Elliot Waves A Great Tool In Forex Trading

One of the most important characteristics of the Forex markets is that they have the largest volume of trades per day among all the capital markets you can opt to trade. This characteristic along with it’s high leverage and around the clock trading schedule makes Forex a very attractive activity with a huge profitability potential.

The forex markets have an additional characteristic that makes them “easy” to trade compared to other markets. Very often they develop strong trends that seem to follow a repetitive pattern in all the different time frames you can use to analyze the market conditions.

Ralph Nelson Elliot observed this patterns and after analyzing a great number of charts he discovered in the late 1920’s that the markets move in a repetitive manner that is too far from being a simple chaotic behavior. He discovered that the markets move in cycles and that they reflect the mass psychology of the active elements participating in them, with characteristic “waves” representing this active elements psychology in their daily encounters with the markets.

Elliot not only discovered the repetitive nature of the markets cycles represented by the waves but he also realized that this patterns had a fractal nature. This means that the patterns not only repeated with time but that in a given fixed period of time the characteristic wave pattern would repeat at different time scales (days, hours, minutes).

The currency market offers a wealth of opportunities for day traders. This makes it an extremely easy market for traders who also have a full-time job.

The Elliot wave pattern is divided into five constitutive waves: the first of the waves is called the impulsive wave. The fractal nature if this waves was evident to Elliot when he observed that in every impulsive wave he analyzed, when observed at a smaller time scale he would find the characteristic five waves of the pattern he had found and if he now looked at the impulsive wave of the smaller impulsive waves in an even smaller scale he would find again five ways, etc.

Elliot waves are very important in Forex trading because considering the repetitive nature of this patterns you can make a pretty accurate forecast of what the markets will do next giving you a huge advantage over other forex traders without this great trading tool.

For more information on Forex Trading you can visit my blog:

=> http://forex-trading-11.blogspot.com

Forex Review Center - Forex Day Trading, Around the Clock Trading

The currency market is the only true 24-hour market in the world. With the largest daily trading volume and three major trading centers, there is plenty of liquidity and news flow around the clock. Day traders rely on intraday volatility to produce quick and large market movements. Volatility equals big profits or big losses.

Personal Characteristics Needed To Succeed in Forex Day Trading

In order to have a fighting chance of becoming a successful day trader, you should possess the following characteristics:

• Patience

• Discipline

• Independent-minded

• Realistic about losses

Characteristics of Unsuccessful Traders

It has been estimated that 90 percent of the individuals who attempt to day trade the market will fail. Therefore, if you want to have any chance at success, put all of your effort into doing the right things.

• Having insufficient capital in the account

• Betting too much on each position

• Not cutting losses quickly and not using stop-loss orders

• Not understanding the importance of money management and risk

• Having no predetermined trading strategy

• Using money needed for living expenses and future commitments (college education, retirement) with which to trade

• Operating in a fear-and-greed mode

• Not getting an education prior to trading and not being a true student of the market

• Treating trading as a lark or a hobby

• Not having a passion for the market

• Being impatient, emotionally unstable and making irrational decisions

• Not having sufficient knowledge about the instruments being traded

• Trying to pick market tops and bottoms

• Listening to other people’s opinions of the market

• Lacking discipline and the ability to learn from mistakes

• Chasing momentum

The currency market offers a wealth of opportunities for day traders. This makes it an extremely easy market for traders who also have a full-time job. However, no one wants to spend every minute of their free time staring at their trading screens and looking for the perfect opportunity. In fact this is probably the worst thing to do because it can foster over trading. To be truly successful with day trading currencies, it is important for traders to focus on picking the right currencies to trade and the right time to trade them.

Christopher Grace is a full time trader and reviews forex related services for Forex Review Center.

Forex Review Center provides independent online forex trading reviews on forex related tools and services.

 

Forex & Moving Averages Basics

Forex trading is becoming a more extended and desired occupation for many people around the world with the desire of working at home and still having the ability to gain a good full time income.

Among the important concepts a new forex trader should know is what a Moving Average means, how this indicator is calculated and its use as a trading tool.

A “Moving Average” is a technical indicator that shows the average value of a particular currency pair over a previously determined period of time. This means, for example, that prices may be averaged over 20 or 50 days, or 10 and 50 min depending on the time frame that is more convenient for you at the moment of your trading activity.

Moving Averages are an averaged quantity and can bee seen as a smoothed representation of the market activity at the moment and it’s an indicator of the major trend influencing the market behavior.

This smoothing effect of the Moving Average is very helpful when the trader is looking for getting rid of the “noise” in the price fluctuations of the currency pair he is trading at the moment and a more precise emphasis in the trend direction is required.

The mechanics of how Moving Averages can tell a forex trader where the forex market is moving (up or down) is by considering two different time frame Moving Averages and then plotting them on a forex chart. It is very important that one of these MA is over a shorter time period than the other one; let’s say one will be over a 15 days period and the other over a 50 days period.

Once you have plotted the two Moving Averages with your charting software (available from most internet forex brokers), you will notice points of crossover where the shorter time period MA will cross above the longer time period MA indicating an upward trend in the market, or if the crossing is below the longer period MA that will be an indication of a down trend in the forex market.

So by using this simple concept of the Moving Averages you can start understanding the basics of confirming trends when checking your forex charts during your particular trading hours.

For more information on Forex Trading you can visit my blog:

=> http://forex-trading-11.blogspot.com

Choosing A Forex Trading System – Part 5

No discussion of trading system evaluation would be complete without a discussion of drawdown. We must always look at the maximum drawdown of any trading system as it is very, very important.

The maximum drawdown of trading system is defined as the greatest peak-to-valley drawdown in a trading system’s equity. Let’s say for example that we have a trading system that reaches a particular equity peak of $100,000. Let’s further say that two weeks later, the trading system equity is at $80,000. In this example, let’s say that the $80,000 equity happens to be an equity valley. In that case, the peak-to-valley drawdown would be $100,000-$80,000 equals $20,000. This means that the maximum drawdown is $20,000.

So why is the maximum drawdown such an important measurement in our evaluation of a trading system? It’s because the maximum drawdown gives us a measure of the survivability of the trading system. A simple measure, but a measure nonetheless. Basically, when we look at the maximum drawdown we can say that this maximum drawdown can happen again at any time throughout the life of the trading system. This is particularly important when it comes to evaluating starting account size.

As an example, let’s say that you started to trade the system using an account funded with $10,000. Right off the bat, you can see that this would not be prudent, because as we can see from our maximum drawdown figure if we went into a drawdown immediately after starting our account our account balance would logically be wiped out.

We can see from this quick illustration that we definitely need to fund our account with more money than enough to cover the maximum trading system drawdown. It makes perfect sense to have a buffer of some sort as well.

I would exercise caution, if you are looking a trading system and the recommended account size is the exact same size as the maximum drawdown.

The maximum drawdown is an essential measure that gives us a better idea of what to expect when trading a particular system. A comparison of risk versus reward is an absolute essential in successful trading.

To Your Forex Trading Success!

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