts and it's rooted in their psychology. When the break occurs they think, I have missed the start of the move, so better wait for a pullback to get in but the really big breakouts don't come back, the trend develops and the trader who waited misses the move.

The trader who simply bought the beak, missed the first bit of the move but he has the odds on his side of a continuation of the trend and stands to make money.

Most traders want to predict and buy tops and bottoms and be perfect but that's impossible, if they focused purely on making money, they would see the logic of breakouts which is simply trade the reality of price change and forget prediction.

When trading breakouts, you need to be patient and wait for the best trading signals. You need to pick levels which have been tested several times and are considered important by traders.

Breakout trading can be done easily, by anyone and doesn't take long to learn. You can put together a simple, breakout strategy together in a week or so and then start enjoying currency trading success.

I know traders who trade just a few times a month, spend 30 minutes a day, on their Forex trading strategy and make triple digit annual gains. Discover breakout trading and you will have a simple, easy to understand and timeless way to make big profits.

Forex scalping is the art of using high leverage and a large number of short term trades to steadily increase an account. Usually, only 1 to 5 pips are targeted for each trade. This type of trading appeals greatly to day traders and those looking to minimize the risk involved in trading currencies. Next to money management, "risk control" is the single most important trait to a surviving (and thriving) currency trader. The small amount of time that is spent in the market limits much of the risk in exposure in comparison to a longer term system. Also, the freedom involved in a speedy Forex scalping system in such a liquid market is a "magnet" that drives many traders from other markets to try their hand in currency. A disciplined and steady scalper could seamlessly double or triple an account, and spend only a fraction of the time in the market as a common day trader.

Forex Scalping - The Problem

Though Forex scalping may seem like a preverbal "holy grail" at first glance, there are still many unseen hurdles that surround the controversial method of trading. If you do wish to add scalping to your trading toolbox, it is extremely important to pick a broker who can support a scalpers's system. You will quickly find that many brokers do not allow scalp trading, as the method of quickly entering and exiting trades may actually cause the broker to lose money at the dealing desk. Forex scalping also does not give the broker a means to trade against their clients which is a way of money making for them. Out of the hundreds of online Forex brokers, only a handful support scalping. It is a very thin line between scalping and short term trading. Generally if you hold trades for a minute or less, you may have problems with brokers. They could warn you and then if you continue shut down your account. However, if you trade in minutes or more, most likely you will not have problems with dealing desk brokers. Non dealing desk (ECN) brokers allow scalping where you can hold a position for seconds however the minimum to open an account is higher ($2,000 and above).

Forex Scalping Strategy

Effective Forex scalping strategies take advantage of extremely slight price fluctuations (sometimes only 1-3 pips) many times in order to steadily build an account. Because of the smaller number of pips gained per trade, larger than normal leverages play a key role in a successful Forex scalping strategy. By leveraging much more than a standard day trader in a liquid environment, a very skilled scalp trader is able to make just as much money as the day trader in a shorter period of time. However, this is an obvious double-edged sword. The market can just as easily move against you on a high leverage, which could produce substantial blows to your account.

Also, it is important to take into consideration the physical and mental speed of a trader who will only stay in the market for seconds to minutes. Executing a scalping strategy by hand can be extremely difficult considering the quick amount of time you must be in and out of the market for your strategy to be affective. Many successful Forex scalping strategies are built to be automated; the rules to the system are coded into a trading platform to automatically perform scalp trades around the clock. Though it is completely possible to trade a Forex scalping strategy manually, the majority of today's traders would agree that automating the process based on a set of rules would be the best way to ensure speed and reliability. When choosing a platform to automate your scalp strategy, it is extremely important to stick with those platforms that allow the execution of your system on every tick (such as MetaTrader 4). This ensures that your entrances and exits will be on a per-tick basis, and will give you a much higher probable rate of success than those platforms who will execute your code more periodically.

To understand the full challenge of scalping as a trading style, consider this: hard work and small gains accumulated over a decent period of time could easily be wiped out with one large loss. Finding a balance between profit levels and size of acceptable losses presents the most difficult challenge to scalpers' strategy.

Forex scalping can be a good method of growing a managed Forex account quickly, but should not be looked at as the "holy grail" of trading. Most brokers do not support scalping, and a consistently profitable Forex scalping strategy can be very difficult to engineer. However, if much time and effort is spent in system optimization and setting up a good relationship with a scalp supporting broker, the benefits could be well worth the time spent.

Endurance is counted as a high merit in great accomplishments, especially in forex market. Great men frequently advise to be consistent in big changes of market tendencies and "Follow Through" in breakthroughs.

If you have made a price change one day and you get success out of it then you should continue your endeavors in the same route in coming days and this trading movement is called the "Follow Through".

But this kind of breakthrough is not that much simple. Market does not accept big changes frequently. It goes back over those trends present previously in the trade and at the end of the day when all is going to end, forex prices repeat the same trend seen some days before.

Nobody is a faultless and ideal merchant. All the brokers and traders constantly discover a lot about the trading and aim not to repeat their past mistakes and blunders. I can give you many instances about my learning and it all happens when you don't show patience and consistency. When you don't wait and take a great step thinking it would be a huge success, but it is not all what we think.

I was planning about the corn market and had a keen eye on it for a long time. I was waiting and hanging around for the market to show a big change in a persistent downside trend of the prices and counteract it. One day there appeared a little upside move in the corn price but was not near to counteract it. I was out of my workplace for coming days and was unable to meet my broker or the info about the rates. I made a call to my dealer and ordered corn for a buy-stop at a price which was much higher than the downside trend. It did so because I thought if it worked, it would be a very tough change in the price to counteract the constant downside trend and it will indicate an uphill breakthrough in the every day price bar map. That day I had some jinx and blip in my mind which was disapproving my decision and asking me to take time and "follow through" the price tendency to make the price break sure. Next morning the corn's price inclination was high enough to strike my end and made me "in" the market. But it was not for a long time. Corn rates again overturned and threw my corn prices out soon.

The perception after observation is always true. But this mistake taught me the significance of patience and consistency to give the market enough time to indicate follow through movement to make a prospective trading arrangement sure. But a dealer also has some risk of absence and getting advantage of a big price change if he keeps on waiting. But it is more sensible to be cautious and wait for the market to verify the follow through movements in the coming days.

Sometimes market shows a relaxing session in the price movement and then verifies the great changes in the coming days. But mostly the follow through movement is going to come in the next session if expected.

Have you ever heard of a stop placement strategy that trails stop based on previous 'high' points? It is called Chandelier exit as it hangs down from the high point or the ceiling of our trade, just as a chandelier hangs from a room ceiling. The distance, which is usually calculated from the high point to the trailing stop; could also be calculated in dollars or in contract based points. However, the value of this trailing stop moves upward very promptly as higher highs is reached.

The Chandelier Exit, which has a trailing stop from either the highest high of the trade or the highest close of the trade, is best measured in units of Average True Range (ATR). One of the many factors leading to use ATR for measuring the distance from the high to our stop is that, it is pertinent across markets and is adaptive to changes in unpredictability.

The essence of this calculative measure is that, even on expansion and contraction of trading ranges, our stop will automatically adjust and move to the apt level, thereby, constantly staying in tune with changing market conditions. Chandelier Exit is one of the most tried exit methodology used across a varied portfolio of futures markets to generate profitable test results.

It is imperative that the changes in unpredictability can curtail or stretch the distance to the actual stop, since the highs used to hang the Chandelier move only upward. However, in order to witness less fluctuation in the stop distance, you can use a longer moving average to calculate Average True Range. In other ways, shorter moving average is required, in case you want the stop placement to be more adaptive to fluctuating market conditions.

When short averages for the ATR is used; brief periods of small ranges can bring the stops too close, abnormally resulting in premature exit. To avoid this, you can have a short and highly adaptive ATR while calculating a short average and a longer average and using the average that produces the widest stop.

Although Chandelier Exit differs from Channel Exit (which trails a stop based on previous 'low' points), the combination of both, where the trade is initialized by the trailing Channel Exit and then adding the Chandelier Exit, after the price has moved away from the entrance point, will help in making the open trade lucrative. Here the Channel Exit is fastened at a low point and does not move up as new profits are accomplished. At the same time, it is necessary to have the Chandelier Exit at the right position so that the exits are never too far away from the high point of the trade.

The fundamentals behind combining the exit techniques, Channel and Chandelier exit is that, while Channel Exit as a suitable stop that very steadily rises at the commencement of the trade, switching over to Chandelier Exit is necessary to ensure better exit that protects more of our profit. This feature makes Chandelier Exit one of the most sought after rational exits from the profitable trades.

There is no hype in this headline. This is the absolute truth. The following 13 secrets generated 992 pips net profits for me in 15 trading days.
1 do not over expose your account .maintain an account exposure of between 10% and 30%.

2 Always trust god to find and join the trend early. Always learn to test the strength of the trend with the ADX.

3 Understand your best entry and exit points using pivot points and/or fibonnacci retracements

4 Understand the key japanese candlesticks Reversal patterns.

5 Know when the market is down or when the trend is weak and trade accordingly or stay away.

6 Only use take profit according to predetermined market potential.

7 Buy in oversold markets: stochastic oscilliator and RSI can be used in determining this

8 sell in overbought market: stochastic oscilliator and RSI can be used in determining this.

9 Never entertain fear even when the market moves against you. If you have a good trading system., it will surely come back in your favour.

10 Do not be greedy: Show contentment in all things and this demon will be far from you.

11 Do not over trade: Learn to draw a line between over trading and fear.

12 Always pray before making a trading decision: There is always a guiding light from god if only you will trust him.

!3 Rely on the holy spirit for guidance. He is very dependable and will never leave noy forsake you if you surrender the battle to him.

Forex trading system is the subsystem of the forex trading plan which governs when and at which price you open and close your trades. A trading system works on the signals given by technical analysis and/or fundamental analysis. The signals are taken to see if the trader should buy or sell a specific currency pair or must close the open position(s). Any currency trading system prevents information overload by filtering out the universe of technical and/or fundamental signals in such a way that only the most reliable (successful in the past) signals or signal combinations are acted upon.

There are two kinds of trading systems - the discretionary and the mechanical. Discretionary trading systems expect the trader to use his or her own judgement to ascertain the importance of each of the technical or fundamental signals (whose number is potentially infinite) that he or she gets. Mechanical trading systems operate on a fixed number of technical or fundamental signals without the participation of the trader. Discretionary trading systems require the perpetual application of creativity (flexibility of approach) from the trader in the understanding of the changing market conditions. Mechanical trading systems require the creativity from the trader only in the forex system development phase.

Discretionary forex trading systems are best employed by professional forex traders with a lot of experience (internalized practical market knowledge) against which they can determine the validity of any signal that they receive. These traders usually remember a large number of various signal patterns from the past (just like the master chessmen) that they can compare to the current market conditions, to make their analysis more objective. In essence, they use themselves (i.e. their brain) as their trading system - often very successfully - because human mind has the best pattern recognition power on the planet.

Starting currency traders are advised to begin by following professionally created mechanical forex trading systems. Most of these systems are sold-out in the form of the forex signals that are usually developed by experienced traders who have found a way to systemize their knowledge of the markets into a working strategy. At the same time, the beginning traders can work on building their own knowledge base of the forex market through the quality forex books, educational courses, bank reports and newswires on this subject -so that they can too, with time, create mechanical trading systems from their own insights and intuitions (using the forex charting packages which allow to do this).

Beginning without a proven mechanical forex trading system (that has positive mathematical expectation) drastically dilutes the chances of maintaining the capital. This is because any intuition or a hunch that the traders experience as a result of some newly gained knowledge of the forex market is likely to be overridden by one of the two emotional derivatives of their life-long programming towards the money - the greed and the fear. In other words, without exact adherence to an existing mechanical trading system the beginning trader will eventually succumb to his or her emotions. As a matter of fact, the only way the traders can acquire discipline in the early phases of their trading careers is by tight following the signals generated by a proven mechanical forex trading system.

Note: Neural Network Packages (e.g. NeuroShell) emulate the process of human learning and can be used to accumualte the knowledge of the past technical and/or fundamental signal patterns (just like the mind of professional forex traders does) for the purpose of the future currency price forecasting.

Quote: "A mechanical approach to the markets can be successful and this is backed up by the fact that approximately 80% of the $30 billion in the managed futures industry is traded by exact systematic methods", from the "The Ultimate Trading Guide" by John R. Hill, George Pruitt, and Lundy Hill.
2.2. Components of a Forex Trading System.

A regular forex trading system consists of two subsystems - the entry system and the exit system. These systems can operate on a different or the same set of inputs. The inputs can be technical or fundamental signals.A system consists of a number of rules which interpret the signals that it receives. The entry system evaluates the signals to determine if and at which level the positions should be opened. The exit system evaluates the signals to determine if and at which level the open positions should be closed.

The propose of an entry system is to find market points which allow to open positions with high potential reward and low potential risk (high reward-to-risk ratio). The risk is defined as the pip distance from the entry price to the next support or resistance level lying opposite to the entry direction (above entry for sell and below entry for buy). The reward is defined as the pip distance from the entry price to the next support or resistance level lying in the direction of the entry (above entry for buy and below entry for sell). It is generally advised that the traders accept only the trades with the reward-to-risk ratio of over 2 (e.g. risk=60 pips, reward=130 pips). All the same, depending on the accuracy of a trading system (i.e. the percentage of the winning trades of all the past trades) this requirement might be shifted to a lower or a higher value without sacrificing the profitability of the system. This is because the true measure of the long term profitability of a forex trading system is neither the average per-trade reward-to-risk ratio nor the accuracy of the system but the combination of these two measures which is calculated as the mathematical expectation of a trading system. In the absence of the accuracy measure of a trading system (as is the case with some discretionary trading systems) - the trader ought strive to find entries with the greatest possible reward-to-risk ratio.

Note: Elliott wave analysis allows to find entries with extremely high reward-to-risk ratios (e.g. just check some of reports on MTPredictor's site). It is worth noting that MTPredictor automatically calculates the reward-to-risk ratios and helps to find optimum entry points based on these ratios. Some Elliot wave software developers (e.g. Advanced Get) also supply their subscribers with detailed Elliott wave trading plans.

The aim of an exit system is to protect the capital base and the unrealized profits. The capital base is shielded by ensuring that the trades are exited with a fixed loss when the reasons for holding them are no longer valid. This is done by triggering a stop-loss order on your forex brokerage account when the price crosses the level which defined your risk at the entry. If you are a discretionary trader, forcing yourself to place the slop-loss on each trade and to stick to it no matter what will make you very selective about your entries - which ought increase your profitability. The unrealized profits are protected either by a take-profit order which is triggered on your brokerage account when the price reaches the level which defined your profit at the entry or with the help of the trailing stop-loss which gradually locks in more profits as the price moves in your favour. In fact, the trailing stop-loss exit can be more suitable than the fixed take-profit exit if you wish to profit from the extending "character" of some impulse waves. In such a event the trailing stop-loss can be placed just a few pips opposite to the trendline which defines impulse wave. There is one more type of exit which can be used to protect the trader from missing trading opportunities - the time exit. A time exit is triggered if a trade hasn't reached either its stop-loss or take-profit level in the specified period of time. Exiting such trades reduces the chances that the capital will be tied up when better opportunities appear on the other currency pairs.

Note: Most forex newswires (e.g. Marketnews) are a great source of real-time information on the location of the major support and resistance levels and clusters of large orders that are watched by professional forex traders and which can be used to manually update the position of your trailing stop-loss.
2.3. Development of a Currency Trading System.

Making a mechanical forex trading system involves a number of steps: 1) Selecting the inputs for the trading system - technical analysis or fundamental analysis tools which will generate the signals for the system; 2) Developing the rule-set which will operate on these signals; 3) Optimizing the parameters of the analysis tools used to produce the signals; 4) Backtesting and forwardtesting the system over historical price data. Each of these steps is covered in more detail below:
2.3.1. Selecting the Inputs for the Trading System

It is important to base your selection of inputs to the system on a sensible premise about the way the currency markets operate. As an example, you can use 200-day moving average to determine if the market is in a long-term up or down trend because a large proportion of professional forex traders use this technical tool to measure market trendiness. It is also better to combine technical analysis tools of different type and scale because this increases the chances of finding high-probability entry points (those that are likely to be followed by sharp currency price moves in your favour), which should, in turn, contribute to the overall system accuracy.

If you use technical tools only on the higher time-frame charts like the daily or the weekly charts this will increase the duration of the trades and the time periods out of the market - because the signals will take longer to form. Either of these outcomes can have detrimental impact on the trader and investor morale during the inevitable losing streaks as is shown by our forex trading simulator (Please note: The size of this page is 0,6 Mbs and it requires that you have Flash installed and Javascript enabled in your browser). which can last longer than they are naturally prepared to wait. This makes it important to focus on lower time-frame charts (e.g. hourly charts) for signal generation which will lead to shorter trade durations and, consequently, to quicker recoveries from the drawdowns. Shorter trade durations can also help to the trader to defeat the temptation to overtrade because he or she can expect to see the next entry signal in the next couple of days - not in the next couple of weeks.

Quote: "Your freedom to choose your time-frame is too valuable to lose. Investors and margined speculators, on the other hand, can choose their own time-frames. This is one of their positional advantages, to use a favourite notion of Larry Hite* , one of the founders of Mint Investment Corp* - one of the largest of the futures fund operators. Investors and speculators can choose. Obviously it makes sense to choose time frames which match any natural rhythms that can be discerned in the currency markets." John Percival in his book "The Way of the Dollar".

Note: If you are using the Elliott Wave analysis your average holding period will depend on the degree of the impulse or corrective waves that you are trading.

Choosing which fundamental factors are best for your forex trading system (e.g. as inputs to your neural network) can be very hard because the effect of various economic indicators on the currency prices changes with time. In other words, the strength of correlation between the price of a currency pair and the fundamental factors relevant to it is not fixed (even with interest rate differentials). In contrast, the relationship between the price patterns (especially the classical price patterns) and trader psychology (the driving force behind most important price moves) remains fairly stable over the years. This is the reason why the forex traders are encouraged to dedicate most of their efforts to building trading systems around the technical analysis.

Another all-important question is the time horizon of the prediction that the trader is trying to make with his system. Better not to try to forecast currency prices too far into the future. This is because the number and the complexity of interaction of various technical and fundamental factors rises geometrically with each trading day. It is, therefore, best to "leave" this task to high-end investment banks and houses which alone have the capacity to perform the necessary calculations inherent in longer-term currency course forecasting. It is more practical for the typical currency trader to concentrate on capturing the so-called "knee-jerk" market reactions driven by crowd emotionalism through the analysis of the current technical or fundamental conditions.

Quote: "Rule 5: Be prepared for anything don't try to predict what will happen or when. Investing is a skill, not a science. The Zen swordsman dicsniplines body and mind to counter any blow spontaneously; he does not anticipate the moves of an opponent, for that impedes his ability to react. Likewise, professional investors know they cannot control the real estate or stock market, let alone the global economy. Instead, they train themselves to be financially intelligent, to think confidently and creatively when opportunities or problems arise." one of the The Seven Rules of Investing given in Robert Kiyosaki's book "You Can Choose to Be Rich".

You should also try not to include too many indicators (over 12) in your forex trading system. This is because probability that the system will perform like it did in the past diminishes as you add more indicators to your system. As a rule, the larger the number of indicators in your system the longer the period of historical currency price data you need to backtest the system on.

Note: There is no necessity to learn all the available indicators and technical analysis methods before you can start creating your own robust trading systems. It is usually enough to master just a few "basic" technical indicators and formations to start combining them to identify high probability entry and exit points. The fundamental and technical reports issues by the investment banks are one of the best sources of information on which technical and/or fundamental signals are watched by the professional trading community that you can include in your forex trading system. In the long run it is best to stick to a sound forex trading strategy, that has high probability of being profitable in the long-run, than to dissipate your capital among a variety of "promising" methods.
2.3.2. Developing the Rule-Set which will Operate on the Signals

You can create these rules based on your observation of how the prices move in relation to various technical and fundamental indicators. For example, you might notice that currency prices tend to resume trending behaviour after they correct toward and touch 200-day moving average. You can use this observance to formulate a rule which will enter the markets when the prices bounce off from the 200-day moving average. You could also notice that the prices tend to stop trending when they touch the outer daily Bollinger bands. You can use this information to create a rule which will exit the trades once the prices penetrate the outer daily Bollinger Band. Because making rule-sets for mechanical trading systems forces you to quantify your insights about the market this practice aids to clarify them.

The rule-set of a forex trading system is in essence the clarified version of the weighing algorithms that you naturally create in your mind as you learn the technical and fundamental analysis and observe the price action. I say "weighing" because most of the technical rules are transcribed in your mind as fuzzy patterns (e.g. "The longer the shadows of a doji the more likely the reversal" or "The steeper the trendline - the more bullish or bearish the market sentiment."). When you make the trading system, you transfer your knowledge to the computer in the form that can be understood by it. Admittedly, the quality of the computerized model very often will fall short of the actual mental model that you keep in your head. Nevertheless, the real advantage of the "mechanicizing" your market knowledge is the power to objectively determine the validity of your trading ideas by the process of the backtesting. It should be noted that the closest the computers approach to simulating the complexity of human comprehension of the market patterns is in the neural network packages.

Neural network packages can be especially effective if you wish to model your way of weighing the strength of support or resistance levels. For example, if you believe that fibonacci retracements are more reliable entry points if they are confirmed by reversal candlestick patterns and/or RSI divergence you can "ask" a neural network to search for past occurrences of this pattern combination and determine the actual numeric weight that should be placed on each of these technical signals for the entry or exit to occur. This process is very advantageous because it allows the computer to extend your natural pattern recognition ability by perfecting (or objectifying) the weights associated with each technical input/signal. This way you can objectively measure the strength or the beauty of the technical setups that you encounter in your trading (e.g. the resultant model might require the position to be opened if the total sum of signal weighs is bigger than 0,5 where a reversal candlestick signal is "worth" 0,15, fibonacci retracement is "worth" 0,3 and the RSI divergence is "worth" 0,45). In essence, your forex trading system is the description of how beautiful your trading setups should be, where "beauty" is defined as the convergence of confirming signals from different type and/or scale technical analysis tools. Advanced users of the neural networks can go even further by tying the position size (within the maximum percentage value set by their money management system) to the strength or the beauty of the technical setup. If done decently this practice will allow them to make the most of the best trading opportunities while simultaneously reducing the exposure on the less promising setups.

Meta4: An fascinating parallel to weighing the signals in order to determine if the position should be taken or not is the way people fall in love. Each individual carries a certain number of unconscious or semi-conscious qualifiers that "describe" in more or less fuzzy terms the appearance, the character, the temperament of their likely mate. When you meet the person who posses enough of these traits (i.e. above some "threshold" or unconscious minimum) the cascade of the confirming signals sets your mind off into the love state. A similar process occurs in the mind of discretionary trader when the market action through all of its technical and/or fundamental signals (i.e. "when all the pieces fit") activates the hunch or intuition response from him or her. If you compare the brain of a discretionary trader to a neural network the hunch finds its direct expression in the output neuron. The similarity between the process of falling in love and experiencing a hunch is probably behind such market advices as "do not marry your trades" or "do not fall in love with your trades". To stretch the similarity further we can compare a stop-loss order to the practice employed by some of the married couples called the "boundary". The boundary is the some form of behaviour unacceptable to the other spouse which if violated will lead to the end of relationship. Yet another analogue is between adding to a losing position and trying to win a favour of an unloving partner - the more you invest the harder it is to let go and the more likely you are to end up destroyed financially (emotionally in the relationships). As a final comparison the neural networks allow to model the connections among the ideas in the human mind in a similar way that a website through all its external and internal links permits to express the specific mental idea-network of its creator.

Quote: "I use all forms of technical analysis, but interpret them through gut feel. I do not believe in mathematical systems that always approach markets in the same way. Using myself as the "system," I constantly change the input to achieve the same output—profit!", Mark Weinstein in Jack D. Schwager's book "Market Wizards".

Note: It should be marked that the effectiveness of your model will always be only as good as the inputs that you give or "feed" to it (as someone said - "Garbage in, garbage out"). This is because computers merely extend your pattern recognition ability and cannot be relied upon to think up a winning system on their own - if this was false, the markets would have been cornered long ago by the guy with the most powerful computer.
2.3.3. Optimizing the Parameters of the Analysis Tools used to Produce the Signals

Some forex charting packages (e.g. TradeStation) permit to optimize the parameters of the technical indicators that you use in your forex trading system. Optimization allows to find parameter values of your indicators that result in the biggest profit (most frequently used measure of system performance in optimization) from the trading system over the past data. An good example of the optimization is looking for the best time-period parameters for a two-moving-averages crossover system. Commonly the periods of two moving averages are stepped from 1 to 50 in steps of 1 and the trading results for each of around 250 moving average combinations are recorded and then sorted to find the most profitable combination. Such process of going though all possible parameter combinations is called brute force optimization. As the number of indicators used in your system increases arithmetically the number of potential parameter combinations increases geometrically. The total number of parameter combinations is, therefore, said to be subject to combinatorial explosion. For example, to optimize a system with 5 indicators each of which has 50 different parameter values you would have to cycle through 312 500 000 (50^5) possible parameter combinations. The only way you can expect to quickly solve such huge optimization problems in your lifetime is through the use of generic optimizers (e.g. OptEvolve for the TradeStation or NeuroShell Trader Professional).

Optimization of the time-period parameter of the cycle-based indicators like Stochastics permits to automatically adapt them to the cycles present in the market instead of using the default time-period values - which is the method originally used by the developer of Stochastics.

As a final note, try not to over optimize your indicators because majority of the professional forex traders use default indicator settings. You are looking for trading setups where the smart money will be acting (as opposed to the general investor public) so it doesn't make much practical sense to use indicator settings that hardly any professional forex trader is aware of.

2.3.4. Backtesting and Forwardtesting the System over Historical Price Data.

Backtesting allows to see how your system would have performed if it was run during some period in the past. You optimize indicator parameters using the price data in the backtesting period. It is crucial that the time period that you backtest your system on is representative of the currency pair that you wish to trade - it should include all types of market conditions (trending, rangebound) and it should be as recent as possible. Once you are comfortable with the performance of your system you forward test it - you run it on the out-of-sample price data (the price data that would be immediate future to the backtesting period). This way you can see if the system is able to perform likewise to the way it did during the backtesting. The closer the system's performance during the forward testing is to its performance during the backtesting the more robust the system and the more assured you can be that it will continue to trade in a similar manner during the real-time trading. You could also wish to trade your system on a forex demo account for some time before beginning to trade it with the real money.

Backtesting aids the trader or investor to determine if they are prepared psychologically for the live trading of a forex trading system. By examiningthe past performance of a system they can decide if the size of the drawdown, the number of the consecutive losses and the average duration of the trades are acceptable for them. For the complete list of the performance measures that you could wish to review before starting to trade with professionally-created mechanical trading systems please visit the forex signals page. In contrast to the mechanical trading systems the discretionary trading systems cannot be backtested because the discretionary traders cannot guarantee that they will react to a similar set of signals in the future in the same manner that they did in the past.
2.4. Implementation of a Forex Trading System.

There are two ways you can implement a forex trading system - either manually or automatically. Discretionary trading systems can only be followed by the manual placing of the trades. Mechanical trading systems are better followed though the use of automation.

If you are following a discretionary trading system you will be generally screening the currency markets for the signals that you have outlined in your checklist. The checklist is the description of the technical or fundamental trading signals that your trading system's rule-set operates on. The checklist could also contain the guidelines on how often you should check your forex charts/forex newswires for the signals (using the economic news calendar provided by the forex newswires as your fundamental signal timing tool); in contrast, the mechanical forex trading systems will be going through their own checklists with every second, 24 hours a day - which no human being can possibly do. Having a elaborate checklist will help you to be more disciplined in the application of your system. It is better to write your checklist in the form of the questionnaire. You can automate your search for some technical signals with the help of those forex charting packages which allow you to set up the sound or email/SMS alerts to notify you whenever the technical signal of your interest is generated (e.g. in Intellicharts). The forex bank reports and the forex newswires frequently issue mini reports of technical conditions on the market which most often are merely the "filled-in" versions of the same checklist.

Manual implementation of the mechanical signals is NOT recommended. Since the signals are generated by the computer you will always feel compelled to double-check them against you own experience - since no computer can model your thinking with 100% accuracy. This can lead to the delays and/or missing of some of the signals which can potentially undermine the system profitability, that rests on the principle of taking each signal exactly at the time it is generated. A lot is being said about the widespread lack of the discipline in taking the signals of the mechanical forex trading systems. This trouble can be easily overcome though the use of a reliable signal automation service. You solve all emotional troubles associated with the manual trading of the signals by simply automating this process. Elimination of the emotions from the trading through the use of the automated mechanical forex trading systems should explain their popularity amidst the multi-billion dollar hedge fund industry.

An crucial aspect of mechanical system trading is the monitoring of its real-time performance. The concealed market dynamics (a particular way of reacting to technical or fundamental signals that an important grouping of forex market participants shares - or, systematic mass investor impulsiveness) that your system has captured during the back-testing may be switching or might already have changed at the time you start to trade your system with the real money. The single way you can say that the market dynamics that you are focusing on have changed or not is to compare the real-time and the past system perofrmance. If the system continues to perform like it did on the backtesting then you can conclude that the market dynamics it targets have not yet changed. If you notice important deviations in such system performance measures like the maximum peak-to-valley drawdown, the average duration of trades, the average value of the profits/losses, the maximum number of consecutive winners/losses, it can signal that an important shift in market dynamics is taking place (e.g. a group of investment banks have modified their trading models). The fastest way to update your system to the changes in market dynamics is available for the neural network packages - which allow to retrain your model over the most recent price history. Retraining a neural network involves readjusting its matrix of weighs which allows it to stay attuned to the current market conditions. If mechanical trading systems suffer form the paradigm shifts on the market - the same can be said of the human mind (discretionary trading systmes) which tends to be very inflexible once a partciluar way of doing things (i.e. trading style) is ingrained in it.
2.5. Mastering System Trading.

To master system trading you ought have the patience to wait calmly for the entry or the exit signal from your own forex trading system and act only on them - irregardless of the technical or fundamental conditions that you see in-between these signals. It is no wonder why the best traders prefer to compare themselves to skilful predators when they describe their trading style:

Quote: "Top traders love the hunting metaphor to describe what they do. One of them, for example, claims he is like a cheetah. The cheetah can outrun any animal, but it still stalks its prey. It won't attack until it is right on top of its prey. In addition, the cheetah usually waits for a weak or lame animal to get close. Another top trader told me that he trades like a lion. He watches the herd for weeks until something other than his presence causes the herd to panic. When the herd panics, he then chases a weak or lame animal that appears most confused. The difference between an average hunter and a really skilled animal like the swift cheetah or the cunning lion is that the skilled hunter waits until the odds are overwhelmingly in his favor", from "The Ten Tasks of Top Trading" by Van K. Tharp.

Quote: "Much of the time, even professionals don't have a clear picture of what is going on, but they have learned to have the patience to wait for select, specific setups. You must learn to trade on only the most recognizable and reliable patterns." from the "Street Smarts: High Probability Short-Term Trading Strategies".

The most important rule of systematic trading is to take each and every trading signal that your system generates. Only by taking all the signals at the time they are generated can you count on replicating the past performance of your system. If you have the slightest suspicion that you will not be able to take all the signals - either due to the timing of the signals or your busy schedule - you should arrange for the signals to be automatically traded.

At the end of the day, a forex trading system just like the money management system serves to protect yourself from your own destructive tendencies which very often mask themselves as the "well-meaning" hunches and gut responses. This doesn't mean that you shouldn't trust your instincts - only that you should base your trades on them only if you can eliminate emotions from your decisions. This is because a trading system is a method to profit from other traders' emotional instability, therefore, if you do not control your own emotions you will not be able to profit from any system. Removing the emotions from your manual trading can take years (!!!)- so it can be more practical and profitable to simply autotrade your system.

Even if you start your currency trading career by following a professionally created forex trading system you will receive full satisfaction from the trading - in terms of profit and self-actualization - only if you make and trade a successful system of your own. One of the best books which can help you to start this fascinating journey is "Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis" by Richard L. Weissman.

Quote: " In the meantime, it cannot be emphasized enough that, at the very least, genuine success in trading markets involves the adoption of a trading system. Without the discipline of such a system, the very best efforts are likely to be doomed to failure." Tony Plummer in his book "Forecasting Financial Markets: The Psychology of Successful Investing".

There are no certainties in the forex trading, since the future will never be exactly the same as the past. There are only probabilities, which you can systematically put in your favour with the help of a established forex trading system.

How to approach news breakout: this occurs upon the release of major economic announcements and can sometimes trigger moves of over 70 pips within few minutes.

When a major fundamental announcement is to be released, few minutes to this time we see the market moving in a very choppy sideways or counter trend. During this time, breakout traders who straddle the news position themselves well ahead of the said news event to take advantage of the initial price spike. Note that not all news event support this strategy. Using this strategy, you ay only need to be in the market for about 5minutes and you are out with profit or a little loss.

You use this strategy by first of all knowing the time of the news release using the economic calendars then find out if the news event supports this strategy. Having done the above, you then go to your platform 5 or 3 minutes before the news event and set up your orders.

The news event that supports this strategy are interest rate statements from US EUR/USD, GBP/USD and USD/JPY. EUROPE- EUR/USD, EUR/GBP, EUR/JPY. And EUR/USD. UNITED KINGDOM-GBP/USD, EUR/GBP, GBP/JPY, NEWZEALAND AND CANADA. Other news events that supports this strategy are non-farm payroll from US , unemployment rate and employment change from Canada and Australia, German Zew economic sentiment, BOE MPC meeting minutes e.t.c.. the minimum each of this news events can generate is 30pips within 10 minutes so do not be greedy with profits. If you take only 20pips per event on a standard account, with just 10 events per week that will give you $2000 per week. Also try factoring in risk.

Technical breakout; this kind of breakout occurs without any news event in sight. It can happen during the opening hours or close of the market. Before the opening of certain currency pairs and market sessions, the market is usually in a very choppy mood and quiet too. During this time the big moves are being planned and you should learn to move along with them. Quite often the market would have determined the direction it wants to move before it becomes quiet attempting to determine where to breakout.

Send a blank mail to wealthklub@yahoo.com to get a free report on a trading system that generates an average of 500pips monthly plus how $5100 was turned to $40,000 without lifting a finger.

Losing money in forex?

Every one has his days when no matter how well he has planned out his trades, he may find some of his trades not performing to what is planned. It is only natural for one to feel upset, but for the follower of a forex trading system, making money or losing money from that trade is not the paramount objective.

Why is this so?

For the trader who employs a forex trading system, he can still face the losing trade with a smile, because he has had followed through the trading signals in a disciplined way, and it is only when a trader follows a system, he can be sure of keeping his losses small and to live to trade again another day.

By using a forex trading system, the trader can have a cool head, and can face his trades rather unemotionally. He can execute his trades following pre-determined price levels of initial stop loss, trailing loss and computed and projected price profit.

He knows his tolerable level of loss, his threshold of pain - and of course, his risk to reward ratio even before he trades.

Now when a trader has a trading system and follows through the trading plan, making profits is a natural result when he makes a correct trade. But when his trade is wrong, his forex trading system will very quickly show him that the direction of his trade is wrong, so that he is out of the game fairly quickly.

I am often flabbergasted at some very broad claims of some traders who condemn day trading systems and relegate them to the garbage bin. When you look at forex trading systems, review them quickly by peer recommendation whenever possible. By peer recommendation, I mean you can ask existing traders their experience on the trading system, and how they are doing with it. Posting to the numerous reliable trading forums will allow you to receive some independent reviews fairly quickly. At the same time, my personal experience, and that of many other professional traders is that day trading can be profitable, though it is never easy to day trade. Otherwise, how is it that so many day traders are able to earn their income day trading the short swings of the market daily for a living? So it is important for you to have a broad view of forex trading systems if you are contemplating of learning or purchasing any trading system that relates to day trading.

If you ever wish to trade successfully, whether you day trade or swing trade, it is important that you have a trading system that will allow you to approach trading in a disciplined manner. It is only when you are a disciplined trader that you can see consistent large gains and small losses.

I have seen the hedged grid system been used successfully (and highly unsuccessfully) over the last few years. Unfortunately the failures tend to discourage traders from taking advantage of this great system. I have found that the failures are mainly due to ignorance, impatience and greed (common reasons for trading failure).

In a nutshell the grid system uses the following methodology. You start by buying and selling a currency. When the price moves a predetermined distance (grid leg) you cash in the positive leg, leave the negative leg and buy and sell again. Sooner or later the system goes positive and you would then cash in when it is positive.

This is a brief summary of the content of our free hedged grid trading course available on expert-4x.com. Please refer to this course for more details of how money is made. The attraction is that the system is reasonably mechanical, can be programmed and does not take much supervision as exclusively entry orders are used.

Money is made when the price retraces 100%, 50%, 33% at various levels. This starts looking like a strategy that supports the Fibonacci concept. The grid system is also based on the nature of the market to trade sideways 80% of the time and to trend 20% of the time.

The dangers are that what if the price does not retrace and continues to trend. The Grid system can not make money in a trending market – full stop. One has to realize that. You therefore need Strategies to minimize damage during these periods:-

Firstly I have found that the biggest mistake made by traders is that they select a very small grid leg sizes e.g. 20 to 30 pips. This is a recipe for disaster. The trick is to use big leg sizes between 150 and 300 pips. What this does is that it sometimes turns a trending phase into movement in a sideways market. I would typically use 300 pips for the GBPJPY and 150 pips for the EURUSD for instance.

Secondly there is no rule that says that the legs have to be the same size. So I change my leg sizes in trending markets to be even bigger. If I started with 150 for the 1st leg I would go to 200 for the 2nd leg and 250 for the 3rd leg etc. This makes sure that I am carrying less loss making transactions in a trend.

Thirdly – sometimes it is wise to increase the number of lots with the trend compared to the numbers against the trend in a good trend. However be aware of having the same number of sell and buy transactions. All you will have done was lock in your current status in a 100% hedge.

Fourthly – This is the biggest change and most important one that I personally have made in my grid trading strategy. Always cash in all your transactions when your system is positive and when the price reaches the end of one of your grid legs. By cashing in you are reducing the risk of carrying negative lots in a trending market. This also gives you an opportunity to re-assess the market conditions.

Fifthly:- Cash in a start again is always an option. One of my strategies is to cash in all my open positions when the 3rd leg of my grid is reached and start again. Experience has taught me that this is a short term pain that goes away very quickly and is soon forgotten.

People that have traded the grid system will immediately see how the above approaches will reduce the risks of exponential losses building up in a strongly trending market. Please feel free to contact Mary McArthur at marymcarthur@expert4x.com for clarification on any items discussed above. She has numerous examples of successful applications of grid trading

This article is part of a series and many more will follow on Grid trading, money management and Forex Trading Strategies.

So you decided to make full time leaving from foreign exchange market? Or you are going to supplement your income from here? You have set up yourself with proper broker available. I believe you spent hundred of hours in front of PC trying to put together all maths and physics involving currency market. Now you watching business news in the morning paper and following CNBC channel to be on the top with latest information from exchange market. You trading your demo account trying to figure out how to make it all work? So? Does it? No?

Face the fact that in currency market all is possible and there is no golden rule to follow. There are so many aspects to consider that you will need at least another head to set this puzzle together.

But do not worry there is a hope that can make it work.

Signal solutions for forex trading. People who traded forex for a long time and developed their own systems to enter and exit with profit strategies. They will share this knowledge with you for varieties of prices from usd49 to usd499 a month for those precious information. Problem is which one will suit you best. Are they scams? How do I know?

For medium advanced forex trader is almost impossible to choose proper forex signal system, which is not a scam, or at least not profitable. There is bulk of forex signals providers out there. They all offer their signal solution to trade currency with success.

Advice is that you will have to establish what type of trader are you? Do you want to trade quickly or maybe over the days or weeks? What losses can you manage and how much money you want to invest.

As long as you know al that it is a time to pick up signal trade provider.

Few things worth researching are: performance, service offered and rewievs of the signal. Search on forum for another users of the product you are interested in and ask for comment. Every profitable system should be up on collective2 with real track performance. Look for service offered. You will quickly find out that only few offer free trail-option to try signals before you pay. Demand performance evidence.

But while doing all that hard work choosing your automat forex signal system remember that you will have to totally follow it without exceptions to make most out of it. Any even small innovation may have dramatic results in your own gains.

Remember that your future profits will depend on your signal provider so calculate carefully and make smart decisions.

Here we are going to look at a free Forex trading signal that makes big gains and has done for over 25 years and is used by some of the world's top traders in their Forex trading strategies. Let's take a look at it.

The signal doesn't even need trading software to generate it, you can actually do it in your head. The signal is credited to famous trader Richard Donchain who is considered the grandfather of modern trend following and he called it the four week Rule and this is the rule

1. When prices move to a new 4 month high buy a currency and hold it.

2. Wait for a new 4 week low to occur, liquidate the long and take a short position.

3. Always maintain a position long or short in the market and simply reverse on each new 4 week high or low.

The above rule could not be simpler but it works and if you test it, you will see how much money it makes and the reason it works is because it works on two pieces of logic which will never go out of date and there the following:

1. Markets trend up or down for sustained periods of time.

2. All major trends start and continue from major breakouts

This system over the long term, will catch a good chunk of profit from every major trend but despite the fact it works most traders won't use it for the following reasons:

1. They prefer the get rich quick route and buy a cheap automated software package with no independent verification of gains instead, the above Forex trading signal is proven and has a real track record over a quarter of a century.

2. It takes discipline to follow as its long term and traders have a problem with holding long term trends, they think trading frequently means more profits and its clear this is not true.

3. Most traders simply pass it buy because they think a signal so simple cant work but of course all the best systems are simple because they are so robust.

The 4 Week Rule, as stood the test of time and any trader can use it to seek Forex trading success. In the next article in this series we will look at how to add filters to the above trading signal to make it even more effective and also look at some of Richard Donchian's other Forex trading tools.

Forex markets trend long term, they always have and they always will as long as we have a free market and the big trends which reflect the underlying economic cycle can last for many weeks, months or even years. If you learn to trend follow correctly you can make huge long term profits in around 30 minutes a day...

Many traders like to trade the market noise and trade short term but this is doomed to failure, as all short term volatility is random. If you trade the big trends you get better odds, more profits and spend less time on your trading. Lets look at trend following in more detail.

If you want to succeed at Forex trend following, you should keep the key points in mind below when formulating your Forex trading strategy.

Simple and Robust

The best trend following systems are simple and it's a fact that in Forex simple systems work better than complex ones, as they have fewer elements to break than complex ones. A graphic example of this is the free one we have on this site which has only one rule yet, test it and you will see how much money it makes. A Successful trend following system can be based on just looking at support and resistance and have a few indictors to confirm your view and that will work just fine.

Use Breakouts

All big trends start and continue from breakouts to new market highs or lows so if you are considering trend following, breakout methodology should be used in your Trading strategy. Breakouts are simple to understand and simply trade the reality of price change and trading breakouts is a highs odds way of trading Forex.

Trade Infrequently

I know traders that trade maybe once or twice a month and make triple digit gains and that's because they focus on the best high odds trades. You get nothing for effort in Forex trading, you're judged purely on results and if you are patient and wait for the best set ups you will increase your odds of success and reduce your work rate

Acceptance of Short Term Volatility

If you are tend following in Forex you are after trends that last for weeks, months or even years and you have to accept that you cannot predict tops or bottoms, you always have to give a bit back at the end of a trend and you also have to accept short term drawdown in equity against you as you follow the trend.

Long term trend following, requires patience and discipline but if you caught just 60% of every major trend, you would make a lot of money.

A thorough Forex trading education must include an understanding of the effect market timings can have on trading and liquidity.

One of the most active periods of the day is from the time the London market opens. Often around that time good trading opportunities will appear.

As part of your Forex trading education, learn to analyze market conditions around London open and begin to recognize good setups.

The following questionnaire and checklist will help.

London Open Preparation

About 15 to 30 minutes before London open check the answers to these questions:

- Are the MACD indicators on the 4 hour and 1 hour charts in agreement? If they are not going in the same direction be very careful!

- Is there MACD divergence on the 4 hour, 1 hour, or 15 minute chart? Look for other clues to confirm that price may go in the direction of MACD divergence.

- On the 4 hour chart what is the overall trend?

- Do a Fibonacci calculation on the last swing high and low and see if price is pulling back to an optimum retracement level or whether it is reaching a key extension level.

- Note price in relation to the 200 EMA (Exponential Moving Average) on the 4 hour, 1 hour and 15 minute charts. Is price bucking the trend? In other words, is price above the 200 EMA on the 4 hour and 1 hour chart but below it on the 15 minute? Then be prepared for price to go long at some stage. (Draw the opposite conclusion if price is below the 200 EMA on the 4 hour and 1 hour chart but above it on the 15 minute chart.)

- Are any Economic Reports imminent?

- As the candle closes on the 15 minute chart at London open, do you see any distinctive candle patterns such as tweezers, or doji's or hammers indicating price exhaustion?

- If I entered a trade right now in a particular direction, what would be the risk and where would I place my stop?

Within a few minutes of London open, if you see a number of factors converging from the analysis above, make a decision one way or the other:

- trade

- wait for clearer signals or a better entry point

Carrying out an analysis in this way each day at London open will do much to increase your Forex trading education.

It will make you aware of what is happening on the charts and in the marketplace and help you to arrive at conclusions.

There is no magic formula involved with Forex trading education. Put simply, successful Forex trading is the result of years of hard work, study, practice, and experience often gained through painful trading scenarios.

Eventually the newer trader learns mental discipline, and how to control the emotions - probably the biggest part of a Forex trading education.

Practice a procedure like the one above day after day and begin to see some progress as you get nearer the time you make profits consistently from currency trading.

Here are some of the most common terms used in FOREX trading.

Ask Price ¨C Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote ¨C e.g. EUR/USD 1.1965 / 68 ¨C means that one euro can be bought for 1.1968 UD dollars.

Bar Chart ¨C A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information ¨C the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.

Base Currency ¨C is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, in the quote - USD/JPY 112.13 ¨C US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.

Bid Price ¨C is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1965 / 68 ¨C means that one euro can be sold for 1.1965 UD dollars.

Bid/Ask Spread ¨C is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.

Broker ¨C the intermediary between buyer and seller. Most FOREX brokers are associated with large financial institutions and earn money by setting a spread between bid and ask prices.

Candlestick Chart - A type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick ¨C a red or green vertical bar with extensions above and below the candlestick body. The top of the extension shows the highest price for the chart division and the bottom of the extension shows the lowest price. Red candlesticks indicate a lower closing price than opening price, and green candlesticks indicate the price is rising.

Cross Currency ¨C A currency pair that does not include US dollars ¨C e.g. EUR/GBP.

Currency Pair ¨C Two currencies involved in a FOREX transaction ¨C e.g. EUR/USD.

Economic Indicator ¨C A statistical report issued by governments or academic institutions indicating economic conditions within a country.

First In First Out (FIFO) ¨C refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.

Foreign Exchange (FOREX, FX) ¨C Simultaneously buying one currency and selling another.

Fundamental Analysis ¨C Analysis of political and economic conditions that can affect currency prices.

Leverage or Margin ¨C The ratio of the value of a transaction to the required deposit. A common margin for FOREX trading is 100:1 ¨C you can trade currency worth 100 times the amount of your deposit.

Limit Order ¨C An order to buy or sell when the price reaches a specified level.

Lot ¨C The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.

Major Currency ¨C The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.

Minor Currency ¨C The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.

One Cancels the Other (OCO) ¨C Two orders placed simultaneously with instructions to cancel the second order on execution of the first.

Open Position ¨C An active trade that has not been closed.

Pips or Points ¨C The smallest unit a currency can be traded in.

Quote Currency ¨C The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.

Rollover ¨C Extending the settlement time of spot deals to the current delivery date. The cost of rollover is calculated using swap points based on interest rate differentials.

Technical Analysis ¨C Analysis of historical market data to predict future movements in the market.

Tick ¨C The minimum change in price.

Transaction Cost ¨C The cost of a FOREX transaction ¨C typically the spread between bid and ask prices.

Volatility ¨C A statistical measure indicating the tendency of sharp price movements within a period of time.

Kinds of prices and time units. Charts for the technical analysis are being constructed in coordinates price (the vertical axis) time (the horizontal axis). The following kinds of currency prices represented on charts are being distinguished on Forex:

* open - a price at the beginning of a trade period (year, month, day, week, hour, minute or a certain amount of one from these units);
* close - a price at the end of a trade period;
* high - the highest from prices observed during a trade period;
* low - the lowest from prices observed during a trade period.

Providing the technical analysis one uses charts for different time units پ from 1 year or more till 1 minute. The bigger is a time unit applied for the chart plotting the bigger is a time span to analyze price movements and to determine the major trend by means of the chart. For the short trading charts for less time units are more suitable.

Line chart. The line chart is plotted connecting single prices for a selected time period. The most popular line chart is the daily chart. Although any point in the day can be plotted, most traders focus on the closing price, which they perceive as the most important. But an immediate problem with the daily line chart is the fact that it is impossible to see the price activity for the balance of the period as well as gaps پ breakups in prices at joints of trade periods. Nevertheless, line charts are easier to visualize. Also, technical analysis goes well beyond chart formation; in order to execute certain models and techniques, line charts are better suited than any of the other charts.

Bar chart. The bar chart consists from separate histograms. To plot a histogram in coordinates price پ time the points responding to high, low, open and close prices for a time period analyzed should be marked on the one vertical bar. The opening price usually is marked with a little horizontal line to the left of the bar; and the closing price is marked with a little horizontal line to the right of the bar. Bar charts have the obvious advantage of displaying the currency range for the period selected. An advantage of this chart is that, unlike line charts, the bar chart is able to plot price gaps. Hence, it is impossible to see on a bar chart absolutely all price movements during the period.

Candlestick chart. The candlestick chart is closely related to the bar chart. It also consists of four major prices: high, low, open, and close. In addition to the common readings, the candlestick chart has a set of particular interpretations. The latter is possible thanks to the convenient visual observation of that chart.

The opening and closing prices form the body (jittai) of the candlestick. To indicate that the opening was lower than the closing, the body of the bar is left blank. Current standard electronic displays allow you to keep it blank or select a color of your choice. If the currency closes below its opening, the body is filled. In its original form, the body was colored black, but the electronic displays allow you to keep it filled or to select a color of your choice. The intraday (or weekly) direction on a candlestick chart can be traced by means of two "shadows": the upper shadow (uwakage) and the lower shadow (shitakage). Just as with a bar chart, the candlestick chart is unable to trace every price movement during a period's activity.

The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.

Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.

Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.

Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:

1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.

2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.

Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.

Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.

Currency trading has a long history and can be traced back to the ancient Middle East and Middle Ages when foreign exchange started to take shape after the international merchant bankers devised bills of exchange, which were transferable third-party payments that allowed flexibility and growth in foreign exchange dealings.

The modern foreign exchange market characterized by periods of high volatility (that is a frequency and an amplitude of a price alteration) and relative stability formed itself in the twentieth century. By the mid-1930s the British capital London became to be the leading center for foreign exchange and the British pound served as the currency to trade and to keep as a reserve currency. Because in the old times foreign exchange was traded on the telex machines, or cable, the pound has generally the nickname “cable”.

After the World War II, where the British economy was destroyed and the United States was the only country unscarred by war, U.S. dollar, in accordance with the Breton Woods Accord between the USA, Great Britain and France (1944) became the reserve currency for all the capitalist countries and all currencies were pegged to the American dollar (through the constitution of currencies ranges maintained by central banks of relevant countries by means of the interventions or currency purchases). In turn, the U.S. dollar was pegged to gold at $35 per ounce. Thus, the U.S. dollar became the world's reserve currency. In accordance with the same agreement was organized the International Monetary Fund (IMF) rendering now a significant financial support to the developing and former socialist countries effecting economical transformation.

To execute these goals the IMF uses such instruments as Reserve trenches, which allows a member to draw on its own reserve asset quota at the time of payment, Credit trenches drawings and stand-by arrangements. The letters are the standard form of IMF loans unlike of those as the compensatory financing facility extends financial help to countries with temporary problems generated by reductions in export revenues, the buffer stock financing facility which is geared toward assisting the stocking up on primary commodities in order to ensure price stability in a specific commodity and the extended facility designed to assist members with financial problems in amounts or for periods exceeding the scope of the other facilities.

At the end of the 70-s the free-floating of currencies was officially mandated that became the most important landmark in the history of financial markets in the XX century lead to the formation of Forex in the contemporary understanding. That is the currency may be traded by anybody and its value is a function of the current supply and demand forces in the market, and there are no specific intervention points that have to be observed. Foreign exchange has experienced spectacular growth in volume ever since currencies were allowed to float freely against each other. While the daily turnover in 1977 was U.S. $5 billion, it increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark in September 1992, and stabilized at around $1.5 trillion by the year 2000.

Main factors influences on this spectacular growth in volume are mentioned below. A significant role belonged to the increased volatility of currencies rates, growing mutual influence of different economies on bank-rates established by central banks, which affect essentially currencies exchange rates, more intense competition on goods markets and, at the same time, amalgamation of the corporations of different countries, technological revolution in the sphere of the currencies trading. The latter exposed in the development of automated dealing systems and the transition to the currency trading by means of the Internet. In addition to the dealing systems, matching systems simultaneously connect all traders around the world, electronically duplicating the brokers' market.

Advances in technology, computer software, and telecommunications and increased experience have increased the level of traders' sophistication, their ability to both generate profits and properly handle the exchange risks. Therefore, trading sophistication led toward volume increase.