Time for more technical education: here we are with some channels definitions and tips. Hope you enjoy it!

A channel is a figure usually of high reliability, formed by two parallel trend lines at it borders. One connects the price highs, the other the price lows, and in between, there is a zone where price use to stay till broke. Both trend lines, upper and lower act as support and resistance.

There are different kind of channels, but mostly work the same way. Let’s see the a practical example of each one:

Horizontal Channel:

It can be find either in up or down trends. It doesn’t mean a change of the previous trend, only a rest in the dominant trend, but usually the break is produced in the same way, previous trend was moving.

 Bullish channel:

For itself, shows us the major trend. It doesn’t mean a change of that trend, until is broke down.

And of course, bearish ones are exactly the same but with trend going the opposite way. Regarding bullish and bearish channels, remembertThere is not a fixed number of times price touch channels lines, but is important to know, that we need at least 4 points (meaning two maximum and two minimums) to CONFIRM the formation.

For all cases, target is calculated measuring the distance between both trend lines, and projecting that value the way the broke is produced; that could be a minimum target price, where currencies will try to go.

Always remember, both lines must be parallel; different angles will lead as to misleading conclusions.

 Practical trade with channels

Channels are useful to trade, because they show us certain points where reactions should start. When drawn properly, it can assist us to identify areas of support or resistance (determinate by the floor and the roof of the channel). Is a very valuable tool, because once
a channel is defined we can see many triggers inside it

But first of all, trading with channels gives us a great strategy, because for itself we have a stop loss defined (maximum loss to afford), and a reliable price target to set the take profit. Practically, once the price touch the bottom, or floor of the channel, there are good chances that, once confirmed the reversion, will try to reach the top or roof of that channel. In case we choose to wait for a confirmation (what I recommend) we can draw a smaller trend line inside the channel, and once this line is broken, we have a signal that price will try to reach the opposite band of the channel. For this strategy, we have to always remind that if price runs off any extreme of the channel, the strategy loose its efficiency and if we trade properly, then we are out of the market by the stop or the limit order. The other possible way to trade channels, is by waiting for the break, that would happen eventually: once price action breaks any of both lines, and confirm with a candle opening the break, we have good chances to see the height of the channel repeated out of it. From my experience, I found out Japanese Yen crosses are the ones that respect more this kind of figures.

While majors decide where to go, maybe you like to read some more technical basic concepts. Hope you enjoy!

As many of you have read before, Forex is the most amazing and popular electronic financial market: It moves 1.5 trillion dollars a day, what NY Stocks market moves in a year. A 24 hours a day, 7 days a week market, with high volatility and liquidity, and with a plus advantage: leverage. A market where you can choose, to go bull or bear with no cost: no extra premiums to pay, no additional options. Seems pretty much convenient right?

 Well let me tell you the disadvantages before I continue: high volatility, liquidity, leverage. Yes, just the same: Advantages are Disadvantages too. All these things can play against you as well as for you, with an extra: Brokers. Most retail traders must use a broker, who will be the counterpart in all transactions as there is no way to deal directly in the interbank market. And, as brokers are market makers, they can widen spread, or even refuse to trade during particular moments or conditions.

So, why are we here? What makes Forex so attractive, so popular? Where is the DIFFERENCE? A non written rule says only 10 % of Forex traders are successful, against the 90 % that blow accounts.

I remember when I completed my technical course, my Master telling me: now you’re ready, you have all the tools you need, the tools most traders don’t have: you have technical knowledge, psychological training, and effective money management rules you can and know should apply. Took me pretty much a year to understand his words, but there is the difference: believe it or not, the “90 % losers” trade without using technical analysis, without a working plan, without nothing but the ambition to become rich in a pretty short term. Most Forex traders, trade by impulse following a hunch more than a trend. Using guts instead of indicators or oscillators.

Over the years I have been here, I also discover another difference: most traders spend there time looking for The System, the unique, the perfect one, of course one developed by someone else, instead of even trying to study two or three simple indicators; of course as soon as a systems gives a bad entry, they discard it, and jump into another: the cycles repeats, and there goes their money.

One last word before diving in technical: remember here there is another important difference with other financial markets: time. For Forex traders, short term refers from minutes, to a few hours. Traders can work and profit with 4 hours, 1 hour or even 30 minutes charts.

A simple an effective way to start with technical Forex trading is using Moving Averages: as you now, a Moving Average is a trend direction indicator that calculate a simple arithmetic average of prices for a specified period, showing the average value of the price of a currency over a set of value. There are different types of MA: we use SMA for simple moving averages and EMA for exponential ones. There are others kinds of MA, (smoothed, linear weighted, etc) but we will limit this short study to the firsts ones, as they are the most used.

The SMA: Calculates the average of the price by adding the prices of the specified period together, and then divides it by the number of the prices.
SMA = Sum of “x” periods /X
Where x represent a certain number (could be almost any one from 2 to 500 depending of how many historical information your charts include); besides, many chats allows to select a chosen set to apply the calculation: Open, close, high, low, median or typical price.
The EMA, smoothes the MA by adding to the current closing price, the previous value and giving the last prices more weighted value. This type of MA reacts faster to recent price changes than SMA.
Different ways to trade with MA

There are many different methods and settings of Moving Averages a trader can use; let’s see two basic methods, with some of the common settings, useful for intraday trading, remembering that MA work better in a trend market and they are not reliable in sideways ones.

A basic trading system is to use a MOVING AVERAGE BREAKOUT. In this method, you have to draw a MA in any selected chart. Let’s see an example in a 1 hour chart of EUR/USD. I used a SMA of 20 periods (blue). When the price crosses the Moving Average down-up and there’s a new candle opening above the Moving Average indicator we buy; and when the price crosses the Moving Average up-down and there’s a new candle opening below the Moving Average indicator we sell. Your exit signal will be the price crossing the MA on the other way.

But this is not as simple as it seems, and not reliable as we need: a Moving Average Breakout must be combined with an indicator to act as filter; something that reinforce the signal, and increase the probabilities of a good trade; the best choices in this case, will be Momentum or Stochastic Oscillator. Any of these two arithmetical oscillators will act as a confirmation of the trade.

Another and off course better way to trade MA, is using MOVING AVERAGES CROSSES. Using this system, you can work with at least two MA, although some traders prefer using three. The first one will be set with a small period (Fast Moving Average) the second one will be set with an intermediate number of periods and the third with a bigger number of them (Slow Moving Average). Let’s see an example using SMA of 4, 9 and 18 periods in a 4 hours USD/JPY chart:

The light green is a 4 periods MA, the medium green represents 9 periods, and the dark green one, is for 18 periods. See how, when 4 MA crosses 9 MA and then, both of them crosses 18 MA, and you have a good trigger. The 4 periods line crossing the 9 one, is the first advice you have; this signal gets its confirmation when both, 4 and 9 cross 18. Your exit will take place when the slow MA turns back crossing 9 into the other way.
This is a quite reliable and simple system when market moves in trend; besides there are lots of combinations that can be used, using MA or EMA: as an example, a good combination with EMA is 5, 13 and 34. And as in the first case, this system would become even better if you combine it with any oscillator to act as filter.
Anyway, the question here is not only the MA or EMA system selected; this will depend also on the time frame you choose to work: a signal in a 30 minutes chart will not be as strong as one in a 4 hours chart. Also, the “life” of a trade, will depend on two main factors: first of all the continuity of the signal: as long as the conditions that gave the into the market signal remains the same, the trade is valid; as soon as any of this conditions gets lost, you are getting advise to close your trade. Second, we consider a fact that any signal is valid for the next four candles; so if you are trading using a 30 minutes chart, your signal will be valid for the next two hours. After that time, we consider the trade should be completed; if not, then again, you must close your position, as soon as any condition even start to turn.
As one of the main characteristics of the Forex market is volatility traders are force to use a tool that many dislike, but that is much more useful than you can imagine: stop losses orders. I understand is really hard to assume a lost; I don’t understand why many people risk all their capital in a single trade, when Forex gives lots of opportunities a day. Sure, you will lose some times. But as long as you trade using the right tools, loses are just another step in the way. Understanding the delicate balance of risk management is the secret of success in here. Get rid of your pride, find a simple system you like and follow these rules; you will probably close more profitable trades than you can imagine.

I always post here, that we should wait for breaks, or confirmations. Breaks of key levels of support and resistance, or trend lines, so I will tell you the basic rules to trade with trend lines, hope you enjoy some more of this basic education tips!

As you may know, we always say that is better to trade following trend. This means in a bullish market we must buy to take profits by selling. Of course we can trade against the trend in fact I do it all the time, but we must be aware that against trend, movements will have less strength and probably be shorter, meaning the number of pips accomplished will be less that following the trend.

But of course, while a trend line remains unbroken the market trend is consider still valid. If we are working with daily charts, (the example is valid for any time frame of course) and during that session price pass the line but then close above it we shouldn’t consider that a break and we will wait for a confirmation. When the session close under an ascendant trend line, we are on our way: now, we will have to add a filter, like as example, the percent meaning, ok, line is break, but still we will have to wait until that break reaches the xx %; or time filters, like wait till at least one more session close under the line. These kind of filters are subjective and so will depend on each trader decision, but is important to use at least one that helps us confirming the new trend. On the other hand, filters delay signals, so we should not use more that one, may be two because we will find out we are getting into market to late.

So in a bullish market, we must buy every time price reaches the ascendant trend line, but if price breaks the trend line, we must stop buying: we buy waiting for a rebound, and when the line is broken as it will sooner or later, well we must close the position and assume the lost. See is highly possible that we take more profits during the trend duration, and so, a small loss will not affect our winnings.

Primary trend, Secondary trend and correction movements

Generally, inside the same chart, you can see different trend lines. One of them will probably define primary trend, others the secondary and so on.
In any big chart, daily or weekly, we see there are corrective movements that in fact are small descendant trends of a minor range. In smaller charts, like one hour ones, we will find out that there are small bearish trends against the bullish major one. So how can we solve and understand all these lines? Well the question here is to use one basic rule: We set our primary trend in the following bigger chart that the one we use to trade, meaning if you trade 1 hour charts, you set your trend lines in 4 hours chart.

In case we are daily traders, meaning we use daily charts to analyze a buy or sell signal, then we will have to define our primary trend in a weekly chart. If the weekly trend is bullish, we should try to trade buying, taking advantage of valleys or corrections we can see in daily charts.If we work with one hour charts, then we must look for the primary trend at daily or 4 hours charts, and use valleys and corrections of one hour to trade.

 I won’t extend longer not to bore anyone, yet if you like this readings, let me know, and I will add one or twice a week.

If you need are a newbie to this forex world, or even if you are not successful as you wish to, maybe reading this simple advices could help. Hope you enjoy it!

We use to say that no matter how good a trader can be, his/her probabilities of success in the market are only a 40 % if analysis is not equilibrated with a very good emotional balance, that let him/ her control emotions at this very special kind of work.
Of course, it’s not easy, more taking notice that you must complement this with a working method, discipline, strategy, and what else you need for your day trading.The first mistake of a novel operator, usually is to think that the market will run in the chosen direction, just because. This happens because a complete, smart, easy trading method hasn’t been developed.
In this case, to avoid worst damage, you must use stops and limits.

Another common mistake, is the lack of control over anxiety, before of after entering the market. This happens too because of an absence of a method.

And there’s where the biggest mistakes are made: the trader “follows” the price running. Most of the times, it will be near the end of the run, bringing more looses than winnings; or keep on waiting a trend change INSIDE the market (wit lots of pips lost in the middle) waiting for a miracle, or once win has been took, get inside again looking for more pips in an adrenaline rush and finally, after a lost, look for a new signal within a few minutes, to get even.

Anxiety, is responsible too of two other common mistakes in a trader: compulsion to trade or in the opposite, panic to trade. In the first case, you will eventually loose everything; in the second, you may not lost money, but surely your self confidence will be damage.

These next tips, will help you. What they basically mean is: define a strategy, follow it, and the market will be at your side

1 - You can’t predict future. We have seen lots of gurus that, with some courage and less knowledge said things like “EUR/USD, by December, at 1.1800″. Is that useful for a trader? Is that useful for any of us today? The answer is NO. The rookie, will enter the market looking for that price, and no matter how many looses it generates, he will keep on entering, until it’s too late and lost the entire account.

I’m not saying long term analysis is wrong. It’s just not useful in the short or medium term and besides… let’s say I can see that 1,1800 is right… I cannot get into the market here and now to look for that target, without understanding why is a possible target, where I can place a long term stop loss and how could I protect such a trade.

As I always say, technical analysis is not design to predict the future: you must use it to analyze probabilities, cycles, behavior, and create a working hypothesis of high probabilities. And if it doesn’t work, it has to be dismissed

You can forecast market movements, but you can not ignore the probabilities involved or force the logic when you are trading.

2 Don’t pre judge: Sometimes, with just a look over the market, you say “it’s bullish” or “it’s starting to fall”. This quick without reason thoughts, are highly dangerous, because after this you will only try to justify your first intuition, with your technical analysis. You must always base your work in a dual hypothesis: If the price goes over 1,xxxx the probability is a bull trend; but if it comes down to 1,xxxx then the probabilities are bearish. Besides, you can’t be against or in favor a specific coin just for political sympathy; leave prejudice, euphoria, love or hate: market has no feelings.

3. Be flexible: a rational, logical tough obviously is better than intuition: you will made fewer mistakes, and be ready to assume moderate losses, without feeling down, if you are rational.

4: Trust your analysis: no matter if you are a technical or a fundamental trader, the thing is, before entering the markets, you should have studied the mathematical hopes of your analysis before applying it. Don’t search for others opinions: design your system according to your trading times and needs, test it, and believe it.

5. Have a plan: thanks God, market has only two directions. The secret here, is not the tool you use, but how you use it: design a working plan, set a strategy for both possibilities, and after a while you will find your own trading tactic, that will allow you to made profits

 My forex professor always told me REMEMBER: HONEST AND SMART EFFORT ALWAYS GIVES GOOD RESULTS.