Free Forex Lessons Archives

Detailed Gbp/$ Forex Analysis 22nd June

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In Tuesdays profit warning update I described what was happening on the cable  (gbp/$ ) chart above and tried to show you areas to look at for possible reversal areas on a forex pair. 

Gbp/Usd: In the analysis for the chart above I explained that what was extremely interesting to me was where price was then. The arrow is pointing to where the 4 hour and the daily trend lines meet.

I said “This area is critical. If price starts to go back up from here we could be at the bottom of  a major move upwards for 100’s of pips (possibly a 1000 to the top trend line)”.

What I am going to explain is how I bring my varied trading methods together to try and calculate where price is going next.

I have been trading forex for over 5 years now. You can not expect to pick all this up overnight, but it will give you an idea of how a professional forex trader tries to build up a detailed picture to arrive at a decision. Especially on a trade like this which could yield many 100′s of pips.

This analysis for cable will be extremely detailed. If you have read the free lessons on the main site, hopefully this will all be starting to come together. If you are new, don’t worry, just try to absorb the information.

My thought process is as follows

  1. On the daily chart (above) I can see that price has been in an uptrend/channel for 6 months (the 2 parallel yellow lines) and price has bounced off the bottom line 5 or 6 times. As price comes down to this area I am therefore looking for other reasons for why price might react in this area. That is I am looking for other pieces of the jigsaw to support the theory. So next I go to the 4 hour chart as shown in fig 2.
  2. The almost horizontal yellow line is the 4 hour down trend line as shown in the following diagram

Fig 2

4 hour down trend gbp/usd

4 hour down trend gbp/usd

Here on the 4 hour forex chart we are looking for;

  • an aggressive trade, a bounce back off the bottom line with a stop just below the trend line (not a great idea in the markets for the last few days) or
  • A more conservative break & close of a candle through the top line
  • A 3rd option of course is to consider all the reasons why we might short (sell) the pair; a break and close below the daily trend line would be a major reversal

Are there any other clues we can look for ?

Fibonacci. Take a look at the same chart with fib lines added (Fig 3). See how price has bounced twice at the 5o% fib line (standard fib pullback strategy as I have explained numerous times before). This 50% has also become a double bottom, another strong support area.

Notice also how price has failed to break & close above the 23.6% fib, therefore this is a resistance area in roughly the same area as the upper trend line.

Fig 3

gbp_fib_19_june_4_hour

So What Happened next & where do we go now ?

Gbp/$ 4 hour chart break out of uppper 4 hour trend line

Gbp/$ 4 hour chart break out of uppper 4 hour trend line after bounce off daily and 4 hour trend line at point 1

 Possible entries

  1. The aggressive trader would have bought at point 1 which is a close of a hammer candle after a bounce off a 50% fib and daily trend line.
    I missed it ! I was watching for it but had to go out. Doh !
  2. Less aggressive trader at point 2 where the candle has broken (and most importantly closed) above the upper (yellow) resistance/trend line. I caught it here. It was not an LMT move, just my normal stuff.
  3. More conservative trader would Definatley look to enter here, the only problem it was so late on friday that you need to wait for Monday open to look for an entry. I never enter trades friday pm.
    Also beware pullback Monday market open though, or now wait for LMT signal). At point 3 we have had. Confirmed break and close of trend line and fib as well as close above fairly major psychological level of 1.6500.

The final piece of the jigsaw for me is my normal chart set up that I show in the last diagram below (as explained in detail in the free lessons).

Price is above all the emas on the 4 hour forex chart for gbp/$

Price is above all the emas on the 4 hour forex chart for gbp/$

For those of you who are new to forex trading this may seem more than a little overwhelming !
The secret at the start of your forex trading career is to take things one step at a time. The LMT is great for you to get started with, as well as being a great addition to the arsenal of an experienced trader.
To start with keep things as simple as possible and read, read, read as much as you can.
If any of you are interested in joining the LMT Forex Trading Formula, (we have relatively new traders who have gained 5/6/700 pips in their 1st week with this amazing system) ! click on the link below;

If you would like to receive regular free analysis, tips and advice from me, just send me an email: marc@forex-fxtrader.com I will post less detailed analysis for the other 10 pairs here on the blog tomorrow, regards, Marc

How to become a Forex Winner

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As I mentioned in today’s members email; I was a volunteer in yesterdays Lanzarote Iron Man. As a member of the “doping control team” I got to meet and chaperone the winner, Belgian, Bert Jammear.

Unfortunately as Bert crossed the finish line and passed into my care, he collapsed ! Not surprising considering he had just won (for the second consecutive year)  the most gruelling triathlon in the world.
Read the rest of this entry

Forex Money Management

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Forex Money Management.

Many of you are asking me to explain forex money management. Managing your money is THE most important part of forex. If you have none left you can’t be a forex trader !

Eric sent me this, so I will use his figures to show you how I would manage his account; “I will be opening a $10,000 live account and I want to make a profit of $2,000 a month ($100 a day) and risk no more than $1,000 a month. I’ve been trying a demo account with a credit of $10k and have been successful in making a $100 a day, but
since I don’t have a good money management plan, I would risk too much on trades sometimes.”

The MOST important part of forex trading is to not lose your trading bank. To do this we need to strictly control the amount of money we are willing to risk per trade. Presuming that you have traded a demo account and now feel confident enough in your methods to get in to forex for real.

This is how I would approach Erics account; 1) I would leave $8000 in the bank and only start with $2.000. Why ?
Often a new trader will blow their bank in a short period of time. A simple conclusion: It would be better to blow a $2000 bank than a $10.000. Then go back to a demo
and learn from your mistakes.

a) Making trades on a demo account is NOTHING like the adrenalin rush you get when you have real money on the table. On a $10.000 account I recommend that you risk no more than 2.5% of your account per trade.

Why ? Because if you have a losing streak you would need to lose 40 times before you wipe your bank out. On a $10.000 account that would be risking $250. But believe me that that if you go straight to risking $250 per trade and have a few losses early on you can scare yourself from pulling the trigger later on.

Remember fear and greed rule the forex market.

b) As I have explained many times before in the free lessons section:
http://forex-fxtrader.com/Free-forex-training.html 95% of new traders lose money.

Often a new trader will blow their bank in a short period of time. There is a strange psychology that comes in to play where you are say $1500 down. You now have $500 left. Mentally you seem to write it off. You now ignore all the rules and keep going for the “big one” to win it all back. The obvious outcome is that you lose the lot.

I have done this twice in my early days. You know you should stop, but the urge to “win it back” over rides your common sense, (revenge trading is a very dangerous habit to avoid).

Now you have lost the lot. Most fx traders quit. The rest dust themselves down, go back to a demo account and come back again when they have another bank not unlike a gambler in a casino. (Personally I think that forex is far nearer to gambling than investing.

Anyone who suggests you “invest” your life savings in forex is seriously not to be trusted).

Correlation

No matter which path you choose, decide on your rules and write them down. “I will risk a maximum of 5% per trade.”  Be careful here because some forex pairs are directly correlated.Correlation refers to the way pairs react in relation to each other.

Especially the euro/usd and the $/chf.
In april 2009 when the chf was going up, the euro/$ was going down 92% of the time* Over the last 12 months the average is 80%.

Therefore a buy on the chf/$ is almost identical to a sell on the euro/$. I mainly trade the euro/$ because this pair moves, on average, 30 pips more per day than the chf,** thus you have the opportunity to gain more pips. However, I closely watch the chf to assist, especially in deciding on entries and exits.

If I was to take both trades and my rules say only risk 5% of my bank per trade, I would have to risk 2.5% on the euro part and 2.5% on the chf. Also, you have to consider that a gbp/$ and euro/$ trade is very similar in that both are betting that the $ is going to go either up or down.

In April 2009 the euro/$ and gbp/$ went in the same direction 62% of the time.** Again you have to take this into consideration and establish a rule before you start to trade.

Back to Erics’ question. Lets assume he takes my advice and decides to start with a $2000 micro account. His maximum risk will be 5%/$100 per trade. My method of trading is to buy 2 lots. With the 1st lot I look for a profit of at least 20 pips. Bank it and then move the stop on the 2nd lot to entry (this way I bank some pips and have the chance of catching a big move with the second).

If Eric decides to trade this way, he needs to split his 5% risk over 2 trades. That is 2.5% per lot. I will explain in a new post how to calculate micro lot sizes.

Money management is fundamental to your success in forex. You have to make rules, but most importantly, you have to follow those rules. My biggest weakness in forex trading is discipline. I have rules, but because there is no one looking over my shoulder, I am prone to break those rules. I have always worked for myself, so I am not used to doing what I am told !

* source for correlations, fxstreet: http://www.dailyfx.com/story/charting_center/fx_correlations/FX_Correlations__May___How_Do_1241196771559.html

* source for average daily ranges
http://www.global-view.com/forex-trading-tools/chartpts.html

Risk Reward in Forex

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The secret to becoming a successful forex trader is the ability to maximise your gains and minimise your losses. This is easier said than done ! In my 1st month trading forex I won 65% of the trades and yet I somehow managed to lose money !

Obviously my losses were bigger than my wins, a common problem for the new forex trader. The solution was to look more closely at my fx trading style. I was getting out of trades too early and my losses were too high.

Conventional wisdom says that you should not enter a trade unless your potential gain is at least double your potential loss. Thus, your risk/ reward ratio is 1:2. Seems easy enough, but how can the new trader determine what is the potential gain in a trade ?

I use a combination of indicators and logic. Unfortunately there are a myriad of different things we need to consider and these can also vary depending on the time-frame we are trading.

The following are just a few that we might want to consider if we were looking to day trade on smaller time charts (15 minute/ 1 hour) with a 50 pip stop;

1) Average daily range. If the gbp has moved 180 pips so far today and the average daily range is 200 pips, then I would not take the trade if I was expecting price to extend beyond that limit. There are always exceptional days in forex when the movement can be double, but the % likelihood says that 200 is more likely. Therefore to risk 50 pips to win 20 is a no go.

2) If your potential trade is only 30 pips away from previous strong support or resistance, this could be a trend line, a double top/double bottom. A strong psychological level, perhaps $1.50 to the gbp.

3) Equally, fibonacci lines are often areas that price will bounce off, as are pivot points and bollinger bands.

4) Counter trend. More conservative traders will only trade with the trend. Your potential trade has lots of reasons to enter, but the trend is in the opposite direction.

5) Personally I never take a trade if price is near to lots of emas on different time-frames that it has to break; especially the 200 ema. This also depends on the direction of the emas. For example, if I was looking to long a pair and the 200ema was pointing down or even flat I would not take the trade.

However, if price has hit the ema a few times and the ema has now turned up I would be more likely to consider the trade.

In the following example I show you lots of reasons why I would consider buying gbp/usd, but more importantly why I would NOT enter the trade;

Lots of reasons in this chart to NOT enter a trade

Lots of reasons in this chart to NOT enter a long trade

Reasons to consider why we WOULD take the long trade.

Imagine we are watching the chart in real-time on the green candle;

  1. Price has moved more than the average daily range, but as price is retracing there is a potential gain of  100+ pips back to the 1.5330 area.
  2. Price has almost double bottomed off yesterdays low and psychological area of 1.5100
  3. The 5/8 emas have crossed up and price has broken and closed above the 21 and 34 emas.
  4. If it confirmed a break above the 200ema and the 50% fib I would take the trade (assuming that there is nothing major in the way on other time frames).

Reasons NOT to take the long trade;

Again imagine we are at the illustrated green candle.

  1. My stop would need to be 70 pips away (below 78.6% fib) and yet price is unlikely to break the 200ema/50% area. Risk 70 pips, potential gain 0. (If price broke and closed above the 200ema and the fib I would take the trade. Put my stop in 1.5160 area. This would give me a risk of approx 50 pips for potential gain 120).
  2. Price has spiked but failed to break the 200 ema.
  3. Price has respected fib levels earlier in the day. It stopped 4 times at resistance on 61.8% fib and has now stopped – to the pip – at the 50% fib. Some days price seems to stop at every fib level.
  4. The trend for the day is down. Often price will pullback to the 50% fib area and then continue back down.
  5. All the emas are pointing down.
  6. The bollinger bands have closed through the candle (think of a door being slammed in its face:)

The flip side of this is that the 6+ reasons above to not enter a long (buy) here are perfect reasons
why we should SHORT here !

  1. Our stop loss need only be 10 pips the other side of the 50% fib and price has already moved 100 pips lower today. Thus our risk reward is 10 to gain 100 pips. Incredible risk reward that does come along quite often. The difficulty here for the novice trader is that as price is going up and everyone seems to be buying, a new trader would be scared to go against the herd.
  2. Price frequently reverses at a 50% fib level
  3. All the reasons above for not taking a long !

Result of the short trade

Price stayed nelow the 200, 55 and 34 ema for 100 pip gain

Price stayed below the 200, 55 and 34 ema for 100 pip gain

Here is a great example of a trade that I predicted on twitter in february of this year. This is on the daily jpy/usd.

Price has broken and closed above the 55ema for the 1st time in 6 months

Price has broken and closed above the 55ema for the 1st time in 6 months

  1. Price twice broke the 34 ema in this 6 month period, but on both occasions bounced back off the 55 ema. Thus the 55ema can be said to have been in control of price on this pair. Finally price broke above the 55ema and notice how the 34 and 55 emas are rolling over from a steeply downward trend to a potential upwards move.
  2. The great thing for me with this trade is that in my mind when price breaks the 55ema its next stop is the 200 ema (top arrow) which was 600 pips away.
  3. Risk reward was brilliant. My stop only needed to be some 60 pips just below the 55ema. Hey it held price down for 6 months, no reason to think it would not be equally difficult to break back down: resistance becomes support.

So what happened ?

Price stopped to the pip atn the 200ema on the DAILY chart !

Price stopped to the pip at the 200ema on the DAILY chart !

Many cynics think that technical trading is just mumbo jumbo ( I used to think the same), but this move was logical and predicatable for me. Also note how price struggled for the following 10 days or so at this 200 ema area.

Unfortunately, despite my brilliant prediction ! I only managed about 250 of the potential 600 pips as I moved my stop too near (twice), but that is a different story.

I hope this gives you insight as to what to look for when taking a trade and the importance of having a risk reward ratio of at least 1:2.

if you have any questions re this article please post them here on the blog


6th May Results + 118 pips

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In April most of my 1800+ pips were made from breaks of asian high and low ranges. This week it has been bounces off 200 emas+ lots of other reasons. This is not my normal method of trading. I am adapting to the market as I see it on an almost daily basis at the moment.
NEVER trade just off a 200ema rejection. Look for lots of clues on your forex charts over lots of timeframes (see the aud trade further down this page for an example of a trade taken for a multitude of reasons).

The following screen shot is the Euro/gbp this morning , 15 minute chart. I posted the following on twitter at the London open;
“morning . euro/gbp very interesting right now. broke emas up & just making new hi’s for the day. 88.50 is also a fib. if can break here, up.”

Asian high & lows marked in yellow

Euro/Gbp Asian high and lows marked in yellow

I have had a lot of questions asking me what is a “confirmed” break of a range or channel. For me it is a candle that CLOSES above or below the channel.  If you look at arrow 1 in the diagram, price pierces the asian high & the fib & the 0.8850, but it doesn’t close above it. Thus it is not a confirmed break.

The 2nd candle is a confirmed break for me. The candle has broken & closed below the asian low and the next candle carries on in the same direction. I shorted here. Again on twitter i posted;

“euro gbp never confirmed break up at 8850 upside. but just confirmed break of downside 8820, that has held for last 24 hours”.

Because it was a break of a 4 hour support line that had held 4 times, I got in here with 1 lot. The aim was to take a 2nd lot if it pulled back or carried on going down. Unfortunately it pulled back and  took me out -25 pips. I then took a 2nd lot at arrow 3.

This is the pull-back that I should have waited for in the 1st place ! It moved down. I moved my stop to entry, so no loss and it came back and took me out again.  The reason I got in straight away is the this pair only moves 100 pips a day on average and doesn’t always give pullbacks.

I did make 20 pips on a gbp/$ trade that was a carbon copy of 4th mays trade. I got up a bit late, so missed the initial bounce off the 200 ema. I waited then for price to break the 34/55emas which it did. The bollinger bands closed in on this candle so i waited for a pullback to the 5 and 55emas. Textbook entry.

Same as monday. Bounce off 200ema, break of 34 & 55 emas

Same as monday. Bounce off 200ema, break of 34 & 55 emas

I took 20 pips off the 1st trade, but then had to go out. I moved the stop on my 2nd lot to break even to let it run. Unfortunately by the time I got back it pulled back and took me out at zero.

I then had a losing trade on 2 lots aud – 20 pips x 2 = -40. I Then took another long at a bounce of the 200ema/ break of 34/55emas on the aud as you can see in the following diagram.

The green dotted lines are my entries. The black line under the highest arrow was a 78.6% fib of yesterday

The green dotted lines are my entries. The black line above the highest arrow was a 78.6% fib of yesterday. The dotted red top line is 1st profit target. Bottom red line is stop.

This was a good entry for lots of reasons;

  • it was 7400 psychological level
  • price rejected at the 200 ema
  • 2nd entry was a break back above 78.6 fib
  • 30 minute and 1 hour emas in same area
  • was a trend line on 4 hour chart
  • Trend for aud is up.

I have been playing around with trades on metatrader for the last few days to get ready for the $1.000.000 challenge. If you see dotted lines they are just entries (green) and stops or targets (red).

I then “bent” my own rules. I do not normally trade just before the news, but the gbp AGAIN bounced off the 200ema and the usd/chf again bounced back below the DAILY 200ema. I was going to take the trades anyway but it was 20 minutes before the news. I entered and then 5 minutes before the news moved the stops close to price.

Then the madness that is forex kicked in. The U.S. employent news was much better than expected, therefore the value of the $ goes up, right ? WRONG. The dollar fell sharply against the gbp, euro, aud, and chf. Why ? I have no idea !

However it worked in my favour as my 2nd lot aud shot up 30 pips in 15 minutes. My gbp went up 50 pips in less than 15 minutes and my chf dropped 40 pips.

Chf break. The red line is my stop which was also my entry.

Chf break on 15 minute fx chart. The red line is my stop which was also my entry.

This was 2nd entry off 200 ema bounce today. Stop moved close for news

This was 2nd entry gb/$ off 200 ema bounce today. Stop moved close for news

The gbp did the exact same thing again approx 3pm bst (2 hours after New York opened). Do not rely on the 200 ema on its own. Also, the more times price is rejected here, the more likely it is to break it the next time.

I had a lot of trades today. My net gain was 118 pips which was helped a great deal by my luck with the news going in my favour


Forex Courses you should avoid

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Forex Training courses I bought, over-paid for and you should avoid !

I read various forex e books and then invested heavily ($3000+) in a training course from a guy that was allegedly an ex bank trader.

The course was not bad and gave very detailed explanations of what the forex market is about ( Five years ago forex at home was a relatively new concept, so there wasn’t so much free info available as there is now).


However, value for money wise it is a joke.


The basic premise of the course though was to look for a “secret forex signal” that occurred every day, – in truth its just a candle pattern/break. They only look for 15 pips at a time/per day.

The course is periodically relaunched with varying titles, Andy X’s Forex Secret/Insider Signal- read my review here  andy x insider forex signal to find out

WHY YOU SHOULD NOT WASTE YOUR MONEY ON THIS).

Anyway back to my tale of woe. About a year later I joined Fx Bootcamp. Their selling point is that their sessions are live. They have coaches trading up to 16 hours a day LIVE. This seemed to be the solution.


By this time I was down a few $1000 but seemed to be getting the hang of forex. I was a member for a year (approx $2.500k cost), currency trading every day (sometimes up to 10 hours – what was I thinking), mainly 15 minute charts.


In fairness to fx bootcamp their tuition and analysis is excellent, but no-one in their right mind wants to spend that much time at a computer screen unless they are making a fortune.


I did alright for a while & at one point seemed to be getting the hang of it, but eventually had a bad run. I lost the plot, broke all the rules, overtraded, over leveraged etc etc.


I’m $15.000 Down. The turning point.

About 2.5 years into my forex (non) career I was approx 15k down. I KNEW there was money to be made, but I just wasn’t able to catch the bloody thing. I bought yet another e book the 5ema trading system.*

This was not a eureka moment & things did not improve over night. However, the best thing about this book was it was the 1st step for me away from 15 minute charts and got me into longer term, less volatile trading.

It also has a trading system that works, so you could be up and running with a demo account, within a few days.

* Since writing this article I have recently found a much better training course for beginners & intermediates & its cheaper. The 5ema system costs approx $99. For a better value at only $49.95 check out my review traders secret

My Forex Story

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My Forex Story

I semi retired from my day job (Managing Director Marc forex traderof a Frozen Food company in the U.K) aged 42. Sold my shares, house, cars, the lot & emigrated with my wife & kids to the Canary Islands. We sold literally everything. Our luggage allowance was 1 suitcase each !


My very expensive introduction to forex

I spent over a year buying & trying out numerous “get rich quick” schemes. Arbitrage betting, online marketing to name but a few. I then stumbled upon adverts for forex trading from home.

I had never heard of forex or currency trading from home & presumed it was just another scam, but the more I read the more intrigued I became.

Over the years I have spent over $7000 on fx training courses, books, videos etc. I started trading currencies from home (badly) ! over 4 years ago. I made every forex trading mistake that is possible & invented a few more along the way.

Forex is NOT easy. Anyone who tells you otherwise is either a liar or more probably trying to sell you something.


“Make $1000′s  a day working only 10 minutes from home. Guaranteed” – yeah right. You & I both know that its rubbish.


In the last 12 months I have managed to recoup my initial $20.000 losses and move into a healthy profit.I started posting advice on twitter in january of this year.

My real time advice so far has been 96% accurate in 2009/1200 pips profit in february & 900 in march alone !!


The aim of my main site is to teach you the basics of forex trading as well as some of the strategies that I use. You may decide forex is not for you. Great, it didnt cost you a penny !

If you intend to take forex further then you will need to spend some money to further your education, but not the $1000′s that I did.


The best training course/forex tuition that I bought? Cost $50 !!

It has the same amount of detailed information as the $3000 video course That I do NOT recommend. See my post on Forex training courses you should avoid. Forex courses that I bought, over paid for & you should avoid


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