Well There Is a Holy Grail: Having a Good Decision-Making Process

Yes there a holy grail to the market. By use of which you can make consistent profits.

So why spend time on developing a disciplined systematic trend-following approach relative to other approaches? Because more important than the attempt to find the magic formula, trend following is an effective method for making good investment decisions.

It is this process of making good decisions that in and of itself is the Holy Grail. When done effectively, a good approach will stand the test of time and allow for flexibility with a choice of decisions.

When decisions are made in real world they are more or less depended on the psychological state of the person. They are not based on true hard facts.

So when you follow a good decision making process you eliminate some of this psychological factors. In return it give a consistent profit in long run.

15 Rules Of Becoming A Great Forex Trader #4

This post is a part of great Forex trader series. Today we are going to discuss point 4 which is “Your biggest loser can’t exceed your biggest winner.”. You always have to make sure that you’re biggest losers in not greater then your biggest winner.

You should keep a record of all your trades. For example if you have a profit of 15 points on a given day then you should not make trade which have risk more than 10 points. So that you will have a winning day on your book. No matter what. So that you can make consistent money.

In all your trades you should focus on making at least twice the risk you take on a trade. You should fix your trade risk in amount at the start of the month so that you can make trade accordingly.

For example you have capital of Rs. 50,000 and you decide to take a risk of 1% of it so you’re per trade risk after commission should not be more then Rs. 500 or less. And your profit should be at least Rs. 1000.

We cannot control what market do. But we can control how we trade the market. All the profit that you will make will depend on how good are in doing that. This part end see you in next part.

 

15 Rules Of Becoming A Great Forex Trader #3

This is third part of great Forex trader series. Today we are taking about third point which is “Never turn a winner into a loser.” What that simply means is that you should let your profitable trade become a loss in your book.

How can we do that? We can do that by trailing the stops. When market moves in your favor 5 or more points. You should update your stop to your entry point. As the price keep on going in your direction you should keep increasing your stop in the direction of the trend.

You should always move your stop in the direction of your trade. What it means is that if you are long on a given trade you should increase you stop. If you are short on your trade you should decrease your stop. Not the other way around.

When I started trading Forex I did not trail my stop due to which my profitable position become loss.  Because the market reverse after a significant increase or decrease. So you should learn about conserving your profits so that you can keep your profits.

You can learn more about placing stop and different types or stop and basics about technical analysis in

Technical Analysis of Stock Trends Robert D. Edwards. I have read this book many times I learn something new every time.

15 Rules Of Becoming A Great Forex Trader #1

This post is part of the great Forex trader series today we are going to discuss on why it is important for your trading success that you “Be disciplined every day.” First things that we have to clear out are what I mean by DISCIPLINED TRADER.

What conclude of being disciplined every day?

  • Have a trading plan.
  • Enter trade with according to your trading plan.
  • Keeping a good record.
  • Analysis of your trade after it is over.
  • Following the money management while trading.

So these are things that you need to do every day when you are trading. So if you have made a written trading plan. Which is complete mean have reasons to buy and sell when to trade? Where to place your stops? How to take profits?

You should make all your trades with accordance with your trading system. You should follow your trading system every day and make every trade by your trading system. If you are doing that then you are a disciplined trader.

Read Disciplined Trader: Developing Winning Attitudes by Mark Douglas  it’s a great book.

 

15 Rules Of Becoming A Great Forex Trader

I have been trading Forex for some time this are some the rules that I found that will make you a great trader if you follow them 100%. I have been keeping record of my trades and find out that whenever I loss this is because I fail to follow one or many of this rules.

I will explain this rules in detail in coming post here is the list.

  1. Be disciplined every day.
  2. Always lower your trade size when you’re trading poorly.
  3. Never turn a winner into a loser.
  4. Your biggest loser can’t exceed your biggest winner.
  5. Develop a methodology and stick with it.
  6. Be yourself.
  7. Earn the right to trade bigger.
  8. Get out of your losers.
  9. You always want to be able to come back and play the next day.
  10. Don’t worry about news. It’s history.
  11. Love to lose money.
  12. Never take a big loss. Only a big loss can hurt you.
  13. Make a little bit everyday.
  14. Consistency builds confidence and control.
  15. If your trade is not going anywhere in a given timeframe, it’s time to exit.

This is the list we learn in more detail about them in coming day.

 

Doji: How To Use It To Make Profit

doji-candlesticks

Doji is candlestick pattern which signifies a balance in between supply and demand by opening and closing at the same price.

 

How are they identified?

Dojis form when a security’s open and close are virtually equal. A doji candlestick looks like a cross, inverted cross, or plus sign. Alone, doji are neutral patterns.

 

What does it signifies?

The Doji conveys a sense of indecision or tug-of-war between buyers and sellers. The relevance of a doji depends on the preceding trend or preceding candlesticks.

Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.

Doji act as warning signal that trend might change. You should wait for confirmation.

usd-chf-daily-chart-doji

As you can see in the above chart of US Dollar and Swiss Franc a doji forming in 28 april with opening and closing at minimal distance. After the doji the long white candle confirm the change in trend and the usdchf move in the direction of uptrend.

Same thing happen in the other doji but this time the doji is made at the top of the up trend giving you the warning that the trend might change. At next day the long black candle confirms the change in trend from up to down.

As I have said earlier that doji gives us only warning not a confirmation signal so wait for the other candle after doji to confirm your signal.

 

Candlestick Pattern: Dark cloud cover

 candlesticks-dark-cloud-cover

How are they identified?

Essentially, the large black candle is forming a “dark cloud” over the preceding bullish trend. Dark cloud cover is a reversal candlestick pattern.

Open of second candle is above the previous close and then the price push down.

The dark cloud must have a closing price that is:

  • within the price range of the previous day, but
  • Below the mid-point between open and closing prices of the previous day.

 

What does it signifies?

  • A change in trend and that the other side is becoming strong.
  • What are the points that make them more effective?
  • A preceding bullish trend
  • The more the price penetrates in the first candle the stronger the signal.
  • If the second have a shaved head which mean no upper shadow. The opening price of the market is also high of the market it will increase the strength of the signal. And if the there is also no lower shadow mean low of the day is close the signal is more strong.
  • If the opening is above an important resistance level and then it close in the second candle it increase the power of the dark cloud cover pattern.
  • If there is very high volume on opening mean new buyers are getting in the market. If the price closes lower. Then the market sells off. It shows the bears are strong. And trend is changing.

 GBPUSD-dark-cloud-cover

As you can see in above chart of GBPUSD that two white candles is made and after that the next candle open at the top of previous candle and went up but retrace in the pattern again and cover more than 50% of the previous candle.

Which make it good dark cloud cover but the down trend come after some consolidation.

Shooting Star

shooting star

 How are they identified?

A type of candlestick formation that results when a security’s price, at some point during the day, advances well above the opening price but closes lower than the opening price. In order for a candlestick to be considered a shooting star, the formation must be on an upward or bullish trend. Furthermore, the distance between the highest price for the day and the opening price must be more than twice as large as the shooting star’s body. Finally, the distance between the lowest price for the day and the closing price must be very small or non-existent.

 

What does it signifies?

  • A Shooting Star can also mark a potential trend reversal or resistance level.
  • It is not a major reversal signal like evening star but it an indication of change in trend.

 

As you can see in below chart of USD/CHF

usd-chf-shooting-star

The shooting star is black with a long upper shadow and very little lower shadow. The star has a small real body. The trend before the star is not very much straight to top but a choppy one.

But as you can see that after the shooting star the long black candle clearly give us a reason that the trend has changed and we should trade in short side.

You can trade this set up with take stop loss at the high of shooting star and sell USDCHF at the opening of the next candle.

Always trade with stop loss so that you can preserve your capital. Technical analysis will help you improve your odds of success but will not remove your failure altogether.

Here on completetechnicalanalysis.com we teach you for free how to use technical tools to improve your odds and get a edge.

Hanging Man

How are they identified?

A bearish candlestick pattern forms at end of uptrend. It is created when there is a significant sell-off near the market open, but buyers are able to push this stock back up so that it closes at or near the opening price.

  • Small real body.
  • Long lower wick more than twice the real body.
  • It forms at the top of an uptrend.

 

What does it signifies?

This formation does not mean that the bulls have definitively lost control, but it may be an early sign that the momentum is decreasing and the direction of the asset may be getting ready to change.

 

What are the points that make them more effective?

The reliability of this signal is drastically improved when the price of the decreases the day after the signal.

The color of the real body is not important but it improves result if hammer has white and hanging has a black real body. Longer the lower shadow the shorter the upper shadow the more meaningful is the bearish reversal signal the hanging man.

Below is a 4 hour chart of USDCHF US dollar vs. Swiss Franc

usdchf-4hr-hanging-man

As you can see in above chart that there is a hanging man formation after a rally. The upper shadow is small and the lower shadow is long. Even if the real body is of white color we see a decline in the candle after the hanging man which conform the signal.

The color of the real body is not important.

Three Black Crows

Three black crows or sometime called three winged crows are bad news as crows sitting on your rooftop. They are indication that the trend is going to change that the power has changed hands for bull to bear.

This pattern has three long black candles which open inside of previous candle and close below the previous candle. You should cover your longs if you see these candles.

 

How are they identified?

This pattern consists of three consecutive long-bodied candlesticks that have closed lower than the previous day with each session’s open occurring within the body of the previous candle.

 

What does it signifies?

The three black crow’s pattern is a sign of the bulls’ lack of conviction in the current uptrend. So the trend is changing.

 

What are the points that make them more effective?

  • A significant up trend
  • Candles must be long

EURJPY-THREE-BLACK-CROWS

In the above daily chart of EURJPY you can three black crows pattern where the open of the new candle is at the close level of previous candle and close of the new candle is below the previous levels.

You can enter a trade in this pattern by placing your stop just above the high of the third candle and take profit according to the risk reward levels.

Candle sticks do not provide a profit targets so you have to use different methods to calculate profit targets for your trades.