Forex Currency Trading - Signals, Managed Accounts, Forex Training

Exclusive Ebay Deal on My Forex Products

2010-02-27T10:38:00.000-08:00

Very special deal available this month only through Ebay! Click here to view the listing and take advantage of this special one-time-only deal! After this acution expires this bundle of Forex products will never be made available again!

This is the last time I will be selling my Forex products to consumers. After this auction ends I will be focused 100% on auto-execution and signal services to clients, as well as trading part of a large Forex Managed Money account based in the UK. I will be releasing details soon on the various ways that people can sign up for my signals.

Happy Trading!

Jeff
www.topforextraining.com
www.topforextrader.com

Analysts Anaylze Traders Trade

2009-07-04T10:05:00.000-07:00

It is important to understand the difference between being a trader and being an analyst. The first one tries to make money through actual trading, while the later tries to make money by selling advice in some form. Always trust your own technical analysis beyond any other person's advice, regardless of the source. You MUST have faith in your own ability to analyze the market, and stop waiting for others to tell you when and where to take trades. One of the goals of my new mentoring program will be to teach my students how to think and "see the market" for themselves.

Check out any major Forex message board or chat room and you will see that there are always plenty of individuals willing to offer up their advice. Even better they can be so convincing that others in the room will blindly jump into a trade based on the advice! Best of all you can usually find two equally convincing traders both offering the opposite advice at the same exact time. Never ever enter a trade based on some other person's suggestion. Never ever!

You can even find professional paid analysts offering up contradictory advice, along with pivots, supports, and fibs that all differ from each other. That is why you need to have your own method of analysis that you know inside and out. You may be a day trader that is trading a minor downtrend, while the analyst whose advice you are reading is looking very long term at a major uptrend. Depending on the time frame you are trading it can and will completely change your perspective on things. Know the time frame you are trading. Know the profit you are seeking and stop loss you can accept. Know your entry and exit signals. If you are confused and struggling from month-to-month like many traders, I can help. My mentoring program will be starting within the next two months.

Until then best of luck traders!

New Mentoring Program Coming Soon

2009-06-23T15:41:00.000-07:00

Within the next two months I will be launching a one-on-one Forex mentoring program. I will only be accepting one student per month, so obviously access will be limited in the beginning. The price will be reduced for the first few students, as this mentoring program is a new venture. Students will receive my exact Forex trading templates, all the indicators I use, and all the specifics on how I trade the Forex market every day.

I will help each student develop an individual trading plan that suits them. My trading style works quite well for people with limited time. I am very realistic in the fact that most people cannot trade full-time, but that certainly does not mean you cannot make nice profits by trading.

The training will last for six weeks and of course I will provide ongoing support after that period if the student has questions. As a special bonus for any interest student I will provide some instruction in the art of Qigong. I use Qigong daily to calm my mind before trading, and mindset is of key important to any trader that wishes to be successful.

Less is More

2009-06-12T09:46:00.000-07:00

In both trading and the practice of Tai Chi, the two things I happen to teach, less is often more. In Tai Chi if you try to hard it will impede your results. You need to learn to let go. To let the ground support your weight, instead of tensing your muscles to achieve the same result.

In Forex trading the same concept applies. Trading less is far better than over-trading. You need to learn to let go of any preconceived notion about which way the market will head, and allow the market to tell you which direction it wants to head. If you wait long enough the trend direction always becomes clear. This is like the mud settling to the bottom of a stream after a hard rain and the waters suddenly becoming clear. When the water is clear, when the trend direction is easily seen, you can now forumulate a plan of high probability entry points.

Wait for the trade to come to you instead of chasing after it. We can think of the Forex market as tides of the ocean. They are either flowing in (high tide or uptrend), flowing out (low tide or downtrend) or in between tides (flat market). First you need to know what is happening at the current moment. I only like to enter during high tide or low tide, as I am a trend trader. If you have ever seen the ocean you know that even during high tide the waves still pull back. I equate this to the pullbacks or retracements you observe on a chart during an uptrend. Price will pull back to various Support points, before it continues the upwards move. Wait for these pullbacks and enter here. Let the current tide carry you on your way to Forex profits. Just recognize when the tide is beginning to switch directions.

Happy trading.

Trading EURUSD in the Forex Market

2009-06-01T07:10:00.000-07:00

We have essentially been in a new uptrend move on EURUSD since March 4th of this year going by the daily chart. There was a minor retracement wave which had a peak high on 3/19 and bottomed out on 4/22. Since April 22nd the Euro has been a Long trade only in my opinion. Too many traders over-complicate things and try to trade way too often. When a currency pair is in this strong of a move, why try to fight against it? The best approach is keep buying pullbacks, until there is a reason not to buy them any longer.

Here during the Monday morning U.S. trading session I am watching for yet another Long entry. The first level I am watching is 1.4170, which would be a bounce off of the previous day's high. So far price bounced off that level once exactly one hour ago. If Price breaks through I will try for an even better entry at 1.4138, which is my 23.6% fib retracement level. If Price does not come low enough I will consider a Long entry around 1.4200.

I always recommend coming up with a plan, and for any trader that works with me personally in the future, you will come to know that I like to work in threes. Perhaps this has to do with my background in Tai Chi and Qigong, as the number 3 has a lot of prominence in Chinese culture. It also seem to be the maximum # of things I can concentrate on at one time. I use three different charts, to look at a currency pair three different ways. I zero down to three time frames to find a trade. I try to come up with three different potential entry points. I always try to remain adaptable so I can remain with the flow of the market.

Happy trading!

EURUSD 5/13/09 - New Downtrend or Minor Pullback?

2009-05-13T11:14:00.000-07:00

I am currently holding part of a position in a Short I entered today at 1.3637. I have closed out half the position, and am holding the remainder for now to see what happens. Based on my technical analysis of the hourly chart we are now in a minor downtrend. This is confirmed by a lower low being achieved at 17:00 gmt of 1.3566, compared to the last minor down wave low of 1.3588, which occurred an 5/12 at 16:00 gmt. However, on the 4 hour chart, the low of the last down move is 1.3557, so we are still technically in an uptrend on the higher time frame charts. If Price reverses around that level, it would be an excellent time to look for a Long re-entry. However, if Price moves through that support level, I would now consider the Euro to be in a new minor downtrend.

At the time I am writing this it appears that the lower Support levels are holding for now, so this is certainly not a good time to enter Short. Try to wait for Price to retest the level between 1.3570 and 1.3550 for Long entry or wait for price to pullback to around 1.3650 for Short entry.

Happy trading!

EURUSD 4/21/09

2009-04-21T11:19:00.000-07:00

EURUSD is currently hovering around 1.2950, which is a key level during the U.S. session today for intraday traders. Price has already bounced of this level several times on the lower time frames. Watch Price closely to determine a potential Long or Short entry.

Forex Auto Execution Service Launching Soon

2009-04-01T10:40:00.000-07:00

I am very pleased to announce that everything is coming together towards launching my new auto-execution/signal service. This new service will allow anyone using the Metatrader platform to receive my trades sent directly to their trading platform or even have my trades auto-execute on their account. You can view my results for 2009 thus far and see that I have am having great success in the market. Now you can too! Plus I will be offering full Forex training, which is something I will begin offering shortly after the launch of the signal service.

Make sure you sign up for my mailing list to find out when you can sign up.

Lesson Four: Detachment

2009-03-25T15:07:00.000-07:00

"The Master stays behind;
that is why she is ahead.
She is detached from all things;
that is why she is one with them.
Because she has let go of herself,
she is perfectly fulfilled."

Detachment is an important concept from Taoism that can easily be applied to trading the Forex market. A good trader should be detached from greed, emotion, as well as any preconceived notion on trend direction. Let's examine this last issue on trend direction a bit closer.

Having a preconceived idea about which way a currency pair is headed is quite dangerous in my opinion. I have seen many traders become 100% convinced that a pair was going to continue heading South, simply because that is the direction the pair had been heading for the last 5 days. This is showing attachment. The trader has become attached to trading Short, perhaps because they have made some easy pips by following the current downtrend.

It is important for traders of every market to be focused in the present moment; detached from what Price has done in previous trading sessions and focused on what it is doing at the moment. Obviously we want to use the past as clues to the future through technical analysis, but the key word here is "clues". We should not be so focused on the past that we forget about the present. Far too many times I see traders in the forums become attached to a trend, even to the point where they will use enormous stop loss levels, no stop loss, or continue moving their stop loss level further and further away in hopes that the trend will reverse and continue in the direction they desire.

Be detached in your trading and your profits will increase. Find the flow and truly see the market instead of injecting your preconceived notions upon it. Most people live a little bit in the present or the past. They worry about what they should have done and they worry about what they are going to do next. When you learn to find the flow you stop fighting yourself and things come much more naturally. You are finally living in the present. This takes practice and hard work...but it does pay off!

As always, happy trading!

EURUSD 3/24/09

2009-03-24T15:15:00.000-07:00

I should probably mention first that I trade EURUSD almost exclusively, as well as Forex being the only market I trade. For me it is enough to focus on trading one pair and one pair only. There is plenty of money to be made trading one Forex pair, and if you cannot trade one pair successfully, I seriously doubt if you can trade multiple pairs any better.

Today I entered Short @ 1.3537 and closed half my position @ 1.3458. A profit of 79 pips, which I'll take any day. I am allowing the remaing half of my position to try and run for the moment. This is my normal strategy, until I see a convincing reason to close the remaining half. I am currently watching my Murrey Math levels at the moment on the 4 hour time frame, as there is some support at the 6/8 level. Also, the pair is currently oversold on the shorter time frames, so most likely there will at least be some retracement.

Lesson Three: Patience

2009-03-22T07:22:00.000-07:00

Thank you to the members who posted the feedback. I'm glad you are enjoying my contribution.

The third lesson on patience is in my opinion one of the most important to master. In fact, I would say that without it you will never become a truly successful trader. Unfortunately, most people suffer from a serious lack of it.

The good news is that patience is a skill, thus it can be learned and improved. Some people are naturally more patient than others, and I believe those people also make naturally better traders. However, anyone can improve their patience, if they are willing to work at it. Skills only improve through practice, practice, and more practice. The Taoists have an expression. "Some practice is better than no practice. But more practice is better than less practice".

So how do you develop patience? How do you learn a skill that many people believe you are either born with or without. The best way in my humble opinion
is to take time away from trading and practice things that are naturally calming. Tai Chi, Yoga, or meditation will bring calm and patience into many other aspects of your life. The main idea is to take time out of your hectic schedule to slow down. Fishing is another great example of the type of activity that causes you to slow down and develop patience.

Patience is only part of the puzzle, but I believe that once you put that piece in place, you can at least begin to see where the other pieces fit. Consider patience as being the center piece that you build everything else around.

There is a popular English phrase that states, "good things come to those who wait". While I can agree with that statement to a certain degree, a person, particularly a trader, needs to know when it is time to act. That is why I think the Tao Te Jing, perhaps the most famous of all Taoist texts, does a better job of outlining patience in regards to trading and even life in general.

The Tao Te Jing talks about patience in Chapter 15.
Do you have the patience to wait
till your mud settles and the water is clear?
Can you remain unmoving
till the right action arises by itself?

A trader can learn a lot from that verse. Most traders enter without their minds being clear and focused. They enter on a whim, because they are impatient and cannot wait for the trade direction to become clear. If you cannot easily tell in which direction price is trending, don't enter! Wait for the mud to settle and the water to become clear. Wait until Price moves to a logical entry point.

So the Tao Te Jing teaches us that if we wait the right action will arise by itself. In trading, I think this means waiting on the sidelines when trend direction is not clear. Let the big dogs fight it out. Once either the Bears or Bulls have won, just take the wave for a nice easy ride. It becomes very easy when you learn how to find the flow and stop fighting yourself.

Lesson Two: Intention

2009-03-22T07:17:00.000-07:00

Intention is essential to being a good trader. Let me first talk briefly about intention from a Taoist Tai Chi perspective and then how it applies within the world of Forex trading.

When I teach a Tai Chi or Qigong form to my students, I can teach the exact same form, but accomplish different goals simply by changing the intention. We may practice one week focusing on the intention of creating an internal fire. This is done to burn away tension, pain, illness, and also to stimulate energy. The next week we could practice the same form, but with the intention of refining our movements and making them as smooth and flowing as possible. Now our intention is focused more externally than internally. Same form, different intentions, different benefits. If we praticed the forms with no intention our forms would be "empty". We would just be moving without any true benefit gained.

What is your intention when you enter a trade? Do you have a clear intention when you enter a trade or are you simply trading. Just like with a Tai Chi form you do not want your trading to be "empty". Otherwise you will be trading, but without any benefit gained, in this case growing your account or at least learning from your experiences.

If you don't know what you are trying to achieve how can you possibly succeed? Every time before entering a trade I make sure my intention is crystal clear. I know why I am entering, what my hard stop will be, when I will exit early, and what I will do if price moves in my favor.

Traders can have very different intentions and be profitable, so the key is having a concrete intention in your mind BEFORE entering a trade. Two traders could enter at the same price, one Short and one Long, and both could end up being profitable if they have different intentions. One may be a scalper or intraday trader, while the other trader is looking long-term and willing to hold their position.

The problems set in when you are not quite sure of your intention. "I'll take a scalp if things go against me, but I'll try to turn this into a long-term trade if things go right." Being flexible is good, being wishy washy is bad.

How many people have moved stoplosses once they were in a trade to avoid being stopped out? This is a recipe for disaster in the long run. Your intention should have been strong enough before placing the trade to know where your stop loss level would be set.

Playing or watching sports is a great way to realize how intention works. If you play sports think about a time where you hesitated. Perhaps on whether to take a shot or to make a pass. When an athlete's intention gets confused it usually leads to a bad play. When a trader's intention gets confused it usually leads to a smaller trading account.

Lesson One: Balance

2009-03-21T08:52:00.001-07:00

Balance is the first lesson I learned myself that led to being a better trader. I was anything but balanced in the very beginning, spending countless hours watching charts, taking way too many trades, and watching with great anxiety as my over-leveraged trades went against me. I'm sure this is a very common and perhaps familiar scenario to some of you, whether currently or at some point in your trading endeavors.

In Tai Chi or Qigong we are always seeking balance, and trying to align ourselves with the Tao or "the way". When you are aligned with the Tao things seem to unfold effortlessly. You stop fighting yourself and live much more in the moment. Everyone has certainly experienced times where everything just seems to be going perfectly with little effort, and also times when you can't seem to get anything right no matter how hard you try.

Trading often reveals how balanced you are in a brutally honest fashion. If you are centered you will be making logical choices and if you are unbalanced you will be making emotional decisions, possibly caught up in such a whirlwind you are unable to stop yourself.

To find balance in trading the first step is to become aware. You can create awareness by simply slowing down. If you are not breathing in a relaxed manner you should not be entering a trade.

I encourage you to spend a few minutes practicing the following simple exercise before you begin trading for the day

Rest your hands on your lower abdomon (also known as the lower dan tian).
Close your eyes
Breath slowly and deeply in a very relaxed fashion. Do not over-exaggerate your breath. Try to feel your abdomen slowly expand as you inhale and contract as you exhale
Just focus lightly on your lower abdomen while taking several breaths
After several breaths you should remind youself to be aware, remain patient, and trade calmly today

To some of you this exercise may seem silly. Perhaps so, but give it a try for a few days and see if it makes a difference. This simple exercise accomplishes some wonderful things in regards to trading. It calms you, provides focus, and most importantly brings you into the present moment.

From a Tai Chi perspective we start to shift from Monkey Mind to Alligator Mind. In which state do you think you'll make better more balanced decisions? When your mind is all over the place or when you can sit calmly for hours waiting for just the right moment to act.

I hope whomever stumbles upon this thread finds some enjoyment from it.

Happy trading!

365 Trade: Finding the Flow

2009-03-21T08:47:00.000-07:00

One of my new goals with this blog will be to post lessons learned from my perspective as a both a trader and Tai Chi/Qigong teacher. Assuming there is any interest I will try to make somewhat frequent posts.

The title "365 Trade" is a concept taken from a book called "365 Tao", which gives the reader a valuable lesson each day taken from a Taoist point of view. Although I don't trade every day of the year, I look at my charts almost every day of the year, and lessons can certainly be learned even when a trade is not taken.

A brief background about me: I have been trading Forex since 2005. It wasn't until 2008 that I ended a calendar year with profits. This learning curve is quite normal. Somewhere towards the end of '07 I began to actually "see" the market. It doesn't mean I am now always right. It just means I enter trades with purpose and understanding.

I credit my meditative practices hugely with giving me the patience and calm to trade profitably, and I hope I can encourage others to give some sort of mind-body movement a chance. It may just improve your trading, and relieve some of the stress and anxiety that will cause you to make bad decisions and negatively affect your health and well-being.

In my next post, i will tackle the first lesson.

Three Words to Remember When Trading the Forex Market....

2009-02-05T12:07:00.000-08:00

Patience, patience, patience! The importance of patience in trading any market cannot be overstated. As Forex happens to by my market of choice, I will use today's trades on EURUSD as an example of how I first entered without patience, and later entered at a more appropriate point. Today was the first day of 2009, where I temporarily forgot my lessons and entered on emotion. Luckily I was still able to close the day in profit.

My first position was a Short trade taken on EURUSD when Price seemed to be showing a move down. However, trading based just on Price movement, is an absolute no no according to my trading rules. For me to have a valid entry I needed to wait for some sort of a retracement to a level of Resistance or Fib Level. I entered based on emotion and also only 20 pips away from the Daily low. Needless to say Price began to reverse and move steadily up. I had to use a larger stoploss than I ordinarily like to carry due to my inappropriate entry. Entries are so very crucial in Forex, because the proper entry allows you to use a much lower stop. Everyone will be wrong occassionally, even if all the rules are followed, but if you enter at a good point, you won't get hurt too bad.

Luckily I was able to salvage my day, but entering another Short position at an area of Resistance. Price did actually move up through the Resistance, but never approached my stop loss, as I had entered at a "smart" price point. Since EURUSD was trading in a range today I closed my positions when I was +11 pips between the two. My "smart" trade saved me from a losing day. However, if I had used PATIENCE and only entered on the 2nd position I would have easily netted 33 pips, and possibly more, because I could have let half the position try to run instead of covering the pips I was still down on the original trade.

Trade smart, be patient, make more money! Check back soon for my new Forex Trading Group, where you will be able to take my signals live, use my EA's, and learn to trade for yourself!

What is a Metatrader Expert Advisor?

2009-01-31T11:38:00.001-08:00

Some traders new to Forex may not have a good understanding about what an Expert Advisor really is, even if they have seen the term thrown around. An Expert Advisor or EA is a mechanical or black box trading system that completely automates the trading process in Forex, by utilizing a set of rules and various indicators to determine entries, exits, stop loss, etc.

An Expert Advisor will only work on the Metatrader (MT4) trading platform, which is fortunately offered by a large number of Forex brokers. Using an EA is a good way to diversify your risk within the Forex market. It is good to use for beginning traders who have not learned to successfully trade on their own, as well as seasoned traders as a method of risk diversification.

The good part about Expert Adivors is they eliminate the human emotion aspect of trading. The EA will trade based on set rules without emotion getting in the way. The downside is that they are not able to adapt and develop an instinct for how to trade, which is often what turns a mediocre trading into a great one. I suggest learning to trade manually, while running a solid autotrader at the same time. That way you can balance all of the strengths & weakness of both trading methods within the Forex marketplace.

Developing an EA requires an understanding of solid trading principles along with the ability to code .mql programming language. Fortunately there are Metatrader coders available for hire in coding an EA, once you have developed a strategy that you think will work. Also, you can purchase an EA that has already been built and tested, such as the Five Gold Coins Forex autotrader available at my website www.topforextraining.com. This is often the best way to go, as you will spend more money having your own EA coded, and you won't know if it is a good strategy until you have thoroughly tested it.

If you like the idea of trading with an Expert Advisor for Metatrader, please check back at my site soon as I am currently developing a brand new EA that will be rich with features, and able to trade various time frames and large number of currency pairs.

Happy trading!

A wonderful post from another forum about the Structure of Forex Brokers

2009-01-27T09:17:00.000-08:00

“Originally posted by Darkstar at Forex Factory.” - Thanks Darkstar for allowing others to post this valuable information.

Unlike the various bond and equity markets, the Forex market is not generally utilized as an investment medium. While speculation has a critical role in its proper function, the lion’s share of Forex transactions are done as a function of international business.

The guy who buys a shiny new Eclipse more then likely will pay for it with US Dollars. Unfortunately Mitsubishi’s factory workers in Japan need to get their paychecks denominated in Yen, so at some point a conversion needs to be made. When one considers that companies like Exxon, Boeing, Sony, Dell, Honda, and thousands of other international businesses move nearly every dollar, real, yen, rubble, pound, and euro they make in a foreign country through the Forex market, it isn’t hard to understand how insignificant the speculative presence is; even in a $2tril per day market.

By and large, businesses don’t much care about the intricacies of exchange rates, they just want to make and sell their products. As a central repository of a company’s money, it was only natural that the banks would be the facilitators of these transactions. In the old days it was easy enough for a bank to call a foreign bank (or a foreign branch of ones own bank) and swap the stockpiles of currency each had accumulated from their many customers.

Just as any business would, the banks bought the foreign currency at one rate and marked it up before selling it to the customer. With that the foreign exchange spread was born. This was (and still is) a reasonable cost of doing business. Mitsubishi can pay its customers and the banks make a nice little profit for the hassle and risks associated with moving around the currency.

As a byproduct of transacting all this business, bank traders developed the ability to speculate on the future of currency rates. Utilizing a better understanding of the market, a bank could quote a business a spread on the current rate but hold off hedging until a better one came along. This process allowed the banks to expand their net income dramatically. The unfortunate consequence was that liquidity was redistributed in a way that made certain transactions impossible to complete.

It was for this reason and this reason alone that the market was eventually opened up to non-bank participants. The banks wanted more orders in the market so that a) they could profit from the less experienced participants, and b) the less experienced participants could provide a better liquidity distribution for execution of international business hedge orders. Initially only megacap hedge funds (such as Soros’s and others) were permitted, but it has since grown to include the retail brokerages and ECNs.

Market Structure:

Now that we have established why the market exists, let’s take a look at how the transactions are facilitated:

The top tier of the Forex market is transacted on what is collectively known as the Interbank. Contrary to popular belief the Interbank is not an exchange; it is a collection of communication agreements between the world’s largest money center banks.

To understand the structure of the Interbank market, it may be easier to grasp by way of analogy. Consider that in an office (or maybe even someone’s home) there are multiple computers connected via a network cable. Each computer operates independently of the others until it needs a resource that another computer possesses. At that point it will contact the other computer and request access to the necessary resource. If the computer is working properly and its owner has given the requestor authorization to do so, the resource can be accessed and the initiating computers request can be fulfilled. By substituting computers for banks and resources for currency, you can easily grasp the relationships that exist on the Interbank.

Anyone who has ever tried to find resources on a computer network without a server can appreciate how difficult it can be to keep track of who has what resources. The same issue exists on the Interbank market with regard to prices and currency inventory. A bank in Singapore may only rarely transact business with a company that needs to exchange some Brazilian Real and it can be very difficult to establish what a proper exchange rate should be. It is for this purpose that EBS and Reuters (hereafter EBS) established their services.

Layered on top (in a manner of speaking) of the Interbank communication links, the EBS service enables banks to see how much and at what prices all the Interbank members are willing to transact. Pains should be taken to express that EBS is not a market or a market maker; it is an application used to see bids and offers from the various banks.

The second tier of the market exists essential within each bank. By calling your local Bank of America branch you can exchange any foreign currency you would like. More then likely they will just move some excess currency from one branch to another. Since this is a micro-exchange with a single counterparty, you are basically at their mercy as to what exchange rate they will quote you. Your choice is to accept their offer or shop a different bank. Everyone who trades the forex market should visit their bank at least once to get a few quotes. It would be very enlightening to see how lucrative these transactions really are.

Branching off of this second tier is the third tier retail market. When brokers like Oanda, Forex.com, FXCM, etc. desire to establish a retail operation the first thing they need is a liquidity provider. Nine in ten of these brokers will sign an agreement with just one bank. This bank will agree to provide liquidity if and only if they can hedge it on EBS inclusive of their desired spread. Because the volume will be significantly higher a single bank patron will transact, the spreads will be much more competitive. By no means should it be expected these tier 3 providers will be quoted precisely what exists on the Interbank. Remember the bank is in the business of collecting spreads and no agreement is going to suspend that priority.

Retail forex is almost akin to running a casino. The majority of its participants have zero understanding how to trade effectively and as a result are consistent losers. The spread system combined with a standard probability distribution of returns gives the broker a built in house advantage of a few percentage points. As a result, they have all built internal order matching systems that play one loser off against a winner and collect the spread. On the occasions when disequilibrium exists within the internal order book, the broker hedges any exposure with their tier 2 liquidity provider.

As bad as this may sound, there are some significant advantages for speculators that deal with them. Because it is an internal order book, many features can be provided which are otherwise unavailable through other means. Non-standard contract sizes, high leverage on tiny account balances, and the ability to transact in a commission free environment are just a few of them…

An ECN operates similar to a Tier 2 bank, but still exists on the third tier. An ECN will generally establish agreements with several tier 2 banks for liquidity. However instead of matching orders internally, it will just pass through the quotes from the banks, as is, to be traded on. It’s sort of an EBS for little guys. There are many advantages to the model, but it is still not the Interbank. The banks are going to make their spread or their not go to waste their time. Depending on the bank this will take the form of price shading or widened spreads depending on market conditions. The ECN, for its trouble, collects a commission on each transaction.

Aside from the commission factor, there are some other disadvantages a speculator should consider before making the leap to an ECN. Most offer much lower leverage and only allow full lot transactions. During certain market conditions, the banks may also pull their liquidity leaving traders without an opportunity to enter or exit positions at their desired price.

Trade Mechanics:

It is convenient to believe that in a $2tril per day market there is always enough liquidity to do what needs to be done. Unfortunately belief does not negate the reality that for every buyer there MUST be a seller or no transaction can occur. When an order is too large to transact at the current price, the price moves to the point where open interest is abundant enough to cover it. Every time you see price move a single pip, it means that an order was executed that consumed (or otherwise removed) the open interest at the current price. There is no other way that prices can move.

As we covered earlier, each bank lists on EBS how much and at what price they are willing to transact a currency. It is important to note that no Interbank participant is under any obligation to make a transaction if they do not feel it is in their best interest. There are no “market makers” on the Interbank; only speculators and hedgers.

Looking at an ECN platform or Level II data on the stock market, one can get a feel for what the orders on EBS look like.

You’ll notice that there is open interest (Level II Vol figures) of various sizes at different price points. Each one of those units represents existing limit orders and in this example, each unit is $1mil in currency.

Using this information, if a market sell order was placed for 38.4mil, the spread would instantly widen from 2.5 pips to 4.5 pips because there would no longer be any orders between 1.56300 and 1.56345. No broker, market maker, bank, or thief in the night widened the spread; it was the natural byproduct of the order that was placed. If no additional orders entered the market, the spread would remain this large forever. Fortunately, someone somewhere will deem a price point between those 2 figures an appropriate opportunity to do something and place an order. That order will either consume more interest or add to it, depending whether it is a market or limit order respectively.

What would have happened if someone placed a market sell order for 2mil just 1 millisecond after that 38.4 mil order hit? They would have been filled at 1.5630 Why were they “slipped”? Because there was no one to take the other side of the transaction at 1.56320 any longer. Again, nobody was out screwing the trader; it was the natural byproduct of the order flow.

A more interesting question is, what would happen if all the listed orders where suddenly canceled? The spread would widen to a point at which there were existing bids and offers. That may be 5,7,9, or even 100 pips; it is going to widen to whatever the difference between a bid and an offer are. Notice that nobody came in and “set” the spread, they just refused to transact at anything between it.

Nothing can be done to force orders into existence that don’t exist. Regardless what market is being examined or what broker is facilitating transactions, it is impossible to avoid spreads and slippage. They are a fact of life in the realm of trading.

Implications for speculators:

Trading has been characterized as a zero sum game, and rightly so. If trader A sells a security to trader B and the price goes up, trader A lost money that they otherwise could have made. If it goes down, Trader A made money from trader B’s mistake. Even in a huge market like the Forex, each transaction must have a buyer and a seller to make a trade and one of them is going to lose. In the general realm of trading, this is materially irrelevant to each participant. But there are certain situations where it becomes of significant importance. One of those situations is a news event.

Much has been made of late about how it is immoral, illegal, or downright evil for a broker, bank, or other liquidity provider to withdraw their order (increasing the spread) and slip orders (as though it was a conscious decision on their part to do so) more then normal during these events. These things occur for very specific reasons which have nothing to do with screwing anyone. Let us examine why:

Leading up to an economic report for example, certain traders will enter into positions expecting the news to go a certain way. As the event becomes immanent, the banks on the Interbank will remove their speculative orders for fear of taking unnecessary losses. Technical traders will pull their orders as well since it is common practice for them to avoid the news. Hedge funds and other macro traders are either already positioned or waiting until after the news hits to make decisions dependent on the result.

Knowing what we now know, where is the liquidity necessary to maintain a tight spread coming from?

Moving down the food chain to Tier 2; a bank will only provide liquidity to an ECN or retail broker if they can instantly hedge (plus their requisite spread) the positions on Interbank. If the Interbank spreads are widening due to lower liquidity, the bank is going to have to widen the spreads on the downstream players as well.

At tier 3 the ECN’s are simply passing the banks offers on, so spreads widen up to their customers. The retailers that guarantee spreads of 2 to 5 pips have just opened a gaping hole in their risk profile since they can no longer hedge their net exposure (ever wonder why they always seem to shut down or requote until its over?). The variable spread retailers in turn open up their spreads to match what is happening at the bank or they run into the same problems fixed spreads broker are dealing with.

Now think about this situation for a second. What is going to happen when a number misses expectations? How many traders going into the event with positions chose wrong and need to get out ASAP? How many hedge funds are going to instantly drop their macro orders? How many retail traders’ straddle orders just executed? How many of them were waiting to hear a miss and executed market orders?

With the technical traders on the sidelines, who is going to be stupid enough to take the other side of all these orders?

The answer is no one. Between 1 and 5 seconds after the news hits it is a purely a 1 way market. That big long pin bar that occurs is a grand total of 2 prices; the one before the news hit and the one after. The 10, 20, or 30 pips between them is called a gap.

Is it any wonder that slippage is in evidence at this time?

Conclusions:

Each tier of the Forex market has its own inherent advantages and disadvantages. Depending on your priorities you have to make a choice between what restrictions you can live with and those you cant. Unfortunately, you can’t always get what you want.

By focusing on slippage and spreads, which are the natural byproduct of order flow, one is not only pursuing a futile ideal, they are passing up an enormous opportunity to capitalize on true inefficiencies. News events are one of the few times where a large number of players are positioned inappropriately and it is fairly easy to profit from their foolishness. If a trader truly wants to make the leap to the next level of profitability they should be spending their time figuring out how identify these positions and trading with the goal of capturing the price movement they inevitably will cause.

Nobody is going to make the argument that a broker is a trader’s best friend, but they still provide a valuable service and should be compensated for their efforts. By accepting a broker for what it is and learning how to work within the limitations of the relationship, traders have access to a world of opportunity that they otherwise could never dream of capturing. Let us all remember that simple truth.

Floating and Previous Day's Pivot + 9 Gold Coins Custom Forex Indicator

2009-01-27T07:58:00.000-08:00

Two of my favorite indicators are my custom 9 Gold Coins Forex indicator along with a free indicator I happened upon, simply called "Previous Day and Floating Pivot". When combined these indicators do a wonderful job of showing you which side of a trade to be on, as well as when to stay on the sidelines. Add in some support and resistance or fibs for pinpointing entries and voila a trading system is born!

Today, in my opening trade I learned a lesson in always paying attention to these two indicators. I entered a Short trade on EURUSD that was stopped out for a loss. EURUSD did eventually head lower, but I entered prematurely. If I had been more cognizant at the time I should've easily seen that the only smart move was to stay on the sideline for the time being.

At the time I entered 9 Gold Coins was giving me mixed signals on various time frames. Although most time frames were showing a Short Trend (albeit somewhat weak), I did still have a time frame signaling Long and another signaling Flat, which definitely should have kept me from entering a trade at the moment. I got caught up in a Price movement, which can be a killer in Forex without indicator confirmation.

Also, at the time the Previous Day and Floating Pivot should've kept me from entering, but you had to really understand the relationship between Price, Floating Pivot, and Previous Day's Pivot to know why. I don't know that I fully realized the relationship and it's importance until today. Sometimes the best lessons are learned from a loss rather than a gain. That is why it is so essential that every trader keeps a trading journal.

For best confirmation of an entry the Pivot indicator should be as following. Long Entry - Floating Pivot > Prev. Day's Pivot, Price > Floating Pivot, and Price > Prev. Day's Pivot. Vice Versa for a Short Entry. Today I entered early because the Floating Pivot was still above the Prev. Day's Pivot at the time of entry.

I later made up for the loss and ended the day with a gain by finding a proper Short Entry on EURJPY. At this point 9GC was screaming to enter, Price action showed an entry, and the pivot indicator was aligned properly as well.

Just another lesson learned in the exciting world of Forex!

Trading with Expert Advisors on Metatrader

2009-01-23T11:24:00.000-08:00

I am currently working on a brand new Expert Advisor, which I am extremely excited about. This EA will be quite different from my "5 Gold Coins" auto-trader, as it will offer the ability to capture many more trades and is also much more customizable. You will be able to trade based on the time frame of your choice between the 15 min. all the way up to the daily time frame.

The new EA is also MTF in that it will be comparing a variety of different criteria over different time frames to capture trades. The only downside at all is that the EA will not be able to be backtested. It analyzes live market data, so it can only be forward-tested. Of course this is the best testing of all, but it will take a while to build a history of results.

Stay tuned as I will most likely be looking for some testers that want to help me forward test this brand new product!

An Interesting Signal Service Provider

2009-01-22T14:16:00.000-08:00

This is the first signal service provider for Forex that has really aroused my curiosity. It is a company called Zulu trade and from what I have seen so far I am impressed. This is a definite first.
A bit about the company...uluTrade was founded in 2006 by Leon Yohai and Kostas Eleftheriou as a co-founder, now seeking other professional directions. ZuluTrade bridged the gap between valuable information in money markets and trade execution by converting the advice of some of the most professional and talented traders globally, to a rapidly executed trade. Every day, ZuluTrade receives thousands of buy and sell recommendations from some of the most popular signal providers in the market today, trading automatically your broker account.

Zulutrade is a free service to the end user, and generates revenues by getting rebates from brokerage institutions worldwide, sharing them with the signal providers. The company is based on Wall St. NYC, and has clients from all around the globe. Zulutrade is available in 7 languages, and has a number of patents pending for the unique technologies and methods being developed internally. Zulutrade aims to support the most popular brokerage institutions worldwide, as well as a growing list of the most profitable and sophisticated signal providers.

For more information or to start trading with this company check them out at http://topforextraining.zulutrade.com.

Reality Realization and Trader Reactions in Regards to Market Forces

2009-01-15T12:44:00.000-08:00

Below is a terrific post I found over at forex factory. The author goes by the name Billy Ray Valentine and he is a wealth of knowledge even for traders that have been around a while. Hope you enjoy!

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As we are all well aware of, the positions of retail traders comprise an extremely small percentage of the total trading population. As individuals working for ourselves, we have to recognize what the majority of traders are thinking in relation to the next move.

What we think does not matter. What the consensus thinks is the only thing that is vital.

Traders at major institutions are responsible for controlling the bulk of day-to-day movement in the foreign exchange market. They have goals or outcomes that need to be achieved on a daily basis. Because they don’t all work for the same bank and are scattered all over the globe, what we must do is make a basic assessment as to what could be going on behind the scenes where momentum is shifting and very large positions are coming into the market.

In thinking in the most basic terms of logic and reasoning, for many of them, momentum is the key that unlocks the gate to making the most profits. They, too, need to be on the same page as everyone else, and understanding what or why price is behaving in the manner that it is leads us to the most probable outcomes for success.

But they also have other goals, many that come in the form of derivatives, etc., that need to be achieved as well; many of these are found in the OTC market, and fundamental factors of course come into play as well. This information can change very rapidly, and price levels can get decimated as market movers look to achieve certain goals, so we have to be on our toes and decide whether or not we like a certain scenario in order to continue taking part in it.

The horizontal support and resistance levels we use here are simply stated, reactionary levels that everyone can see. That’s why they work so well. If everyone can see them, everyone can be on the same page, and everyone with influence is able to turn a profit. We don’t prefer to use exponential indicators, because although they might be giving us a signal to go long, that long position could be about to crash into a very heavily monitored resistance level, where influence is looking to go short. The same is true for certain trend channels and other methods.

But here is the situation we are in: we don’t know what all of these goals are, and we cannot see bank positions, so what do we use as a meter in terms of what to expect next? The answer is that we use our edge, which is comprised of the following:

·Knowing what the majority of traders are looking at and what crucial areas will provide certain profitable outcomes.

·Knowing that these conditions can change rapidly and all the time, and we must be ready for when they do.

·Knowing that we have certain goals we wish to attain, but reality might not allow those goals to be met if we are not on the same page as everyone else.

In trading, acting surprised about price behaving a certain way is not a good thing. We want to forecast what’s going on, and we want to be right about it all of the time. But this is impossible. There is no way to know what’s going to happen at the very next turning point without listening in to every trader across the globe taking on a position.

So we have to look at the information we have in order to gauge what most people care about at any given point in time. Last week we saw EUR/USD take a substantial hit due to several fundamental factors coming out at the same time. Levels that would normally cause a reaction were taken out, one at a time, by arms of influence looking for a major selloff. What we did know was that much of the information was triggered by news surrounding interest rates. There are few catalysts stronger than this one in terms of currency market movement. Intraday fundamental data releases can be easy money, as we know from the wide range of news traders out there take advantage of this situation. But again they are doing nothing more than being on the same page as everyone else, as the numbers are obvious and hardly lie.

The levels we look to play bounces off of are usually very heavily-concentrated upon areas for market movers and they command a lot of attention. When people see that these levels have been hit, they seek to continue the price reaction in the form of a reversal, which could last for several hundred pips if overall market conditions are in alignment.

We turn to chart below. Here we have the last few days of activity for USD/JPY. On this chart alone, we have several different scenarios which are presented to us, almost all of which we have the ability to make money from. Let’s walk through these motions step-by-step.

Point A: We have a new level that gets formed. We’re looking for a price reaction the next time it gets seen.

Point B: Price exceeds the level by more than a comfortable amount (we’re looking for it to hit it exactly and reverse). Additionally, we have an up close on the 1hr bar that is almost right on top of the level. We close our new short position with only a couple pips of profit. Price exceeds the level, and then uses it as support. We open a long right on the level when we see this.

Point C: Price reaches major resistance, so we go short, expecting a sizable move

Point D: Price uses the high of point B as support and retraces about 25 pips, where we could have made some profits on a long; we know that major resistance is just above us, so our expectations are low for continuation.

Point E: Price uses the previous support level at point D now as resistance. We go short.

Point F: We attempt to go long at the support level created at point B. The level is taken out, and we get an hourly close below it. Price retraces back up to the level, and uses it as resistance. We go short.

Point G: We go long when price hits a previous support level on the last wave up, which ends up coming off of it hard

Point H: Our support level created at point B is hit yet again, but because it failed the last time, it is now weaker. Additionally, the hourly close is very strong, and in the upper portion of the bar. We take partial profits on our trade and hold off on any new action.

Point I: News comes out, and other levels are taken out. Before the news was released, we closed the rest of our long.

In this example alone, there were many opportunities to make money in both directions. But you need to be on your toes, and most importantly execute or get out of these trades when you see these events occurring. By “dicing” up the chart in this way you are able to see what the majority of traders are looking at and where each money making opportunity arises.

Now lets discuss where most traders go wrong. Its very easy to look at the chart below, make an analysis of it after all of the trades have happened and say what it is we should have done. This is how most of us learn, and we’re used to being conditioned. We post trades before they occur on this thread because I find little value in stating something that has already happened. That premise alone completely ignores the biggest component of our jobs as traders: to forecast.

All over this forum, the greatest majority of threads started and posts concern means of entering trades only. Very few of these, or books written on FX trading in general, concern themselves about how to manage a trade once they are in it or when to take profits. This is where traders begin to fail, and fail miserably, as their emotions kick in and blind clues staring them right in the face get replaced by our overwhelming desire not to ever fail. Call it anxiety, call it fear, but in the way we are conditioned in society in regards to all other facets of life we bring to the trading platform and causes us to do damage to our accounts.

Going back to the examples above, how do you think you would have reacted to putting on a short position at point B, or putting on a long position at point F? Would you have reversed the position as the market was telling you to do? Or would you have stayed in it and waited for the trades to turn green again so that you didn’t take a loss? Minor damage leads to greater damage, and your emotions will go nuts if you don’t listen to the market, and cause you to take greater losses. For example, at point F, clearly the level was broken. Price is not going up, but you stay in the long position in hopes of it turning green again. Price then dropped about 50 pips, at which point your small intraday trade (which you could have and should have reversed for some very good profit) begins to turn into a major loss. Seeing that things are getting out of control, you might have closed the trade deep in the red, suffering an unnecessary loss for the day.

In his book, The Alchemy of Finance, one of the first things discussed by George Soros is a concept which he refers to as reflexivity. Simply stated, this is a concept which refers to the reality of a situation versus a desired outcome. This concept, among others, stands true across a wide range of markets and is in great contrast to hypothesis of market efficiency and other very widely known or accepted economic theories. He explains that many of the “bubbles” caused in the markets are driven by human action replacing fundamental theorem, as they are not explained in any other way.

Without reverberating the concepts of Soros in great detail, we can understand it on a personal level (in our own trading) as well as on a macro scale (the entire market). Seeing the reality of the situation (price moving in a certain direction, and for a certain cause) contrasts against our innate desire to achieve a certain outcome. We need to realize what is happening, and most importantly, react to it, in order to achieve this desire. But we say the path to the ultimate goal is not the same in trading as it is everywhere else, but is this really the case? Setbacks and roadblocks are found in every single business and in every single aspect of life. But when we look at a setback in trading (taking a minor loss), we see concrete dollars and cents going down the drain, which many of us refuse to let go of. This is a natural function of life, and we have to realize this in order to succeed.

Ultimately, the same clues we use in loss prevention are the same ones that bring us profits, and our reaction to these clues absolutely need to get executed in order for us to profit. As day traders, we need to react in the form of buying and selling, sometimes with little warning, quickly and without haste to make the most out of what we do. Realize the obvious, react quickly, use your edge, and the rest will follow.

A Friday Trade to start the New Year

2009-01-02T09:51:00.000-08:00

I normally do not trade on Fridays, but I noticed an opportunity on EURUSD to go Short around a Resistance level. My Resistance level was set at 1.3967, where a Double High occurred on the 15 min. time frame. Price actually broke that resistance and went up to 1.3985 before heading South.

I entered at 1.3954, which was the Close of the first 5 min. candle to close below my previous resistance level. The first real Support Level I have is at 1.3856, so I'm targeting around 100 pips. Price at this moment is hovering around 1.3882. I have a Double Low of 1.3869 trading off the 5 min. chart, so I will most likely close this position soon. Since this is a Friday I don't expect much more Price movement today. Still, a very nice trade to start the New Year. This is an example of how Support & Resistance Levels can be used for entries & exits.

Living and Trading in the Triangle

2008-12-28T08:02:00.000-08:00

I happen to live in Durham which is part of the Triangle region of North Carolina. It is a wonderful area to work and live, and I feel most fortunate to be able to blend my love of trading along with my love of the Wellness field, specifically Traditional Chinese Arts.

The great part about Forex is that the 24 hour per day market allows people from around the world to participate. One of the keys to trading successfully is being honest with yourself about when you can dedicate your full attention to trading. If you are trying to trade during your regular job hours, you have many obstacles to overcome. There are several ways to overcome these obstacles when trading Forex.

One way is to only focus on position trades or long-term trades. With this method you do not need to spend many hours watching your charts, because you will trading based on the 4 hour or daily time frame. You won't have that many trades, but you also won't be stressing out because your boss wants you to actually do work and you are unable to watch you charts.

Another option is to trade when you are off work. For those in the U.S. working normal business hours, this may mean only trading the Asian session, which is the slowest session to trade. However, if you can dedicate your full attention to your trading, it is still a preferable option to trading while your mind is distracted.

The final option is to trade very short-term, basically scalping the Forex market. This method can work, as I often do it myself, but you need to stay true to your rules and control those pesky emotions. If your indicators start turning against you, get out as soon as possible. Don't hang around "hoping" the market will turn in your favor. Just cut the loss as soon as possible and wait for a better opportunity. When in a profitable trade hold as long as your indicators show are in a good trade. Scale out at obvious support/resistance levels. Of course if you are scalping from work, you may need to exit early, when it is necessary to divert your attention to your actual job. In this case, if your trade is in profit I recommond closing either the entire position or closing at least half, while setting the remaining half to break even.

Hope that helps for you Forex traders that must still work a 9-5!

2009 - The Year of the Ox

2008-12-27T16:19:00.000-08:00

2009 is the Year of the Ox according to the Chinese calendar, and it just so happens that I was also born in the year of the Ox. Since I am feeling ultra motivated to accomplish in '09, I'm assuming that the stars are somehow aligned for me and I must take advantage. Strike while the iron is hot you could say.

2008 was a nice year for me Trading Forex, so I will have my work cut out for me. Some of my accomplishments included leasing my Forex MT4 EA auto trader to a large Forex company, creating my most profitable manual Forex trading system to date, doing a better job of maintaining my own personal Forex trading journal, creating my very first custom Forex trading indicator for the Metatrader platform, and starting my very own Forex website, which you have apparently discovered if you are reading this post.

I plan to blog here as often as possible to post my thoughts on the current Currency market, as well as to make announcements regarding Forex online training, new product releases, live workshops, and my Forex Mentoring program, which will be the best way to learn to trade this dynamic market I enjoy so much.

Until the next post happy trading!

Jeff