Forex mistakes and sins.

[zuhaibsafdar]

Yes , i am agree with you because it is a very big business and in this business we take risk which is necessary in this business so if we on mistake and face loss then after it we realised of this mistake and then we don't do this mistake so i think when a man face loss by mistake in forex , he got experience more about forex .

[youngfx]

Advantages Of Forex Market

Forex market is one amongst the largest financial markets of the world. Basically, this market deals in real time exchange of currencies of different countries. It has a greater number of buyers and sellers, than in any other financial market of the world. Forex is the only financial market, which is open 24 hours a day, 5.5 days a week, across the globe. This market is one of the most popular speculation markets, and is well known for its huge volume, superior liquidity, as well as the steady trading prospects. There are many advantages of forex market. By trading in this market you can make a large amount of money in a short period of time. One should be well aware of the benefits of forex market so as to earn profitable amount of money while trading.

Some of the great advantages of forex market are given below:
High leverage

The first unique feature of forex market is its high levels of leverage. Starting from a minimum of 100:1, this market offers a great amount of leverage, which implies that you can produce large profit by investing small amounts of deposits. This is one of the greatest advantages of forex trading.
No commission

Another great forex market benefits is that forex trading transactions actually have no commissions apart from the natural market difference i.e. spread. Spread is the difference between the prices of a supply and demand. The retail transaction cost is typically less than 0.1% under normal market conditions. At larger dealers, the spread could be less than 5 pips, and may widen considerably in fast moving markets.
24 hour market

Forex market operates 24 hours five days a week. This flexible trading hour gives many traders a great opportunity to trade in the market in their own desirable timings. It is also beneficial for those traders who want to trade on a part time basis since they could select their own timing to trade whether it�s morning, noon or night. Yet this is one of the other benefits of forex market.
High liquidity

One of the other unique advantages of forex market also includes its superior liquidity as compare to other markets of the world. Forex trading stop orders could be carried out more simply and also with less slippage. The forex market is open 24 hours a day and 5 days a week. This makes forex trading more liquid and permits forex traders to take benefit of trading opportunities as they happen rather than waiting for the market to open the next day.
Profit potential in both rising & falling markets

Currencies in forex market are always quoted in pairs. This enables you to find great chance to make money in anytime, regardless of the fall or rise period of one single country currency. In every open forex position, an investor is long in one currency and shorts the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling. However, the ability to sell currencies without any limitations is one of the distinct forex market benefits.

Get the above advantages while trading in the forex market

[youngfx]

Adjusting for a Bear
Given that a bear market is all about a lack of confidence in the economy, investors should turn toward safe havens during this period. That could mean adjusting the percentage of bonds you hold upward. Essentially, a bond is a fancy IOU that companies and governments issue to fund their day-to-day operations or to finance specific projects.

Bonds are less likely to lose money than stocks are and can reduce your portfolio's losses during stock market declines. Secondly, bonds pay interest regularly, so they can help generate a steady, predictable stream of income from your savings in bad times. Adding a fund like Vanguard Total Bond Market ETF (NYSE:BND) or iShares Barclays 20+ Year Treasury Bond (NYSE:TLT), which both bet on high quality bonds, can be used to quickly gain access to the asset class. (See The Advantages of Bonds.)

At the same time, focusing on blue chip stocks could prove fruitful in bear markets. Blue chips are better equipped to handle any possible downturns in the market and their bulk offers advantages in a slowing and uncertain economy. These advantages include their larger dividends, ability to acquire floundering smaller competitors and lower volatility. The Guggenheim Russell Top 50 Mega Cap (NYSE:XLG) is a prime play on larger firms.

Finally, there are some alternatives investors can bet on to tackle the bear. Shorting stocks through an inverse ETF or adding bear market mutual funds could provide short-term relief from dwindling stock prices. At the same time, betting on market volatility or its “fear” through a vehicle like the iPath S&P 500 VIX ST Futures ETN (NYSE:VXX) could make sense.

Let the Bull Run
Given all the euphoria that surrounds a bull, investors should feel confident to take on more risk. That means loading up on stocks with dodgier profiles. Certain sectors like energy, consumer discretionary and basic materials and/or commodities producers all do much better when the economy is cooking. These sectors tend to do exceptionally well during bull markets; overweighting them through various sector ETFs is a good idea.

Then there are emerging markets to consider. Given the fact that many of these nations are still going through their “growing pains,” stocks located in China or Brazil are considered a riskier bet than, say, multinationals in the United Kingdom or Germany. As such, funds like the iShares MSCI Emerging Markets Index (NYSE:EEM) tend to surge when the bull is running.

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Finally, even in fixed income there are bull market plays. High-yield or junk bonds' return profiles have more in common with stocks than traditional bonds. At the same time, high-yielding real estate investment trusts (REITs) or pipeline master limited partnerships (MLPs) offer a chance to participate in rising stock prices as well as collect big dividend checks. A fund like the SPDR Dow Jones REIT (NYSE:RWR) is perfect bull market fodder.

The Bottom Line
While investors shouldn't feel compelled to change their portfolios radically in reaction to the market's daily moves, small adjustments in the face of a bull or bear market could be a prudent move. Adjustments to how the market perceives risk could save investors from catastrophic losses or help create exaggerated gains.

---------- Post added at 02:56 PM ---------- Previous post was at 02:55 PM ----------

Right knowledge and right timing are the main secrets to forex success. A client with a good knowledge and right timing in this kind of trading will surely go to the winning side always. Lately, the forex market were flooded with the ultra rich traders, making it seem unaffordable for an ordinary trader. Trading units in the early years were too large to handle by the ordinary investor. Foreign exchange brokers broke down those large inter- bank trading units, allowing more people to engage in such kind of trading .To know the secrets to forex success we must fully analyze and understand its basics.

In the forex trading market, trading is done from one currency to another. It is very much affected by the trend in the international trade, the business elements, as well as the political and current events of countries that are involved in this kind of trading. A country's currency may go up or down. Anticipating the ups or downs in the currencies of the countries being watched, an investor can gain profit and this is the main secret to forex success. Knowing what currency will go down as against another currency sure profit can be achieved.

Currencies are always traded and prices were compared with each other in forex trading, It is understood that the currency that is listed first is the stronger of the two. For example in GBP/$ , it means that the British pound is dominating against the U.S. dollars. Just an example that today's trading the value of one U.S. dollar is equivalent to 1.9534 of British pound, meaning one pound is equal to 1.9534 U.S. dollars. Another secret to forex success is that depending on which currency will gain strength that day, a trader can buy any of the currency he wants to start the trade, and then once that currency moves he might sell that contract back and take his profit from the trade. Sometimes a trader decides not to execute trading or buying of the currencies he had in closing the trading, and this is called an open position. This is another safe secret to forex success.

In forex market. The values of currencies are good up to the fourth decimal place. For example, the GBP/ $ can be bid at 1.9534 and sold at 1.9537. Trade profits are called "PIPS" meaning "percentage in point". A pip is the smallest unit of currency change in the forex market. For most pairs this is equivalent to 0.0001, meaning one over one hundredth of one percent or simply one basis point.IN the given example the achieved spread is 3 pips wide. Exempted form this kind of valuation is the Japanese yen (JPY) having a currency value of only up to the second decimal place. For example currency trading between U.S. dollar and Japanese yen is $/JPY is 1 : 117.89 meaning one U.S. dollar is equivalent to 117.89 Japanese yen.The secrets to forex success is different from secrets in winning at the stock market.

---------- Post added at 02:58 PM ---------- Previous post was at 02:56 PM ----------

Advantages Of Forex Market

Forex market is one amongst the largest financial markets of the world. Basically, this market deals in real time exchange of currencies of different countries. It has a greater number of buyers and sellers, than in any other financial market of the world. Forex is the only financial market, which is open 24 hours a day, 5.5 days a week, across the globe. This market is one of the most popular speculation markets, and is well known for its huge volume, superior liquidity, as well as the steady trading prospects. There are many advantages of forex market. By trading in this market you can make a large amount of money in a short period of time. One should be well aware of the benefits of forex market so as to earn profitable amount of money while trading.

Some of the great advantages of forex market are given below:
High leverage

The first unique feature of forex market is its high levels of leverage. Starting from a minimum of 100:1, this market offers a great amount of leverage, which implies that you can produce large profit by investing small amounts of deposits. This is one of the greatest advantages of forex trading.
No commission

Another great forex market benefits is that forex trading transactions actually have no commissions apart from the natural market difference i.e. spread. Spread is the difference between the prices of a supply and demand. The retail transaction cost is typically less than 0.1% under normal market conditions. At larger dealers, the spread could be less than 5 pips, and may widen considerably in fast moving markets.
24 hour market

Forex market operates 24 hours five days a week. This flexible trading hour gives many traders a great opportunity to trade in the market in their own desirable timings. It is also beneficial for those traders who want to trade on a part time basis since they could select their own timing to trade whether it�s morning, noon or night. Yet this is one of the other benefits of forex market.
High liquidity

One of the other unique advantages of forex market also includes its superior liquidity as compare to other markets of the world. Forex trading stop orders could be carried out more simply and also with less slippage. The forex market is open 24 hours a day and 5 days a week. This makes forex trading more liquid and permits forex traders to take benefit of trading opportunities as they happen rather than waiting for the market to open the next day.
Profit potential in both rising & falling markets

Currencies in forex market are always quoted in pairs. This enables you to find great chance to make money in anytime, regardless of the fall or rise period of one single country currency. In every open forex position, an investor is long in one currency and shorts the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling. However, the ability to sell currencies without any limitations is one of the distinct forex market benefits.

Get the above advantages while trading in the forex market

[youngfx]

How to Avoid the Top 10 Most Common Forex Mistakes

The most common mistakes made in forex options are the result of the trader not keeping to his budget, not following his strategy and instead of making well researched decisions begins to get emotionally involved in his decisions.

For example a trader who has some success suddenly believes that he can predict forex prices in advance. This is taking fundamental analysis to the extreme. Stick to the economic calendar and study the data that will be announced. Watch interest rates, unemployment numbers and other important economic data and make informed decisions, not predictions.

Relying on science alone won’t make you money. There are hundreds of vendors selling systems based on Gann or Fibonacci claiming that their systems are accurate and foolproof. Don’t believe them. Use Gann and Fibonacci as a part of your technical analysis but not as a scientific method to predict the market.

Many traders believe that using every indicator that exists they have a better chance of making money. By doing this they are over complicating the elements that lead to a signal. Keeping it simple works better and produces more accurate signals. Use 2 or 3 indicators no more.

How many effective forex traders use lagging indicators such as moving averages as leading indicators and wonder why they are losing money. Make sure you know the uses of both lagging and leading indicators.

Losing traders make the mistake of thinking that day trading movements indicate trends. This is not true. Short term price movements are random and trading short term movements as a long term strategy will lose you money.

Don’t be lulled into thinking that the more you put in the more you will take out. Trading is about timing and working smart, not working hard. Learn the forex trade, get a good mentor and trade smart.

Don’t trade a news story after it has been announced. Once announced it is an old story and would have been already discounted in the price.

Many traders fail to read the small print which says ‘simulated in hindsight’ when they buy trading systems on the internet. Don’t touch these systems as the small print means that the track record was manufactured after the events.

Another mistake traders make is to over leverage. Using high leverage such as 400:1 means that you have to take less risk per trade. Lower your leverage to 100:1 and take more risk per trade.

Using stop loss and trailing stops is prudent. However having a stop loss too close to your traded price is risky and you will be taken out by market noise. The same goes for trailing stops. Don’t run them too quickly otherwise you will not make a profit.

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Forex Trading – 7 Rules To Succeed

Forex trading success isn’t easy to achieve. It’s a matter of studying hard, having a lot of patience and commitment. The following 7 rules will allow you to be on track and make high and consistent profits.

1 – The minimum deposit requirement: A lot of Forex brokers allow you to open a trading account with a very small amount. Although this is a great advantage since it allows all individuals to participate in the Forex market, it may not be such a good idea to open your account with such a low amount. If you decide to open your account with the minimum required by the broker, usually you’ll end up opening extremely large positions when compared to your opening balance. Rather, you should try to open your account with a strong amount and start trading smaller.

2 – Getting a Forex system without seeing it’s actual performance: There are a lot of Forex systems, either manual or automatic, available in the Internet. Some show you the performance they’re currently achieving, others show you their past performance only, and others don’t show you any performance at all. Keep in mind to run from this last ones. Why should you get a Forex system that you can’t even see if it works before you get it, when you have so many different options to choose from? Also, a helpful thing you can do is to go to a Forex reviews website, and see what other traders feel about that particular system. If the system is well rated by other traders, then it might be a good solution for you too.

3 – Using stop losses: A lot of traders simply don’t like stop losses. If you’re one of them, you might want to reconsider. The stop loss, when used effectively, will help you limit your losses, and allow you to keep focused on whatever strategy you’re using. Otherwise, your emotions will almost certainly come into play, and you’ll end up losing more than if you had previous set a stop loss.

4 – Keeping a trading diary: All professional Forex traders have one, and this means that if you want to succeed in this market, you need to have one as well. Make sure you annotate all your thoughts and insights about all the trades you make as well as take some time to go through it. A trading diary is a highly effective way for you to learn from your mistakes and improve your chances of success.

5 – Having a trading plan: This is essential for any kind of business, and this is how you should treat Forex trading. You need to have a well-detailed plan, and stick to it. Remember that having a good trade is one thing, but in order to have some consistency, you need to know what you’re doing and what your ultimate goals are.

6 – Picking tops and bottoms is useless: Yes, there are a lot of Forex systems out there that try to pick tops and bottoms to give an entry signal. But they’re not the most reliable though. In order to get some consistency, you should rather be paying attention to the trends that are being formed and targetting the best entry price.

7 – Trading adrenaline: Most Forex traders fail because they’re simply looking for the adrenaline of a quick trade. This will make them overtrade, and just not knowing when to stop. Trading Forex involves patience, not only when you’re looking for a good trade to enter but also when you’re in a trade.

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How To Adjust Your Portfolio In A Bear Or Bull Market

Investment success generally hinges on long-term thinking; however, most investors can’t help but worry about day-to-day shifts with their portfolios. Some of that worry is certainly justifiable given the recent increases in volatility over the last few years. Truth be told, both bull and bear markets are completely dissimilar animals and behave quite differently.

While investors shouldn't completely change their long-term plans at the drop of a hat, making simple adjustments to a portfolio can help cushion losses or exaggerate gains. Even the smallest retail investor can benefit from making some tweaks to his or her portfolio allocations, depending on the market, and see results. Bull or bear, there are chances to move with the market’s flow.

Volatility Reigns Supreme
History has shown that the stock market and the economy move in cycles that repeat over and over; therefore, understanding the different stages of the economy can help guide your investment decisions. Market conditions come in two flavors: bull and bear. Each comes with their own set of nuances.

Bull markets are generally defined as periods when investors are showing immense confidence. While, technically, a bull market is a rise in value of the market of at least 20% - such as the huge rise of the Nasdaq during the tech boom - most investors apply a much looser meaning to the term.

Indicators of this confidence include rising stock prices and surges upward in major market indices like the venerable Dow Jones Industrial Average (NYSEIA). Conversely, safe-haven assets, like gold and bonds, will fall by the wayside in the face of a bull market. Additionally, the volume of shares traded is higher, and even the number of companies looking to tap the equities market via IPOs increases. Other economic factors such as consumer confidence, natural resource demand and better jobs data all play into this confidence.

On the flipside, bear markets are simply the opposite of a bull: a market showing a lack of conviction. Stock prices drift sideways or fall, indices fall and trading volumes are stagnant. At the same time, brokerage cash and bond balances generally are higher, headlines in your local newspaper's business section turn pessimistic, and all in all, investors feel less confident about the near future. While a few up or down days don't make a bull or bear market, two weeks or so of stock surges or declines could signal what kind of market we’ve now entered

[norway01]

There are many mistake of Forex trading of traders. Trader should avoid there greed at first. Then they should trade in Forex learning and also experiences. They can trade in Forex with patience.

[youngfx]

Trading Right after News
A news headline hits the markets and then the market starts to move aggressively. It seems like easy money to hop on board and grab some pips. If this is done in a non-regimented and untested way without a solid trading plan behind it, it can be just as devastating as placing a gamble before the news comes out.

News announcements often cause whipsaw-like action because of a lack of liquidity and hair-pin turns in the market assessment of the report. Even a trade that is in the money can turn quickly, bringing large losses as large swings occur back and forth. Stops during these times are dependent on liquidity that may not be there, which means losses could potentially be much more than calculated.

Day traders should wait for volatility to subside and for a definitive trend to develop after news announcements. By doing so there is likely to be fewer liquidity concerns, risk can be managed more effectively and a more stable price direction is likely. (For more on trading with news releases, read How To Trade Forex On News Releases.)

Risking More Than 1% of Capital
Excessive risk does not equal excessive returns. Almost all traders who risk large amounts of capital on single trades will eventually lose in the long run. A common rule is that a trader should risk (in terms of the difference between entry and stop price) no more than 1% of capital on any single trade. Professional traders will often risk far less than 1% of capital.

Day trading also deserves some extra attention in this area. A daily risk maximum should also be implemented. This daily risk maximum can be 1% (or less) of capital, or equivalent to the average daily profit over a 30 day period. For example, a trader with a $50,000 account (leverage not included) could lose a maximum of $500 per day. Alternatively, this number could be altered so it is more in line with the average daily gain - if a trader makes $100 on positive days, she keeps losing days close to $100 or less.

The purpose of this method is to make sure no single trade or single day of trading hurts the traders account significantly. By adopting a risk maximum that is equivalent to the average daily gain over a 30 day period, the trader knows that he will not lose more in a single trade/day than he can make back on another. (To understand the risks involved in the forex market, see Forex Leverage: A Double-Edged Sword.)

Unrealistic Expectations
Unrealistic expectations come from many sources, but often result in all of the above problems. Our own trading expectations are often imposed on the market, leaving us expecting it to act according our desires and trade direction. The market doesn't care what you want. Traders must accept that the market can be illogical. It can be choppy, volatile and trending all in short, medium and long-term cycles. Isolating each move and profiting from it is not possible, and believing so will result in frustration and errors in judgment.

[youngfx]

Three Ways To Short Gold

Gold’s recent sell-off has been nothing less than spectacular. Over the last week or so, prices for the precious metal have plunged nearly 12%, and touched lows not seen in the last two years. This certainly has stung many gold-bug portfolios, and it definitely came as a surprise. Since 2001, gold prices have surged more than 600% as sovereign bond risk and rock-bottom interest rates have taken hold.



However, the recent improving financial landscape and macroeconomic picture over the next few years seems to have taken the wind out of gold’s sails. Given the improving environment and investors preference for stocks, the golden play over the next few months could actually be to short the precious metal.

SEE: What Is Wrong With Gold?

Lowered Price Targets
Gold prices’ bull-run lasted about a decade -from 2001 to 2011- when prices hit a peak of $1,900 per ounce. Since reaching that historic mark, however, gold has fallen about 22%, and there is no sign of an end to the carnage.

Much of gold’s appeal stemmed from all the global macroeconomic problems facing the world. After all, the precious metal is seen as a "port in a storm" and all the debt, austerity and slowing developed market growth can certainly be seen as an approaching hurricane. So it's no wonder why investors have embraced gold and funds like the SPDR Gold Shares (ARCA:GLD), stocks of mining companies and even gold coins have crept into a variety of retail investors' portfolios.

However, it seems like a lot of those negatives haven’t come to fruition.

Recent bullish employment numbers, rising consumer confidence and lower inflationary pressures have all been gold's undoing. Additionally, the strength in the U.S. dollar and treasury bonds as the "best house in the bad neighborhood" have caused gold to see price declines. Since reaching its peak per ounce price, the U.S. dollar index (USDX) has appreciated almost 50% against gold over the past 2 years. Even Europe’s recent debt woes and the issues in Cyprus barely budged gold prices.

Then there is the coming end to the Federal Reserve’s quantitative easing programs. The Fed has basically telegraphed that it plans to slowdown the pace of its $85 billion worth of scheduled asset purchases in the second half of the year. Some analysts have even speculated that the Fed will end the program early. This, plus weak gold demand from nations like India and China, along with increasing appetite for equities over commodities has many now believing that gold’s record bull market has finally ended.

As such, a variety of investment banks have reduced their forecasts for gold prices over the next few years. Goldman Sachs (NYSE:GS) reduced its target to just $1270 per ounce by the end of 2014, while Societe Generale expects it to average $1500. There has even been some class from analysts that gold will break a thousand dollars and settle at $800 per ounce.

SEE: What Drives The Price Of Gold?

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Time To Go Short
Given the headwinds facing gold, investors may want to short the precious metal. Shares of the two biggest funds in the sector- The SPDR Gold and iShares Gold Trust (ARCA:IAU) –are available to borrow. However, an easier way could be by using one of the dedicated short gold exchange traded funds (ETFs) now available.

The biggest of which is the ProShares Ultra Short Gold (ARCA:GLL). The ETF is designed to deliver twice the daily inverse return of gold bullion prices. With more than $100 million in assets and with nearly a 330,000 shares trading hands daily, the fund is the most popular choice of investors looking to short gold. So far it’s up about 26% this year as gold has fallen.

For those investors not wanting the leverage that comes with GLL, the PowerShares DB Gold Short ETN (ARCAGZ) can provide the same effects. However, the gains- and potential losses- will be muted.

With production costs rising, the miners of the precious metal have been forced to deal with shrinking profit margins. That fact has been exacerbated by the falling gold price. As such shares of gold producers like Barrick (NYSE:ABX) and Newmont (NYSE:NEM) have imploded over the last few weeks. To that end, shorting the various mining stocks could also make sense. The Direxion Daily Gold Miners Bear 3X Shares (ARCAUST) provides a leveraged way to short the popular Market Vectors Gold Miners ETF (ARCA:GDX). Like GLL, DUST has surged as the price of gold has dwindled.

SEE: The Midas Touch For Gold Investors

Bottom Line
With the improving global macroeconomic picture taking some of the luster away from gold, investor enthusiasm for the precious metal has been falling by the wayside. For portfolios, that could mean it's time to get short the metal. The previous ETFs along with the VelocityShares 3x Inverse Gold (ARCAGLD) make it easy for investors to do just that.

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5 Forex Day Trading Mistakes To Avoid

In the high leverage game of retail forex day trading, there are certain practices that, if used regularly, are likely to lose a trader all he has. There are five common mistakes that day traders often make in an attempt to ramp up returns, but that end up resulting in lower returns. These five potentially devastating mistakes can be avoided with knowledge, discipline and an alternative approach. (For more strategies that you can use, check out Strategies For Part-Time Forex Traders.) TUTORIAL: Forex

Averaging Down
Traders often stumble across averaging down. It is not something they intended to do when they began trading, but most traders have ended up doing it. There are several problems with averaging down.

The main problem is that a losing position is being held - not only potentially sacrificing money, but also time. This time and money could be placed in something else that is proving itself to be a better position.

Also, for capital that is lost, a larger return is needed on remaining capital to get it back. If a trader loses 50% of her capital, it will take a 100% return to bring her back to the original capital level. Losing large chunks of money on single trades or on single days of trading can cripple capital growth for long periods of time.

While it may work a few times, averaging down will inevitably lead to a large loss or margin call, as a trend can sustain itself longer than a trader can stay liquid - especially if more capital is being added as the position moves further out of the money.

Day traders are especially sensitive to these issues. The short time frame for trades means opportunities must be capitalized on when they occur and bad trades must be exited quickly. (To learn more on averaging down, check out Buying Stocks When The Price Goes Down: Big Mistake?)

Pre-Positioning for News
Traders know the news events that will move the market, yet the direction is not known in advance. A trader may even be fairly confident what a news announcement may be - for instance that the Federal Reserve will or will not raise interest rates - but even so cannot predict how the market will react to this expected news. Often there are additional statements, figures or forward looking indications provided by news announcements that can make movements extremely illogical.

There is also the simple fact that as volatility surges and all sorts of orders hit the market, stops are triggered on both sides of the market. This often results in whip-saw like action before a trend emerges (if one emerges in the near term at all).

For all these reasons, taking a position before a news announcement can seriously jeopardize a trader's chances of success. There is no easy money here; those who believe there is may face larger than usual losses.

[youngfx]

Using Pivot Points In Forex Trading

rading requires reference points (support and resistance), which are used to determine when to enter the market, place stops and take profits. However, many beginning traders divert too much attention to technical indicators such as moving average convergence divergence (MACD) and relative strength index (RSI) (to name a few) and fail to identify a point that defines risk. Unknown risk can lead to margin calls, but calculated risk significantly improves the odds of success over the long haul.

One tool that actually provides potential support and resistance and helps minimize risk is the pivot point and its derivatives. In this article, we'll argue why a combination of pivot points and traditional technical tools is far more powerful than technical tools alone and show how this combination can be used effectively in the FX market.

Pivot Points 101
Originally employed by floor traders on equity and futures exchanges, pivot point have proved exceptionally useful in the FX market. In fact, the projected support and resistance generated by pivot points tends to work better in FX (especially with the most liquid pairs) because the large size of the market guards against market manipulation. In essence, the FX market adheres to technical principles such as support and resistance better than less liquid markets. (For related reading, see Using Pivot Points For Predictions and Pivot Strategies: A Handy Tool.)

Calculating Pivots
Pivot points can be calculated for any time frame. That is, the previous day's prices are used to calculate the pivot point for the current trading day.

Pivot Point for Current = High (previous) + Low (previous) + Close (previous)
3

The pivot point can then be used to calculate estimated support and resistance for the current trading day.

Resistance 1 = (2 x Pivot Point) – Low (previous period)
Support 1 = (2 x Pivot Point) – High (previous period)
Resistance 2 = (Pivot Point – Support 1) + Resistance 1
Support 2 = Pivot Point – (Resistance 1 – Support 1)
Resistance 3 = (Pivot Point – Support 2) + Resistance 2
Support 3 = Pivot Point – (Resistance 2 – Support 2)

To get a full understanding of how well pivot points can work, compile statistics for the EUR/USD on how distant each high and low has been from each calculated resistance (R1, R2, R3) and support level (S1, S2, S3).

To do the calculation yourself:

Calculate the pivot points, support levels and resistance levels for x number of days.
Subtract the support pivot points from the actual low of the day (Low – S1, Low – S2, Low – S3).
Subtract the resistance pivot points from the actual high of the day (High – R1, High – R2, High – R3).
Calculate the average for each difference.

The results since the inception of the euro (January 1, 1999, with the first trading day on January 4, 1999):

The actual low is, on average, 1 pip below Support 1
The actual high is, on average, 1 pip below Resistance 1
The actual low is, on average, 53 pips above Support 2
The actual high is, on average, 53 pips below Resistance 2
The actual low is, on average, 158 pips above Support 3
The actual high is, on average, 159 pips below Resistance 3

Judging Probabilities
The statistics indicate that the calculated pivot points of S1 and R1 are a decent gauge for the actual high and low of the trading day.

Going a step farther, we calculated the number of days that the low was lower than each S1, S2 and S3 and the number of days that the high was higher than the each R1, R2 and R3.

The result: there have been 2,026 trading days since the inception of the euro as of October 12, 2006.

The actual low has been lower than S1 892 times, or 44% of the time
The actual high has been higher than R1 853 times, or 42% of the time
The actual low has been lower than S2 342 times, or 17% of the time
The actual high has been higher than R2 354 times, or 17% of the time
The actual low has been lower than S3 63 times, or 3% of the time
The actual high has been higher than R3 52 times, or 3% of the time

This information is useful to a trader; if you know that the pair slips below S1 44% of the time, you can place a stop below S1 with confidence, understanding that probability is on your side. Additionally, you may want to take profits just below R1 because you know that the high for the day exceeds R1 only 42% of the time. Again, the probabilities are with you.

It is important to understand, however, that theses are probabilities and not certainties. On average, the high is 1 pip below R1 and exceeds R1 42% of the time. This neither means that the high will exceed R1 four days out of the next 10, nor that the high is always going to be 1 pip below R1. The power in this information lies in the fact that you can confidently gauge potential support and resistance ahead of time, have reference points to place stops and limits and, most importantly, limit risk while putting yourself in a position to profit.

Using the Information
The pivot point and its derivatives are potential support and resistance. The examples below show a setup using pivot point in conjunction with the popular RSI oscillator

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his is typically a high reward-to-risk trade. The risk is well-defined due to the recent high (or low for a buy).The pivot points in the above examples are calculated using weekly data. The above example shows that from August 16 to 17, R1 held as solid resistance (first circle) at 1.2854 and the RSI divergence suggested that the upside was limited. This suggests that there is an opportunity to go short on a break below R1 with a stop at the recent high and a limit at the pivot point, which is now a support:

Sell Short at 1.2853.
Stop at the recent high at 1.2885.
Limit at the pivot point at 1.2784.

This first trade netted a 69 pip profit with 32 pips of risk. The reward to risk ratio was 2.16.

The next week produced nearly the exact same setup. The week began with a rally to and just above R1 at 1.2908, which was also accompanied by bearish divergence. The short signal is generated on the decline back below R1 at which point we can sell short with a stop at the recent high and a limit at the pivot point (which is now support):

Sell short at 1.2907.
Stop at the recent high at 1.2939.
Limit at the pivot point at 1.2802.

This trade netted a 105 pip profit with just 32 pips of risk. The reward to risk ratio was 3.28.

The rules for the setup are simple:

For shorts:

1. Identify bearish divergence at the pivot point, either R1, R2 or R3 (most common at R1).
2. When price declines back below the reference point (it could be the pivot point, R1, R2, R3), initiate a short position with a stop at the recent swing high.
3. Place a limit (take profit) order at the next level. If you sold at R2, your first target would be R1. In this case, former resistance becomes support and vice versa.

For longs:

1. Identify bullish divergence at the pivot point, either S1, S2 or S3 (most common at S1).
2. When price rallies back above the reference point (it could be the pivot point, S1, S2, S3), initiate a long position with a stop at the recent swing low.
3. Place a limit (take profit) order at the next level (if you bought at S2, your first target would be S1 … former support becomes resistance and vice versa).

Summary
A day trader can use daily data to calculate the pivot points each day, a swing trader can use weekly data to calculate the pivot points for each week and a position trader can use monthly data to calculate the pivot points at the beginning of each month. Investors can even use yearly data to approximate significant levels for the coming year. The trading philosophy remains the same regardless of the time frame. That is, the calculated pivot points give the trader an idea of where support and resistance is for the coming period, but the trader - because nothing in trading is more important than preparedness - must always be prepared to act.

[Habib Ahmed]

Forex may wohi log zyada faida othatay hay jo log apni ghaltio se seektay ki koshish kertay hay or jo log apni ghaltio se nahee seektay wo log hamesha loss kertay rehtay hay.

[youngfx]

Top 4 Fibonacci Retracement Mistakes To Avoid

TUTORIAL: Top 10 Forex Trading Rules

Improperly applying technical analysis methods will lead to disastrous results, such as bad entry points and mounting losses on currency positions. Here we'll examine how not to apply Fibonacci retracements to the foreign exchange markets. Get to know these common mistakes and chances are you'll be able to avoid making them - and suffering the consequences - in your trading.

1. Don't mix Fibonacci reference points.
When fitting Fibonacci retracements to price action, it's always good to keep your reference points consistent. So, if you are referencing the lowest price of a trend through the close of a session or the body of the candle, the best high price should be available within the body of a candle at the top of a trend: candle body to candle body; wick to wick. (Learn more about candles in Candlestick Charting: What Is It?)

Misanalysis and mistakes are created once the reference points are mixed - going from a candle wick to the body of a candle. Let's take a look at an example in the euro/Canadian dollar currency pair. Figure 1 shows consistency. Fibonacci retracements are applied on a wick-to-wick basis, from a high of 1.3777 to the low of 1.3344. This creates a clear-cut resistance level at 1.3511, which is tested and then broken.

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TUTORIAL: Top 10 Forex Trading Rules

Improperly applying technical analysis methods will lead to disastrous results, such as bad entry points and mounting losses on currency positions. Here we'll examine how not to apply Fibonacci retracements to the foreign exchange markets. Get to know these common mistakes and chances are you'll be able to avoid making them - and suffering the consequences - in your trading.

1. Don't mix Fibonacci reference points.
When fitting Fibonacci retracements to price action, it's always good to keep your reference points consistent. So, if you are referencing the lowest price of a trend through the close of a session or the body of the candle, the best high price should be available within the body of a candle at the top of a trend: candle body to candle body; wick to wick. (Learn more about candles in Candlestick Charting: What Is It?)

Misanalysis and mistakes are created once the reference points are mixed - going from a candle wick to the body of a candle. Let's take a look at an example in the euro/Canadian dollar currency pair. Figure 1 shows consistency. Fibonacci retracements are applied on a wick-to-wick basis, from a high of 1.3777 to the low of 1.3344. This creates a clear-cut resistance level at 1.3511, which is tested and then broken.

2. Don't ignore long-term trends.
New traders often try to measure significant moves and pullbacks in the short term - without keeping the bigger picture in mind. This narrow perspective makes short-term trades more than a bit misguided. By keeping tabs on the long-term trend, the trader is able to apply Fibonacci retracements in the correct direction of momentum and set themselves up for great opportunities.

In Figure 3, below, we establish that the long-term trend in the British pound/New Zealand dollar currency pair is upward. We apply Fibonacci to see that our first level of support is at 2.1015, or the 38.2% Fibonacci level from 2.0648 to 2.1235. This is a perfect spot to go long in the currency pair.

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By not keeping to the longer term view, the short seller applies Fibonacci from the 2.1215 spike high to the 2.1024 spike low (February 11), leading to a short position at 2.1097, or the 38% Fibonacci level.

This short trade does net the trader a handsome 50-pip profit, but it comes at the expense of the 400-pip advance that follows. The better plan would have been to enter a long position in the GBP/NZD pair at the short-term support of 2.1050.

Keeping in mind the bigger picture will not only help you pick your trade opportunities, but will also prevent the trade from fighting the trend. (For more on identifying long-term trends, s

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. Don't rely on Fibonacci alone.
Fibonacci can provide reliable trade setups, but not without confirmation.

Applying additional technical tools like MACD or stochastic oscillators will support the trade opportunity and increase the likelihood of a good trade. Without these methods to act as confirmation, a trader will be left with little more than hope of a positive outcome. (For more information on oscillators, see our tutorial on Exploring Oscillators and Indicators.)

Taking a look at Figure 5, we see a retracement off of a medium-term move higher in the euro/Japanese yen currency pair. Beginning on January 10, 2011, the EUR/JPY exchange rate rose to a high of 113.94 over the course of almost two weeks. Applying our Fibonacci retracement sequence, we arrive at a 38.2% retracement level of 111.42 (from the 113.94 top). Following the retracement lower, we notice that the stochastic oscillator is also confirming the momentum lower.

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Now the opportunity comes alive as the price action tests our Fibonacci retracement level at 111.40 on January 30. Seeing this as an opportunity to go long, we confirm the price point with stochastic - which shows an oversold signal. A trader taking this position would have profited by almost 1.4%, or 160 pips, as the price bounced off the 111.40 and traded as high as 113 over the next couple of days.

4. Don't use Fibonacci over short intervals.
Day trading the foreign exchange market is exciting but there is a lot of volatility.

For this reason, applying Fibonacci retracements over a short time frame is ineffective. The shorter the time frame, the less reliable the retracements levels. Volatility can, and will, skew support and resistance levels, making it very difficult for the trader to really pick and choose what levels can be traded. Not to mention the fact that in the short term, spikes and whipsaws are very common. These dynamics can make it especially difficult to place stops or take profit points as retracements can create narrow and tight confluences.

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Remember, as with any other statistical study, the more data that is used, the stronger the analysis. Sticking to longer time frames when applying Fibonacci sequences can improve the reliability of each price level.

The Bottom Line
As with any specialty, it takes time and practice to become better at using Fibonacci retracements in forex trading. Don't allow yourself to become frustrated; the long-term rewards definitely outweigh the costs. Follow the simple rules of applying Fibonacci retracements and learn from these common mistakes to help you analyze profitable opportunities in the currency markets.