Trading Tip: 6

The Critical Trading Skill

There is one critical trading skill that you must learn if you are to survive as a trader. Any other skills are secondary to this one... Money Management.

You may be a brilliant market analyst, but without a money management plan, you're probably doomed. On the other hand, you can be a lousy analyst, but with a good plan for your money you can still be profitable.

It's the Probability Thing

As mention all over this website, trading is about dealing with probability. There are factors at work that ensure we can never know what is going to happen next in the market.

Your indicators may be flashing the mother of all entry signals, but chances are you'll just get into the trade when some rumor hits that stands the market on it's head! You can be wrong up to about 70% of the time and still profit with a good money system.

In the Long Run, it Produces the Winners

If you have the discipline to manage your losses while they are small, you are on the road to success. This is a little harder to do in the Forex market than other financial markets because of the larger price swings that make up the action.

Draw your line in the sand and stick to the plan. Moving stop-loss orders usually only leads to larger losses which can be devastating to your account.

If you can do a little better than break-even on a weekly basis, eventually, if through nothing more than luck, you will have a trade that will move rapidly and massively in your favor. The trick is merely staying alive until you get to that trade.

It's In Your Hands

You have no way to control what the market does. You can, however, completely control what you do in the market.

Take care of your money, and the trades will eventually take care of themselves.

Trading Tip: 7

How To Become A Better Trader

To become a better trader is the goal of most traders. trading tip, I want to it will cover a couple of key points and trading tips.

As you probably know, there are literally thousands of "systems", books and software packages designed to help us improve our trading performance. Within that pile, there is actually some very good information.

If it Looks Good, Give it a Try

The reality is most of the peoples are simply rehashed information with little new value.

Every once in a while though, something catches your attention and you will often spend $50 to $100 for a package of goods. Most often, these "investments" help you add a new twist to my trading arsenal and usually pay for themselves 10 times over, or more, in trading profits. You have even learned profitable strategies from trading systems that don't work!

Every dime you invest in educating yourself is money well spent. Each trading article you read makes you a smarter trader and in this business, the smart trader usually prospers.

Visit the "big name" Forex websites. They have great deal of free information... trading strategies, fundamental and technical analysis and no end of articles which will all serve to help you in your quest.

The Best Tip

The best thing you can do to improve your trading is to trade more. Its not mean that you have to put more money on the line, rather you can trade demo accounts, or you can paper trade based upon what you see the market doing.

Use a non-money type trade to test a strategy or idea you have. See how it would perform in the real world before you risk capital. If it doesn't work on a demo account, it's not likely to work with real money either.

Like everything else in life, you will get better only with practice. Trying to improve your golf game? Magazines will help, but to really improve, you need to hit golf balls. To become a better trader, you need to practice trading.

Your brain begins to recognize patterns even if you are not consciously aware this is happening. If it doesn't "feel right" that's usually an indication your sub-conscious mind is giving you a warning. Learn to listen to it.

If you want to become a true "market wizard" there is no substitute for trading experience. Watch the markets, study the markets and trade the markets. That is the true road to success.

Trading Tip: 8

Our Forex Trade Signal

Now about Forex trade signal and show you how to use it.

Catching a Wave

The method you are going to learn, is one that you have probably not seen or used before, so be sure to test it on your trading to ensure it fits your style. It can be used on any currency pair and with any time frame you choose.

If you look at any price chart, the first thing you'll notice is the price moves up and down in waves. Some are large, others small, and still others are like ripples on a pond.

It is hard to know if the current wave is a correction from the last wave, or a new trend of the price. This method uses Fibonacci retracement levels to generate the Forex trade signal and tells us when to get into a trade and also when to head for the exit.

Using eSignal© charts for this example and the Fibo levels are set to show me the 0.250, 0.382, 0.618 and 0.750 levels of a wave.

Looking at the chart above, wave "A" is identified as a significant move. It is important to note that each wave must of a reasonable size. Let's pretend that when we first see the chart the price is at point "B".

Note here that for any trade, we want a separate confirming signal of a longer time period than our trading chart. We are going to use the RSI for this system and only sell if the long-term RSI is below 50, or buy if above 50. If you are trading from a 5 to 15 minute chart, use the RSI from the daily chart... if trading from a daily chart, use the RSI from the weekly chart.

On a short term chart (5, 10, 15 minute) any move of less than 50 pips is probably not one that will be reliable. On a longer term chart (60 minute, 4 hour) you should use a longer wave of 100 to 150 pips as a minimum.

We plot the Fibonacci levels on the wave and watch the price action. If the price falls back into the range between 0.382 and 0.618 we consider the move complete and continue to observe the price. If the price doesn't hit this zone, sit tight as the move isn't complete yet.

If the price continues to drop below the 0.750 level, our Forex trade signal tells us to sell the pair short, but only if our confirming signal from the RSI is below 50 on the longer term chart.

In this example the price rises from the .382/.618 zone to above the 0.250 level, so we want to go long, provided the long-term confirming RSI is above 50.

Now What?

Referring to the chart below, we see the price falls into the .382/.618 zone before climbing above the 0.250 level so our Forex trade signal tells us to buy the pair (be sure l/t RSI is above 50). For safety, you should set a stoploss order just below the 0.750 level to protect your account.

Notice the price action eventually creates wave "C" which is large enough to meet our size requirement.

We erase the previous Fibonacci levels from wave "A" and plot new ones using wave "C", as shown below...

Continue watching the price action and drawing a new set of Fibonacci levels as new waves are discovered. Don't forget to move your stoploss level as prices increase.

When prices finally fall through your 0.750 level for the current wave, use this as a signal to exit the trade. By moving the levels as prices change, you are able to ride many trends safely to levels that you may have missed with other methods.

There is a lot of information packed into this page and hope it is not too confusing.