2Bull Forex Blog

If you read a lot of material on the net you would be forgiven for thinking forex trading is “a walk in the park” but if you are serious about getting the right forex education you will realize this is not the case and you wouldn’t expect it to be with the rewards on offer. You can however enjoy currency trading success, if you understand the following.

The reason most forex traders lose is simple they fail to understand that success is based upon these key traits.

Taking Responsibility

Most novice traders buy junk systems that promise them riches beyond their wildest dreams all for $100.00. They are either naive stupid or both.

Most systems sold on the net are junk and come with a made up, simulated track record done in hindsight which vendors tells you to follow yet, the reason there is no real time track record is the vendor knows it doesn’t work.

If you want to make money with your forex trading strategy, understand you’re on your own and success rests on your shoulders and if you don’t like this feeling, do something else and forget currency markets.

Now the Good News!

If you have a desire to succeed and a willingness to learn and you’re eager to control your own financial destiny here are some other key points you need to understand to separate yourself out from the majority of losers.

Work Smart Not Hard

The effort you put into currency trading has no bearing on the amount of money you make. Forget working hard work smart and learn currency trading the right way - if you do this you will be able to up and trading in around two weeks and commit about 30 minutes a day, to your forex trading strategy.

There are a lot of currency trading myths out there - but if you hunt around the net for the right info you can avoid them - here are the most common ones traders fall for:

- Day trading makes money
- You can predict markets in advance
- Buy low sell high is a great way to make money
- I don’t have a money management strategy I just place a stop
- I like to trade the news, as its expert opinion

If you believe any of the above, you will lose - so you need to get the right forex education and avoid myths.

If you work smart, the next thing you need to do is take on a few character traits that would make you an outcast in normal society - but could make you a big winner in currency trading.
Essential Character Traits

To trade you need to have inner understanding of yourself and your trading method and this leads to confidence which leads to the all important trait of discipline.

- Trade in isolation don’t give or seek advice
- Don’t listen to the news
- Trade the reality of what you see on a forex chart
- Maintain discipline and focus on the facts only

In normal society being a loner and isolating yourself is frowned upon but in the forex markets it’s the only way to stay disciplined.

You must not get sucked into the herd mentality, man is pack animal and has sought the safety of the pack since stone age times, it helped man survive but in the forex markets the bulk lose - so you need to step to one side.

If you want to win, you are going to find yourself trading the exact way to the normal logic of the markets, it can be lonely - but will help you enjoy currency trading success and remember only a small minority win!

So there you have it - how to get the right forex education and the mindset you need for currency trading success.

What forex education should you learn you may well ask?

Well were going to look at that next posts.

If you want to enjoy forex trading success, you need to avoid the 10 common myths enclosed and follow the 10 tips - if you do you will learn forex trading the right way and could make a lot of money so here they are.

Let’s start with the 10 myths first:

- Day trading is a good way to make money
- You need to predict in advance to win
- Buy low sell high is the best way to make money
- The more knowledge I have the better knowledge is power
- The more complicated my forex trading system the better
- I don’t have money management strategy I just place a stop
- I like to trade the news stories
- I follow an expert or guru as they know best
- Human nature is constant so markets are scientific
- You never broke taking a profit

Believe any or all of the above forex myths and you will lose!

Here are your ten tips to help you get on the right path and learn forex trading the right way:

1. Trade valid data

Forget day trading and forex scalping, trade longer term and get the odds in your favour. Day trading data is too short to get the odds in your favour and you may as well flip a coin.

2. Don’t Predict

That’s another word for hoping and guessing and will ensure you lose - act on the reality of price change only.

3. Use Breakouts

Buy low sell high great theory doesn’t work in practice - it involves prediction. Use breakouts most major moves start from new market HIGHS Not market lows.

4. Work Smart not Hard

Working hard is a big myth - you get paid for being right with your trading signal and that’s it - it doesn’t matter how much effort you put in, only being right makes you money and that doesn’t mean working hard, it means working smart.

5. Simple Currency Trading Systems are Best

Because they are more robust in the face of ever changing market conditions - make your trading system to complicate and it will break.

6. Money Management

Is the key to overall success and is much more than simply placing a stop! Forex success is based upon great defence first, just like the good football teams…

7. Don’t listen to The News

It reflects the herd (who lose) and will get your emotions involved and that is a recipe for disaster. Use forex technical analysis and forex charts to trade the reality of price i.e trade the facts as they are not opinions.

8. Only You Can Give Yourself Success

By all means learn from others - but never follow blindly you will lose, as you need inner confidence to get discipline and this only comes from understanding.

9. Play the Odds

Markets are not scientific and don’t let anyone tell you they are.

It’s obvious they are not; as if they were we would all know the answer in advance and there would be no market!

Trading is a game of odds NOT certainties but if you learn to trade the odds you can make a lot of money.

10. Run Profits

Most traders can’t accept a big profit even if it’s staring them in the face.

Why? Because they try so hard to avoid risk they create it by trailing stops to quickly or snatching profits early. You need to discipline and right mindset to convert a trading signal into a huge profit.

FINALLY!

Before you embark on your trading career you need to ask yourself this question and have the answer ready:

My trading edge is (defined):

If you don’t know what your trading edge is you don’t have one! You need one you understand, have confidence in and you know will lead you to currency trading success - if you don’t have one its back to and a continuation of learning forex trading the right way until you do.

CFD trading clients will know that our research always uses volume as one filter and in some cases a back up for recommendations, and we believe it is an important trading tool.

Within technical analysis, the examination of volume should always be hand in hand with examination of the trend and other technical patterns. Many traders ignore volume at their peril, and strangely enough there are very few volume based indicators compared to the many hundreds of price based signals available on current trading software. Although volume has great relevance to trading signals, price action is though always the ultimate determinant of buying or selling decisions.

On-balance volume

The most popular indicator until very recently, and the one featured on most software, is called ‘On Balance Volume’, which is simply a running total of volume. This simple indicator aims to highlight if volume is flowing into or out of a share. It is constructed as follows: If the share closes higher than the previous close, all of the day’s volume is considered up-volume, and it is added to a cumulative total, and vice versa. This cumulative line is then plotted against the share price.

The indicator was developed by Joe Granville and was highly popular in the 1970s and early 1980s. The basic observation is that changes in OBV precede price changes, so a rising OBV line represents ‘smart’ money flowing into a share. Ideally both price and OBV should rise together, and both can be measured in terms of straightforward trend observations, such as higher highs and lows.

Sometimes the share price movement precedes OBV movement, which is known as a “non-confirmation”. Non-confirmations can occur at bull market tops (when the share rises either before or with no associated OBV or at bear market bottoms where the reverse happens.

A more precise indicator - weighted volume

For many traders OBV is something of a blunt tool as it takes no account of the price movement on the day, and in a trading range market it can be very volatile and hard to interpret.

There are several indicators available that attempt to refine OBV, but it is possible to take this to another level by a two stage process. First we measure the daily volume and compare it to the average recent volume. We then measure the actual price movement which is incorporated into a composite indicator, to become a weighted volume index.

This has two effects: first, this indicator is far more precise, in as much as it reflects more accurately how much the volume relates to comparative price movements in the share. Second, we can pick out excessive price and/or volume moves each day. Once this is loaded into the software, it is easy to scan the market each day for volume and price anomalies.

Another filter – using candlestick analysis

There is one other filter that traders need to use to refine their entry points, and the reason is that there are times when price has moved sharply away from the previous close and volume has been high, but the intra-day action has been negative. In this case, the actual signal may be the opposite of the above, as this might show that the sharp money is actually fading the move.

Often at market tops, there is a violent price rise through the day, but the price ends up closing towards the low point for the session, even though it is still ahead of the previous close.

Volume indicators would show that action as bullish, but viewing the day’s candlestick would give a warning sign, and this might be viewed as a precursor to a possible top in the stock.

Volume spread analysis

This excellent body of work is a variation on the above and is another useful addition to the trader’s ammunition.

Volume Spread Analysis looks at the interrelationship between three variables on the chart in order to determine the balance of supply and demand as well as the probable near term direction of the market. These variables are the amount of volume on a price bar, the price spread or high/low range of that bar, and the closing price within the day’s range.

It is very difficult to construct an indicator containing all these bits of information, so the idea is to become visually accustomed to the signals as they occur.

VSA looks to pigeon-hole the market into four market phases: accumulation (where the smart money has bought), mark-up, distribution (‘smarts have sold’) and mark-down. The volume indicates the amount of activity going on, and the corresponding price spread shows the price movement on that volume. If there is an imbalance of supply, the market has to fall, and vice versa.

The idea is to pick out where the professional money is heading, because these operators trade with very large size, and they have to sell into up bars when the herd is buying, so that is how they unload their large size onto the public.

Many times, these types of bars are created from news reports that appear very bullish to the general trading public and invite their participation on the long side of the market. When this occurs, it creates the opportunity for professional operators to systematically sell their holdings and short the market, without driving the price down against their own selling.

When this type of pattern occurs, it signifies a transfer of ownership from the professionals to what VSA refers to as “weak holders,” traders that will soon be on the wrong side of the trade. The analogy is the professional operators selling at retail or distributing when earlier they established their positions by buying at wholesale or accumulated.

The best volume signal in the market

There is a final and highly important signal where there is a clear reversal matched by climatic volume on both candlesticks – you need a black candle followed by a white one or vice versa, and both must have a wide range with the close towards the end of the range.

These patterns occur right at the end of a big down move, and whilst there may be some backing and filling, the upward thrust that sometimes follows may be exceptionally strong. This is a counter-trend, but potentially excellent signal for short term traders.