Forex Experts share their trading tips

A special report by FXstreet.com

There Are No Secrets
prices
currencies
There are no hidden skills in currency trading just things that
lie much deeper than what most people can see.
In the past I would have disagreed with this statement and
talked about some secret strategies, or market insights. Today,
while I wont disagree with the idea of the existence of inner
circle" infuences, I think all the information one needs to obtain
monetary gains and trading expertise is - more than ever with
the internet - in plain sight. Things were certainly different in
the times of Wyckoff or Gartley, just to mention two great tech-
nicians whose theories helped to turn the uninformed public
into informed market participants. If so many trading tech-
niques or money management methods are accessible, what
is it that locks our hidden power as traders?
I hope the answer wont disappoint you. The one and only
secret to trading is: practice! We just like the idea of something
else being there. Something secretive and hidden. Nope. Just
practice.
As you will see with the experts tips shared in this collec-
tion, there are no hidden skills. Just ideas that arent easily
accepted as good enough to lead you to the skills youd gain
with dedicated practice. Its true the skills themselves are not
common, but the ideas, the concepts which lead to a high-level
skill, are readily available.
Prologue
Dont think a good idea or concept when shared will lose its
effect, because in reality what happens is that most aspiring
traders might hear them and see them, but will not value them.
So dont worry if you see good tips being published. In fact,
so many people who want to beat the markets are either too
unrealistic about the potential gains or just too afraid of what
might happen if they lose money, that they dont accept what is
being taught.
So sit down and while you read this eBook, remember: dont
force your learning curve and take it a bit more easy. No one
believes that just by taking things easy, amazing things can
happen. If there was a secret, that would be one. And yet an-
other: investing in losses. This doesnt mean to just go where
the market wants you to, and therefore continuously lose. In
reality it means give up your current beliefs, listen to what the
experts are telling you and how you can win the next time.
Dont give up the idea of winning but dont be greedy. That is
not investing in losses, that is actually losing.
When it comes to mastering anything its true that there arent
any secret hidden ways of doing it, you just have to do it well
enough until it becomes natural.
Gonalo Moreira,
Author of FXstreet.com Learning Center
INDEX
Technical Catalysts
Fundamental Catalysts
Risk Control
Market Behavior & Psychology
Trend Following
Technical Catalysts
6
Focus On The Lowest Trading
Activity
When identifying where the next turn in the
market will be, most traders focus on where
the most trading activity took place on a chart.
This is also what everyone is taught to do. I
dont. I focus on the opposite, where the least amount of trades
took place because this is where supply and demand is most
out of balance and thats where prices turn.
Knowing The Strength / Weakness
Statuses Of Single Currencies
Trading currencies is vastly different from
trading other fnancial instruments. The key
differentiator: currencies are traded exclu-
sively as relative, rather than absolute, enti-
ties. Although all forex traders should be well aware of this, it
warrants further emphasis that currencies are traded in pairs.
What this really means is that currencies are not traded in iso-
lation, but rather in terms of their relative values against other
currencies.
If the dollar is weak, one should ask what exactly it is weak
against. Is it weak across the board, or just against Canadian
dollar, or Swiss franc, etc.? Is it strong against euro while weak
against yen? When a signifcant bearish move occurs in EUR/
GBP, was it a bearish EUR move, or a bullish GBP move, or
both? These are crucial questions that all Forex traders should
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ask, and answer.
Knowing the strength/weakness statuses of SINGLE curren-
cies, instead of just currency PAIRS, is key to understanding
currency pair movements and inter-currency relationships.
Pairing strongest currencies against weakest currencies is a
high-probability approach. It is essential that traders knows at
all times the relative strengths and/or weaknesses of all the
single currencies that are being considered for potential trades.
Time Of Day - Less Is More...
The most signifcant economic data focuses
around a number of basic themes including
infation, employment, growth, or lack thereof.
News of this nature is typically released
during the frst few hours of each respective
trading session. As traders react to the news, markets tend
to enjoy periods of greater volatility and volume during these
morning hours which are commonly known as the active mar-
ket hours.
Active Market Hours:
EUR 3: am - 5: am EST.
USD 8: am - 10: am EST.
JPY 7: pm 9: pm EST.
The EUR/USD (5-minute) displayed with the Bollinger Bands
indicator clearly shows the most signifcant trend began and
lasted during the frst 2-hours of the trading day. A trend-
trader anticipating a breakout to the upside would have been
handsomely rewarded by looking for that higher-high that did
in fact occur early in the US-trading session.
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Trading with Pivot Points
Ive found as a determining tool to apply in
the foreign exchange markets, both daily and
weekly pivot points.
Some basic principaIs rst to trading with pivots:
- They act as support and resistance.
- If prices accelerate and hold above its pivot point, market
participants will look to buy or turn bullish.
- If prices trade below a pivot point, traders will be looking to
sell or short confrming the sentiment has turned bearish.
RuIes I appIy to trade trends with pivot points
- In Uptrends:
Buy dips to the pivot point and add to the position in S1 and
S2. Use S3 to place a stop loss order. Use R1,R2, R3 as proft
targets.
- In Downtrends:
Sell rallies to the pivot point and add to the position in R1 and
R2. Use R3 to place a stop loss order. Use S1,S2 and S3 as
proft targets.
- In Ranges:
Range low: Buy in S1 or S2. Stop S3 and target the daily pivot
point.
Range top: Sell in R1 or R2. Stop in R3 and target the daily
pivot point.
It is important to remember that these techniques applying
pivot points best work in liquid pairs or majors: EUR/USD,
USD/CHF, USD/JPY and GBP/USD.
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Scan Smarter Not Harder
When studying Elliott Wave or any other wave
pattern recognition theory, so many traders
put too much emphasis on what the wave
count is with regards to the current market.
Rather than getting so caught up in where the market is in the
count, I scan the markets for only 4 high probability pat-
terns Impulse, Zig Zag, Ending Diagonal and Contracting
Triangles. Certain aspects of these 4 high probability patterns
have shown high levels of probable outcomes and they all can
be fairly easy to see, even without Elliott Wave indicators or
software.
I trade primarily 14 currency pairs and I scan all my charts
within minutes. Once I see any potential high probability pat-
terns, I then investigate further with more analysis.
Im not suggesting people should disregard all that Elliott Wave
Theory has to offer as a full understanding will help you in
your trading.
But ask yourself Why am I trading?
I, for one, enjoy trading and the challenges and excitement
that come with it. However, the bottom line is, were all here to
make money. So, put the odds in your favor and search for the
high probability patterns.
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Market volume with no technical indi-
cators
Determining market volume could be critical
when it comes to forex trading, as we un-
derstand that technical signals have higher
probabilities of success when they come along with the right
volume. For example, the break of the neckline of a fgure, or
a support or resistance level, are always considered reliable if
volume is high, while pullbacks to those areas should show a
lower volume, to give our signal further support.
However, not everyone realizes that volume indicators tend to
be tricky: several of those are just providing information about
the volume traded in the broker/platform that we are using
to work; they cant measure the volume of the whole market.
So how can we easily determine whether there is high or low
volume at a certain moment?
The easiest way for me is mostly a visual trick: I turn to my 1
hour chart, or even 30 minutes one, when I see something that
could be understood as a break or a sign. If that particular can-
dle is at least twice as long as the average that the pair moves
in that particular time frame, I understand there is high volume
favoring my signal. For example, if the EUR/USD moves 25
pips per hour on average, the candle that triggers the signal
should be at least of 50 pips (double the 25) or more. Easy,
clean, and with no extra indicators to mess our trading strat-
egy.
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Fundamental Catalysts
12
Adapt and Overcome
Always be willing and ready to adapt to the
market. (a) Daily Ranges, (b) Volume and (c)
Fundamentals, all provide key information
and clues as to which technical analysis and
trading strategies will work best in a particular
environment. NO strategy or analysis method will work in all
environments. If you keep a close eye on the abc and make
copious notes and observations how changes in each effect
market dynamics you will be able to ascertain which methods
and strategies are most suited to each environment.
Data and Evolution are Key.
You have to focus on the main story...
everything else is just noise
Markets are constantly moving and media try
to publish as much information as possible
in order to gain credibility and expand audi-
ences. However, not all information is equal.
You need to be able to screen out most of the news and focus
on the main story. This is the only way to understand the Mar-
ket and become effcient in any trading style. There is always
a main story concerning a war, a political state, an economical
point of view etc. This is what the market focuses on and this is
what creates a trend. Everything else is just noise.
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Know What Moves Your Trade
One of the most valuable lessons I have
learned trading in the past few years is to frst
identify what fundamental driver or drivers the
market deems most important for a particular
currency or the market as a whole. Its easy
to get caught up in reviewing all the economic indicators or
headlines that cross the wires and then trying to assess what
kind of impact it could have on price action. Yet, if for example
yield expectations are the markets sole concern, we shouldnt
waste time monitoring growth numbers and potentially confus-
ing an otherwise straightforward forecast. Furthermore, when
looking for that primary catalyst, it is important to remember
that the market always boils down to the equilibrium of risk and
reward in one way or another.
You need a fundamental view. You
need a chief market strategist.
If you use technical analysis you base your
whole trading system on this principle: The
last price contains all information about price
valuation.
A series of such last prices is a pattern and a pattern is pre-
dictive of future moves.
The problem very short term minded traders experience is that
the Big Players as a rule ignore their last prices. They dont
even consider an intra day price as important.
It is completely irrelevant to them that that price you think is
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a high probability indicator exists!Institutions pay armies of
analysts to determine what is the content of last prices. What
have been factored in in relation to a house fundamental
view.
Institutions do technical analysis under the continuous guid-
ance of a fundamental view.
If you know what is really in the price, your technical analysis
becomes really predictive because you can judgethe potential
action of traders with a larger time horizon and outlook than
yours. Simple technical systems become effective and proft-
able as part of a proper fundamental view.
Ignore the fundamentals at your own risk! (And please, dont
confuse economic data releases with the real drivers behind
currency prices.)
Risk Control
16
Plan the trade, then trade the plan
What usually hurts novice traders is poor risk
management; choosing wildly optimistic proft
targets in order to justify cripplingly painful
stops and staying in losing trades far beyond
the original plan. Its human nature to take
proft on winning positions too early for fear of
losing small accrued profts and to hold onto losing positions
(and worse, doubling down!) in the vain hope that the market
must surely reverse soon. One of the best ways to enforce
good discipline is to ensure that when entering any trade, there
are always predetermined stop and take proft orders entered
and that the amount of capital you risk is AT LEAST as much
as you aim to win.
The ONLY adjustments that should be made after that should
be to trail the stop tighter (to minimize losses/guarantee prof-
its) while extending the proft target. Once the action starts,
you can be sure the trade will succeed or fail within the rea-
sonable risk-reward criteria that was decided with a cool head.
Whats more, when relying on orders and not staring fxedly
at every tick on open positions, trading becomes a much less
stressful and emotional experience.
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Risk/Reward Ratio vs Investment
Horizon
My main discovery about trading in the last
months is that risk/reward ratio should be di-
rectly proportional to your investment horizon.
That is, when youre trading in very short time
frames, scalping for a few pips, then youre risk/reward ratio
should be low, even lower than 1. The concept behind this is
that it makes no sense to hold a position too much time wait-
ing for a proft which is twice the stop loss: it wont work as the
market noise will probably hit our tight stop. On the other hand,
when trading on higher time frames (i.e. daily) risk/reward ra-
tios should be high, above 2 or more, as we have time enough
to reach our target.
Never risk more than 2% of your ac-
count at once
As with anything new, youre likely to make
mistakes, learn from them, and then improve.
Many new traders risk too much of their ac-
count, and burn it out before learning any-
thing.
Money management is the secret to avoiding this fate. This
abstract idea can go down to the 2% rule. Making 2% an over-
riding priority means no stop loss movements, using lower lev-
erage, making a bigger initial deposit, having higher spreads,
or anything, else that will keep the losses limited. Some things
are more comfortable to do than others, but keeping this rule
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will likely yield in better results for newbies in the long run -
keep them away from burning their account.
Never use more than 2% equity risk
when I place stops.
I am in trading since 1983, a time that there
was no computer or real-time data, just a
phone ! Data came in by telex and I draw the
charts by hand, actually the best training I
ever got. Today we have almost everything for free, real-time
data, online brokerage, real-time charts etc.
Still most traders make no money, at least not constant. I am
happy to survive it so far and maybe this comes from discipline
I learned in aviation to fy aircraft using strictly checklist for
each part of the fight.
The best trading tip I can
give you and which helped me to survive > 25 years of trad-
ing is as follows: "Never use more than 2% equity risk when I
place stops.
For example, if I have 4 positions and all stopped out, I will
lose max. 2% of clients account. So the stop level is important
and so the number of contracts .
If there is high volatility and a high daily range, than my num-
ber of contracts are smaller. If there is low volatility and smaller
daily ranges, than my number of contracts are bigger. At any
time, being stopped out in all positions, I will lose max. 2% on
equity.
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Market Behavior & Psychology
20
Head not Heart!
It is always hard to take a loss. However,
the frst rule that needs to be adhered to by
a novice trader is that positions can and will
go against you and that stop losses are an
important part of any trading strategy. I have
been in the position where I have gotten emotionally attached
to a position and didnt trade with my head. On occasion,
things ended up working out. However, more often than not, I
ended up losing more money. In these situations, not only do
you lose money but you also end up missing out on better op-
portunities because your ability to trade is compromised by the
funding the losing position. So remember think with your head,
not your heart and make the tough call!
"Be modest in your confdence and
thankful in your profts"
When our trades lose money, whatever our
logic, we can be sure we were not alone. But
we can equally be sure that we were in the
minority. Had we been in the majority the mar-
ket would have performed as anticipated. The market decision
process is that simple. It is a matter of putting our behavior in
line with the majority as often as we can. The most effective
tool to achieve that is our own empirically tested market psy-
chology. We are the market, if only we can let ourselves mimic
the mind of the market and not permit individuality to rule our
decisions.
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Count to ten rule
If you are in that much of a hurry, you probably
havent done your analysis or you might be
chasing a move. Do you know your stop and
take proft levels? One quick review, count to
ten and then take the trade.
Pay attention to quick, false and inten-
tional moves
1.Quick moves are false moves in the market
use such moves to do counter trades once
the new low or high is not breached for 30 min
in a session.
2. False moves may be seen before the data release and the
intentional move may be seen after the data a drop before
we may initiate buy and a rise before data we can initiate sell
to quickly close in or keep stop at entry in in frst 30 min of
entry.
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Dont think you can predict the fu-
ture... because nobody can
The biggest thing that got me from a losing
trader to a winning trader was the realiza-
tion that I did not have to know the future to
be successful. Many new traders think that
trading is all about know what is coming next, but of course no
one can really predict the future. So for me realizing that this
business is all about playing the odds rather than knowing the
future was the single biggest epiphany that got me over the
hump. I now focus on Harmonics and the statistical edge that
they provide. If you dont know what your edge is, you dont
have one!
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Trend Following
24
Threes a Crowd
Most people know the old saying Twos
Company. Threes a Crowd. I use that easily
remembered saying, to help defne a non-
trending forex market that is likely to transition
into a trending market.
I can use the Threes Company setup on a 5 minute, hourly or
daily chart. The two in my trade are two moving averages.
Specifcally, I use the 100 and 200 bar Simple Moving Average.
The "three" in my trade is the current price. When the 100 and
200 bar MA converge with the price, it says to me it is time for
the price - the third wheel in the group - to move away. Trad-
ers should simply look for a price break and go with the break.
Risk is initially defned by using the 100 bar moving average.
Should the price move back over the 100 bar MA look to exit
the trade.
The bonus is traders who recognize the setup, should also
have confdence to stay with the trend. The reason is if you
can anticipate a trend move, focus is confdently on the trend.
Also risk is defned and limited. Traders can use a cross over
the 38.2% Fibonacci retracement as an exit, or simply wait for
the price to cross back over the 100 bar MA. Often because
the setup starts a trend, the price will reach a support level, tire
and rest. This provides the trader with a number of options for
a graceful exit.
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Never go against the general trend
Identifying the general trend whether on the
short/medium/long term is the most essential,
and when you fgure it out, you stay with the
trend. You buy on dips or sell on rallies ac-
cording whether its a down or up trend, but
you never bet on a correction against the general trend.
Committing to this rule will protect you from sudden and huge
losses, as well as guarantees that you will be able to gain the
most from a trend when the right moves happen.
Stick With the Trend: Tops and Bot-
toms are Only Evident in Hindsight
The trend is your friend may be one of the
oldest maxims in trading but it is also one of
the most important when it comes to the forex
market. Trends in currencies can last for days,
weeks and sometimes even months.
Currencies are typically seen as little confdence indicators for
a country and the outlook for a country usually gets progres-
sively better or worse. Also, due to the signifcant amount of
participation and speculation in the forex market, when senti-
ment turns in one direction, it can be very strong and lead to
sharp moves in currency values. As a result, I have generally
found far greater success going with a trend than fading it.
Tops and bottoms are only evident in hindsight and it is much
better to wait for confrmation that a trend has ended than
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to arbitrarily pick a top or bottom. The biggest fear of many
traders is that they buy the top or sell the low. To avoid this, I
prefer to join a trend at value. There are many ways to identify
the value points through the use of my Double Bollinger Band
Strategy or retrace to a Moving Average.
Dont Fight the Daily Market Trend
Over the years I have been using the daily
timeframe for what I call Directional Bias.
The reason for this is because I dont want to
fght the larger, more dominant trend - its like
swimming upstream otherwise - much more effort it needed.
The dominant trend refects the psychology of the market. Re-
member that all those candles or bars on your chart are simply
graphing human emotions: fear, greed, confusion, anticipation.
The daily chart will also assist me in determining whether
my intraday set ups are trend-following or counter-trend. If I
am going to enter a market in a direction that is opposite the
dailys Directional Bias I want to be sure its on a short-term
time frame like a fve, 15, or 30-minute so in this was I am not
dependent on longer-term counter-trend movement. I think
many traders would beneft from starting their analysis with the
daily - not necessarily to trade that time frame - but the under-
stand the dominant psychology at work in the market.
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Trade Trading: How I use multiple
time frames to trade forex
I always start my trade planning by looking at
Daily chart.
On the Daily chart I look to see where price is
in relation to short-term moving averages. I like to trade in the
direction of the trend. This means that Im either trading at/near
the moving averages and cautious when price is far from the
moving averages due to the possibility of a mean reversion.
Based on this analysis, I create a bias. Im either a bull or a
bear. As a bull, I look to buy dips on the smaller time frames.
As a bear, I sell rallies on the smaller time frames. Without
bias, I am neutral and often dont trade at all.
For example, if my daily chart bias is bearish, I look for resist-
ance and over bought conditions on the lower time frames. If
we are at a Daily R Pivot that is near a psychological round
number, I see this as possible resistance. I then check the 15
min stochs to see if there is any steam left in the current up
move. If not, Ill look for moving averages crossing down, lower
lows and such. The rest is trade management... and praying
doesnt hurt.
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Contributors List
FXstreet.com would like to thank the contributors who partici-
pated to this special report, sharing their best trading tip with
our readers:
Valeria Bednarik - FXstreet.com
Charis Charilaou - TFIFX
James Chen - CTA, CMT - FXDD
Dirk Du Tot - DayForex
Yohay Elam - Forex Crunch
Derek Frey - ForexTradersDaily.com
Elizabeth Gregory ACM
Raghee Horner RagheeHorner.com
Aamar Hussain - Pivotfarm
Mohammed Isbeer - ecPulse.com
John Kicklighter - DailyFX
Csar B. Leiceaga - FXstreet.com Independent Analyst Team
Kathy Lien - GFT, BKForexAdvisors and kathylien.com
Wayne McDonell - FxBootcamp
Greg Michalowski - FXDD
Alberto Muoz - FXstreet.com
Shawn Powell - FXDD
Adam Rosen - 4xLounge
Ron Schelling - 2HEDGE
Sam Seiden - Online Trading Academy
Dr. S Sivaraman - i-knowindices.com
Joseph Trevisani - FX Solutions, LLC
Ross Yamashita - Pro Pipper Trading
Keagan York - Compass Global Markets
2011 FXstreet.com
Barcelona, July 1st, 2011.
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