Monday, July 27, 2009
Cost of Opening Trades
Do you think opening and closing Forex Trades are painless? Well, I mean you can just click on Buy or Sell, enter the amount in units or lots, and then enter stop loss or take profit values and then click SUBMIT, right? It doesn’t cost you a dime.
Well, think again. When you click submit, you will have lost money in the form of spread. If you take notice, you would realize that there is a buy and sell price for every market pair. So if you Buy, the broker opens your trade at the buy price and the difference between the Buy and Sell prices would be the spread. That difference costs you money and that is what you will be paying to the broker!
So generally, if you scalp a lot, you will be paying the spread many times to the broker in a day. But if you play position trades or daily trades, or do not open and close trades that frequently, you do not need to spend as much money trading.
Thursday, July 9, 2009
RSI - A Big Help in Trend Trading
Recently, I have been paying a lot of attention to a simple but powerful indicator - the RSI, also known as the Relative Strength Index. This indicator shows you whether the current trend of the market is powerful or not.
As you may already know, trading ranging markets maybe dangerous although profitable. But most of the time, only those very experienced and full-time traders can successfully trade ranging markets. People like me who go to college and have other commitments cannot continuously watch the markets to scrap pips from the ranging markets and therefore, prefer to trade during trends.
But the problem is to find out whether the trend is strong enough to trade. I find that the SMA 21 indicator can help a lot, but the RSI is simply easier and faster to use. My system for using the RSI is simple. I just see what the RSI value is, on a daily chart (D1). If it is 60 and above, the market is going up. Below 40, it is going down. In between, I won’t trade. So I just take a glance at the RSI figure and if it starts with a 4 or 5, I will skip to the next pair. Trading when RSI is at the extremes - in my case above 60 or below 40 - greatly increases winning probability.
Thursday, July 2, 2009
The Simpler the Better?
A lot of people trade using lots of indicators. Some trade using Forex robots or Expert Advisors that are based on indicators as well. But there is a school of thought that says that trading using indicators has a big disadvantages.
Disadvantage number 1:
Lots of indicators will clutter the screen and in the end, we will not be able to tell what the market is really doing and what direction it is really going and we end up making the wrong decision. All thanks to the whole lot of indicators that are supposed to help.
Disadvantage number 2:
The indicators lag. Most of the time, when the indicators have shown a nice tradable move in the market, the move would have already reached its end when it is revealed by the indicator and trading based on the indicator would be unwise. Although sometimes the indicators do predict the correct subsequent moves.
Therefore, some people think believe that using just 1 or 2 indicators would be enough, and then based on them, a system is developed and the traders would just stick to the system with discipline.
Sunday, June 28, 2009
Using Candlesticks together with Indicators
This is one of the most effective strategies to use when trading Forex. Using Candlesticks together with Indicators.
Candlesticks are good signals. They show you the price actions and they show you where the market is likely to go. But sometimes, candlesticks maybe wrong.
Indicators, on the other hand, are doing the same thing but for a longer period of time. Usually, they work on past data of the market and at the same time, tell you the movement of the market based on the averages of the past data. They maybe good but they lag behind. Following solely on indicators will not ensure that you trade at the correct time.
But by combining indicators and candlesticks analysis, you have double confirmation and can trade more confidently. My favorite strategy is using Candlesticks with Stochastics. When the stochastics indicate Oversold and when I see a reversal candlestick signal, I know that it is Buy time!
Sunday, June 14, 2009
The Power of Candlesticks
I am currently studying Candlestick charting. Candlesticks are a way to represent the data on investment charts, including commodities, stocks and even Forex. They were invented over 400 years ago but then usage of candlesticks is still not so prominent. Sure, online Forex platforms all have candlesticks embedded in them but then traders usually rely more on their indicators. But Candlesticks can do a lot more than what indicators can do.
The most important reason I will always pay close attention to candlesticks is that candlesticks provide a faster prediction of the future compared to indicators. Let me just give you an example. 2nd week of June 2009. The USDCAD was going straight down, according to my indicators RSI and EMA lines. But all 5 days of USDCAD showed me strange candlestick patterns indicating that there could be a reversal, especially Wednesday and Thursday. So I closed my short position for a loss of about 100 pips, following what the candlestick signals tell me. Sure enough, on Friday, the price shot up a few hundred more pips. If I hadn’t closed the position, I would have lost 4-5 times more!
I have still a long way to go till I master candlesticks, but I will happily take on that journey as it would be worthwhile.