Deal comments for FOREX trading (instead of conclusion)

Such deal breaks the rules of money management as the vigorous dynamics on the blue bar (Fig.3) has led the stop-order to be placed far from the price of the entry. In addition, an attempt was made to jump the market immediately after the rush – an attempt to “overtake the runaway train”. All it led to the restless hours of observing the price approaching the bottom. According to the money management rules this deal must be missed.

The application of the given tactics is also possible at smaller periods; however, it’s necessary to remember that the shorter the period is, the less forecasting it is because of the market noise.

Stage 5. Entering the market with issuing the stop-order and take-profit

The stop-order is issued under the last bottom, below the pips at 15 (for excluding the market noise). The take-profit is issued twice farther, i.e. the ratio between the profit and the cost is 2/1. In our example the bottom is 122,83; that’s why the stop is issued 15 pips lower – 122,68. The take-profit is issued at the level of 123,86+2*(123,86-122,68)=126,22.

The result of our operation is shown in Fig.4. Actuation of the take-profit gave us the profit of 236 pips that is equal $1870 in money terms on Forex ($187 – on mini-Forex).

Figure 4.

Stage 4. Confirmation from another indicator or system.

Wait for the confirmation, for example, from the parabolic line. The intersection of the price line with the parabolic line will be the signal for buying (the blue bar in Fig. 3). Enter the market at the closing price of this bar (horizontal red line) – 123,86.

Stage 3. Defining the end of the back

Either bearish agreement on the middle line on MACD on the 4-hour graph or bearish agreement at the middle line on MACD on the time graph talks of the back end. The signal from the 4-hour graph will be, of course, stronger. But the time agreement will also be enough. In Fig. 3 (time graph) the bearish agreement symbolizes the back end.

Stage 2. Defining the starting of the back

At the same time from Fig.1 it’s clear that the quick line crossed the slow one downward. It talks of the possible beginning of the back downward. Make sure of the trueness of this statement passing to a shallow graph, a 4-hour graph (Fig.2).

The presence of the bullish disagreement at the middle line on MACD on the 4-hour graph talks of an actual back in the day-time period.

Stage 1. Defining the trend on the daily graph (FOREX)

For example, in Fig.1 the trend is bullish as every successive peak is higher than the previous one, and every successive price bottom is higher than the previous one (according to Dow’s law). At the same time there is no bullish disagreement on the slow line on MACD. It talks of the strength of the bullish trend.

Figure 1.

Practical guidelines for working out trading tactics on FOREX

Any trading tactics consists of five stages:

1. defining the trend;
2. defining the back starting;
3. expectation of the back ending;
4. getting confirmation from another indicator or system;
5. entering the market with issuing a stop-order and take-profit.

Look at these stages in detail by the example of the trading tactics on MACD. We’ll use MACD with periods of 5, 13, and 8.

Consider that:

• bullish trend when the middle line on MACD is more than zero and there is no bullish disagreement with the price, i.e. every new peak on the price graph is proved by the next indicator’s peak;
• bearish trend when the middle line on MACD is less than zero and there is no bearish agreement with the price, i.e. every new bottom on the price graph is proved by the next indicator’s bottom;
• starting of the back is the intersection of the slow line with the quick line downward. At this the trend must be bullish, i.e. the middle line on MACD is more than zero and there is no bullish disagreement with the price;
• starting of the back upwards is the intersection of the slow line with the quick line upward. At this the trend must be bearish, i.e. the middle line on MACD is less than zero and there is no bearish disagreement with the price.

Possible working FOREX strategies

The first strategy consists in the long-term maintenance of the positions open starting from several days till several months. Such strategy is used by strategic investors and semiprofessional black marketers. This strategy is very effective at new trends and is less profitable at sideways and sluggish trends. It demands obligatory protection and corresponding work on the terminal options market. While working at long positions the fundamental analysis is not less important than the technical one. The share of the long positions in the trader’s practical work shouldn’t exceed 15% of the loan amount. The analysis for opening the long positions can also help you at a shorter game, namely:

· determine the long-term levels of resistance and support:

· the strong long trend will warn you when working against it at the short positions;

· you’ll get psychological confidence during the game at the short position towards the long trend.

The second strategy consists in working at medium-term trends. The protection by options is also necessary. This strategy is the most attractive to non-professionals. The middle positions are more stable for making profits though the analysis at decision-making for such game is more complicated. At this the quality of work also depends on the ability to play a short-term game (choose the right moment for opening and closing the position). At opening the middle positions technical analysis is not only carried out but also carefully looked through: whether there will be any news of the fundamental character by the time of closing the position, whether there is closing of a regional market at that time. The psychological factor of the game goes into the middle distance. Monitor the market all the time as it can spring a surprise at the most unearthly hour. If you play a medium-term game based on the fundamental factors, monitor carefully for the technical analysis not to run counter to your positions at the least.

The third strategy consists in short-term position opening with the duration from several minutes to several hours. This strategy is mainly used by professionals. Pluses: absence of any risk of appearing unfavourable fundamental news and price changes at your absence. Minuses: large costs (commission charges, communication services, etc.), big risk of unfavorable short-term price changes, it requires constant monitoring, concentration and tension during the whole working day. The main assistants at work are oscillatory methods of technical analysis (use the rules for choosing the right moment of opening). Don’t be too happy about a small profit gained at such work. You are at a risk of loosing everything you have earned by this time.

Averaging as a FOREX tactic

Averaging is a FOREX work strategy when you’ve made a mistake, or simply made any deal (the first that came to your mind), and the price has gone against you and you perform the same operation at a more favorable price this time. The main drawback of averaging is the fact that you don’t know beforehand up to what price the market will go against you. Each time after the first one averaging requires investing a double sum from the previous sum of the loan asserts. But if you have much money you can afford price movements in 100, 200 or even more pips. Although such things are not frequent on the FOREX market, it isn’t the best strategy especially if you see that you’ve made a mistake in defining the trend direction.

Using price intervals

The price intervals formed on the bar diagrams can also be used for choosing the best moment for opening or closing the positions. For example, the intervals formed at price rising very often then play the role of the support levels. That’s why at the ascending tendency it is reasonable to open long positions at price dropping up to the upper interval’s border or a bit lower, inside it. The stop-order can be placed below the interval. At the descending tendency the short position is opened at the moment when the prices go up to the lower interval’s border or even partially fill it. In this case the safety stop-order is placed above the interval.

Using price correction at FOREX

At the ascending tendency the intermediate price dropping, which represent the percentage ratio from the previous rising according to Fibbonachi, can be used for opening new or additional long positions at FOREX. One should note that in this case the analysis of the percentage ratio of correction length refers to very short periods of market movements.

The most suitable moment for opening the long position is the 38^th price back which takes place after the bulls’ break or the ascending tendency. It’s quite reasonable to open short positions when at the descending tendency prices go up covering from 38 % up to 62% of the length from the previous drop.

Using the levels of support and resistance at FOREX

The break in the resistance level can be a signal for opening the long position which can be protected then by the stop-order. It can be placed below the nearest support level or, for the sake of safety, immediately under the break level which now will perform the support functions.

Price rising up to the resistance level at the descending tendency and price dropping up to the support level at the ascending tendency can be used for opening new positions and adding lots to the existing profitable positions. At choosing the safety lay-off levels at FOREX one should first of all pay attention to the levels of support or resistance.

Intersection of trend lines for at FOREX

This signal let you enter the at FOREX market or leave it early enough especially if the intersection of the significant, not once “checked” trend line takes place. Of course, one shouldn’t forget about other technical factors.

In case of using the trend line as the support and resistance level, long positions are opened at price dropping up to the level of the stable ascending trend line, while short positions are opened at price raising up to the level of the descending trend line.

FOREX tactics at breaks

There are three possible FOREX trader’s tactics at price breaks:

o Take the position in advance discounting the market;

o Open the position at the moment of breaking;

o Wait till the inevitable back after the break.

There are many pros and cons for each of these three approaches; sometimes a combined approach is used. While working with several lots a FOREX trader can open one position on every stage. He can take a small position before the supposed break, then he can buy one more immediately after the break and, finally, open more additional positions during the minor price drop at price correction following the break. If a trader trades small positions, his decision will be influenced first of all by two considerations:

o Which funds he could risk in this deal;

o How aggressive he will act.

The most conservative FOREX trader in such situation will open the long position on the price back. But, strange though it may seem, stand-by tactics can also be risky – while waiting for the back you can miss the moment of entering the FOREX market.

Trading tactics for Forex trading

After analyzing the Forex market, a trader should decide whether he’ll be bulling or bearing the market. Moreover, by this time he has to decide which part of his Forex capital he should invest into the deal. And finally the last step is actual buying or selling the contract. It’s the most complicated part of the whole trading process on the marginal markets when defining the certain moment of opening and closing positions should be as precise as possible. The final decision on how and where to enter the Forex market should be based on the combination of technical factors, principles of capital management and types of market orders.

The peculiarity of precise defining the time of entering or leaving the Forex market based on the technical analysis is in the short-term character of this analysis and is defined by days, hours and even minutes, but not weeks or months. But in all cases the same technical tools are used. Further the general provisions of such analysis are explained.