2Bull Forex Blog

Forex prices you want to know where there going so what’s the most important variable. Supply and demand fundamentals - NO. A forex chart formation - NO The single most important variable is enclosed in this post.

It’s the bullish or bearish sentiment of the participants.

I did a study of this 2 days ago on the dollar euro pair and since then the Euro declined by 400 pips and I said this in opposition to most of the market - does that make me smart or clever? Not at all, I just used some simple tools and stepped back to measure the psychology and you can use it to.

Let’s take a look at this in more detail.

We all know the supply and demand fundamentals and the news won’t help us make money as not only is it discounted in the price straightaway, but where prices go depends on how investors perceive them.

Proof of this is that markets always collapse when their most bullish and rally when there most bearish.T his is because humans dominated by greed and fear push prices to far either up or down and once prices have gone to far prices return to fair value. Of course away around this is to study forex charts and simply follow price action.

Forex charts are an excellent method of trading - but forex prices can give patterns that are false and it’s a game of odds not certainties - so how about if we can add an extra filter in, to spot the reliable chart patterns and give more validity to them? Well you can and this will give you more confidence in executing your trading signals.

Your looking for formations where greed or fear have pushed prices to far from fair value. History show that short sharp price spikes are temporary and prices return to fair value.

You can see the spikes easily with technical analysis but how far will a spike go?

Let’s check the sentiment.

The pioneer service was called % bullish and it simply polled market participants on their view fo whether prices were bullish or bearish. When levels reached above 80%, it was considered to bullish and below 20% to bearish and a turn was likely.

You can do this yourself - in the euro I noticed in a Bloomberg poll 70% odd of people in the survey said interest rates in the US could fall by 75bps and 100% had discounted 50bps. Now 50% was discounted and probable and 5bps? The fed has never hinted at that so I looked for waning momentum in the euro and sold and got 400 pips. You can learn to do this yourself of course.

Get a Bigger Edge From The best Traders FREE!

There is another powerful tool and it’s totally free, it’s realized by the CFTC every two weeks and it’s called net traders positions. In short it shows you how the open interest is broken down in the futures market (but it covers currencies) and has three groups: Commercials, large speculators and small speculators.

The commercials are the guys hedging no greed no fear they are just protecting what they have and they know fair value. Large and small speculators are governed by greed and fear and history shows they always oppose the commercials dramatically at important market turning points and who wins? You guessed it - the commercials.

The key with this report is to look for extremes and for commercial selling as speculators over buy. When they hold opposite extremes you know the commercials will normally come out on top.

Check the Sentiment Check the Charts For Entry

It’s important to keep in mind that the above sentiment tools are not for market timing, or entering your trading signal - that comes from the reality of chart movement but they warn you of big breaks and reversals.

In recent articles I used this to hit two big trades short - two in the euro and one in the Canadian dollar, for nearly 2,000 pips profit and you can check them out.

Could you do this?

Of course you can - it just means looking at the sentiment and then hitting your trading signal when the forex price you are looking at sees weakening momentum on a forex chart.

Incorporate sentiment in your forex trading strategy and you can give your forex trading a new profitable weapon, to anticipate forex price movement and enjoy long term currency trading success.

Fact - 95% of forex traders lose and they will make one or more of the mistakes below, so avoid these common errors or join them, here they are:

1. Trying to Predict Forex Prices

Most novice traders think that the way to win is to predict where prices are going but that’s simply hoping or guessing and you won’t get far with that currency trading - you need to trade confirmation of trend changes only.

2. Believing Markets are Scientific

Forex traders who try to predict also fall victim to the myth that markets are scientific. They follow forex trading systems based around - Elliot Wave, Gann, or Fibonacci and lose. Of course these systems all fail because if there was a scientific theory of market movement, we would all know the price in advance and there would be no market!

Trading FX is a game of odds not certainties.

3. Day Trading

The most common myth of all. More novice traders try to use forex day trading systems than any other method - it doesn’t work. As we have said forex is a game of odds not certainties and there is no way you can possibly work out where prices are going within a day.

If you day trade the odds are against you and you will lose your money - period.

4. Trading to Often

Most traders think they should always be in the market in case they miss a move but this is rubbish. You should only trade when your currency trading system tells you there is high odds trade, then and only then should you execute your trading signal.

5. Trying to Buy Low Sell High

This again goes with the trader who wants to predict prices with their forex trading strategy - but it wont work and the best moves with the best odds are breakouts. Most major trends start from new market highs and you need to learn to buy them if you want to make money.

6. Blindly Following a Vendor

There are plenty of vendors selling forex trading signals and forex trading system software where if you follow it they tell you that you can make money - the vast majority are junk and come with simulated track records. Try and find one with a real track record and get ready for a long search.

We can all make money in hindsight but that’s not the real world.

7. Trying to Trade the News

If people could trade by following the news there would be a lot more winners than losers! Sure the stories are convincing but that’s all they are stories. I love Harry Potter books but I don’t think I can fly! News reflects the greed and fear of the herd and if you trade it get ready to dump your money quickly.

8. Making Their Forex Trading System to Complicated.

Many traders assume the more inputs they cram in the better a trading system will work however the total opposite is true - cram too many indicators in and the system will break. Simple systems work best as they are more robust.

9. Failure to Run Profits

There is a lot about said about traders not keeping their losses small, but a far bigger reason for losses is their failure to run profits. Traders get excited when they get a profit and the bigger it gets the more tempted they are to take it. Of course a few dips in their open equity, sees them snatch it - then what happens?

It turns into a mega trend and goes the way they thought and their not in - this happens all the time. You need to have confidence and conviction to accept huge gains.

10. Over leveraging and Stops to Close

Sure you can get 400:1 leverage and trades use it and place stops within normally volatility. I often hear people talk about using a 30 pip stop! Well you may as well flip a coin; market volatility will kill your equity.

You need to de leverage and give a s top that’s logical

Finally - Answer this question Before You Trade:

If you understand you mustn’t make the above mistakes there is one more question to consider before you trade ask yourself this:

What’s your trading edge?

In other words why should you win when the vast majority of traders fail? The edge you have must be logical and you must have confidence in it, to beat the majority of losers. If you don’t know what it is you don’t have one and its back to your forex education.

Forex can give you a life changing income if you work smart, avoid the mistakes above, get a simple currency trading system and apply it with discipline and you will soon be enjoying currency trading success.

Enclosed I am going to give you 2 simple equations and if you want to win at forex trading you need to understand their significance or lose, so here they are.

1. How Markets Really Move

Supply and demand fundamentals + Investor perception of the facts = Price

Well that’s nice and simple!

Yes it is but most traders don’t understand the significance of the equation and try and trade the fundamentals (news stories) and think it gives them an edge - it doesn’t. Its how investors perceive them that’s important, they are highly unpredictable and dominated by greed and fear.

Other traders think that forex technical analysis is scientific, as of course human nature is constant, they therefore think they need to predict prices but this is impossible as well and they lose.

If you understand the above you will realize that trading is game of odds -not certainties and it is investor sentiment that drives prices and the best way to win at forex is to use forex charts but not predict just follow the reality of price change.

2. The next equation for forex trading success is:

Understanding + Confidence = Discipline = Forex trading success

Again a simple equation but its one again that most traders fail to understand.

Trading is more about mindset than method as even if you have a good forex trading system you still have to apply it or you have no system!

The fact is you won’t follow forex signals or systems unless, you understand the logic and have confidence in it. When you hit a string of losses (and you will) you will only trade with discipline if you have confidence.

Consider how many traders simply buy a forex signal service or system from a vendor and believe the marketing hype - that it will help them win or make them rich.

What happens? They all lose as they lack confidence or discipline.

Consider this fact:

Anyone can learn currency trading and anyone can win - but 95% of traders lose.

The reason is they fail to understand the significance of the two equations above.

They don’t understand how and why FX markets really move or the link between method and mindset to apply it.

If you understand the above, you could be on the way to making huge regular profits.

You will realize that the way to win is based on understanding what you are doing and having confidence in it - it is simple, yet most traders just don’t get it - trading success comes from within.

Forex trading offers huge rewards and if you keep the above in mind and work smart you could enjoy forex trading success.