2Bull Forex Blog

Human nature is constant and humans determine the price in any market, therefore if you know the law of human nature you have a scientific theory you can apply, to predict prices and make big profits. Let’s look at some forex trading systems based on scientific movement.

There are numerous theories that are said to be scientific and three of the most common are Fibonacci, Elliot Wave and WD Gann. They all claim to be able to predict forex prices in advance but how successful are they?

The problem with these theories is they are all flawed and none of the above made any profits with the theories and they developed them! - So why don’t they work?

Because while human nature is constant, it’s not predictable with scientific accuracy.

Humans are not creatures of logic - but creatures of emotion and that means there is no formula that can be applied to this vast, diverse group that will work.

This is actually pretty obvious as if there were a scientific theory of market movement that worked all the time, we would all know the price in advance and there would be no market as of course we would all know the price in advance!

Prices actually move because we are unpredictable and this is the basis of any free market.

A BETTER WAY TO MAKE FOREX PROFITS

If you try and predict forex prices ( not just with a scientific theory) you are destined to lose anyway because prediction is really another word for hoping and guessing and that won’t get you very far in life and especially not in forex trading!

You can’t predict so don’t even try, as your predictions will end up being as accurate as your horoscope.

A better way to trade is to hit high odds set ups, in fact - it’s the only way to trade.

You are playing a game of odds not certainties - but that doesn’t mean you can’t make big profits, you can and the rewards are enormous.

Keep in mind the following fact when you trade forex:

All prices are pushed to far up or down by human emotion and then return to fair value. If you can spot and act on these price spikes, you can make huge profits and there easy to spot on a forex chart. You simply wait until the price spikes and then look for a waning of momentum and hit your trading signal - in the opposite direction.

This happens time and time again in forex markets (or any market for that matter), these price spikes fade and if you can catch them you have great profit potential with low risk.

Once a trend does develop you trade with it - but there are always price spikes along the way (within trends) for swing trading or (at the end of trends) for long term trend followers.

Forex trading has not changed over the years.

Despite the vast amount of progress we have made in science in other areas of life forex trading remains an odds game where the appliance of science won’t help you - but simply trading the odds will and can lead you to currency trading success.

If you want to catch the big profits in forex trading you need to trend follow forex trends which are longer term. Here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every major forex trend and lead you to long term currency trading success.

Most novice traders don’t bother trying to trend following forex longer term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profits however as most short term moves are random, this leads to equity wipe out.

The other choices are swing trading and long term forex trend following and this article is all about the latter method.

If you look at any forex chart, you will see long term trends that last for months or years. These moves can and do yield big profits - here we will outline a simple method to catch them.

Breakouts

By far the best way of catching the big moves is to use a forex trading strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It’s a fact that most major moves start from new highs or lows.

While it might appear that you are not buying or selling at the best level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The reason for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don’t buy or sell breakouts and that’s exactly why it’s such a powerful method.

The only point to keep in mind is a support or resistance which is broken, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the wider the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout continues and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your trading signal.

These indicators give you an idea of the strength and velocity of price and there are many to choose from. We don’t have time to discuss them here (simply look up our other articles) but two of the best are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop levels are easy with breakouts - Simply behind the breakout point.

If you have a big trend then you need to be careful you can milk it, so don’t move your stop to soon and keep it outside of normal volatility.

If it is a big move, trailing stops should be held a long way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don’t know when the trend is going to end, so don’t predict.

It’s ok to give a big back, as that’s the nature of trading forex. Keep in mind if you got 50% of every major trend you would be very rich.

When you are long term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend follow forex and catch the high odds moves that yield the big profits. If you are learning forex trading and want a simple method that is robust and will help you catch every major move, then you should base your Trading on the above method.

As you know, the Forex market operates 24 hours, 5 days a week. This is one of the strong points of currency trading for retail traders: you can find good trade setups at almost any time of the day.

However, what many amateur traders fail to remember is that not every single hour of the day is a good time to trade. In this article, I will point out the best times to trade Forex, and why.

What Are The Conditions For Favorable Trading?

Generally speaking, you’ll want to enter into trades when there is high liquidity in the market. High liquidity helps to reduce slippage, while at the same time providing better opportunities for large market moves and thus larger profits.

In times of low liquidity when relatively few traders are active, market prices are usually flat. This reduces your chances of making money since you’ll need the market to move in order to profit.

Another reason why you should trade during times of high liquidity is because the large trading volume makes it harder (and more expensive) for the financial institutions to artificially manipulate market prices. Stop-loss hunting for example, is much more expensive to carry out during times of high liquidity.

Here are the times when liquidity in the market is typically the highest:

The London Session

The London market opens at 8am GMT (3am EST) and closes at 4pm GMT (11am EST). Most of the daily trading volume occurs during this time.
The currencies most actively traded during this period are the USD, EUR, GBP, CHF and JPY.

The New York Session

New York opens at 1pm GMT (8am EST) and closes at 8pm GMT (3pm EST). This is the second largest trading period in terms of transaction volume.

The Asian Session

Last but not least, the Asian session opens in Tokyo at 1am GMT (8pm EST) and closes at 8am GMT (3am EST). Compared to the London and New York sessions, the Asian session usually experiences less volatility in the market. However, some good currency moves may be observed every now and then.

I constantly read articles about the advantages of forex trading but these are actually disadvantages for most traders and that’s why 95% of traders lose all their equity quickly and here we will look at the two specific reasons, most forex traders lose…

1. Leverage

Today, you can leverage your investment with an online forex broker by 200, or even 400 to 1 and this creates tremendous profit potential - but it’s a fact that most traders actually over leverage and lose.

With leverage you need to be very accurate with the execution of your trading signals and very careful with your stop loss protection. When trading on leverage if you are not careful, a quick equity spike will wipe your position.

In stock trading you can buy and hold and you only risk what you have paid for the stock and so long as it comes back you make a profit and you can wait.

In forex trading its different - you have losses that are open ended and they pile up quickly. You can’t just sit back - you need to take action.

As most traders lack discipline, they very often hope a position turns around and don’t have a get out point. A small loss soon ends up being a big loss and their equity is gone. Most traders hate admitting their wrong - they want the big profit potential leverage gives them but don’t think about the downside.

2. Volatility

Forex prices are volatile and make big moves everyday - combine this with leverage and you have a powerful tool for profits which of course can also cause losses.

Most traders have no idea about how volatility affects their trading and how to deal with it. Most forex traders have never heard of, let alone understand “standard deviation of price” yet it’s an essential part of any traders forex education.

You have to know what is normal volatility and what isn’t, to have any hope of succeeding with your forex trading strategy.

Most traders make the error of placing stops to close to their entry point and they get taken out by normal volatility and this is because they are normally over leveraged.

Most traders try so hard to avoid risk they actually create it for themselves.

The way to make money in forex trading is:

Use low leverage and stops outside of normal volatility - NOT high leverage and stops within normal volatility.

In forex trading seeing the longer term trends on a forex chart is easy - making money from them is anything but. The correct execution of trading signals, in line with the odds and placing of sensible stops is what separates the winners who pile up big profits from the rest.

Forex trading is high risk / high reward - the bigger the risk the bigger the reward - period. You need to be aware that you need to manage risk and build your own set of rules within your forex trading system to combat it.

REMEMBER

The advantages of currency trading can be disadvantages as we have seen and you need to think lower leverage wider stops rather than higher leverage closer stops. Most traders do the latter and get wiped out quickly don’t make the same mistake.

Today, we have more news than ever and its delivered in the click of a mouse and many traders want to trade it and make profits - after all it’s the fundamental supply and demand situation that drives forex prices…

No it isn’t!

Supply and demand fundamentals are not important by themselves - it’s how they are perceived that determines price.

Here is a simple equation for market movement to illustrate the above:

Supply and Demand (facts and news) + Investor Perception = Price

From the above you can see that it is investors who determine price.

We all have the same facts to look at but we don’t all draw the same conclusions from what we see and this is the problem when trading news stories.

If you could win by trading the news, with today’s quality of it and lightening communications, the percentage of traders who would win would be far greater but the fact is:

The same amount of people who lost in forex trading 50 years ago lose today and this statistic won’t change because you can’t trade news stories in isolation.

The problems with trading news stories are greater today than they have ever been.

Why?

Because we all get the information quickly and it’s instantly discounted by the market, we all have the information at the same time in any corner of the globe online and no one has an advantage of getting it first before the herd.

The problem that is always present and has been since markets started trading is:

You don’t know how the traders are going to view the news because their all driven by their individual motivations and emotions furthermore, the news always reflects the views of the crowd and the crowd is always wrong.

Will Rogers once said:

“I only believe what I read in the papers”

He was joking of course, but it’s surprising how many people read a paper or see a view on CNBC and think they can trade it and win - they can’t.

FACT:

Markets collapse and turn when they are most bullish and rally when they are most bearish - this is nothing to do with the facts but how the investors perceive them.

News stories can be used but it’s not in the way you may think.

If a bullish piece of news fails to push market higher, or bearish news fails to push a market lower, then you may have a trend change at hand.

You need to check and to do this, look at a forex chart and see the technical view of price only. Here you are seeing the reality or the truth in black and white.

This gives you a detached non emotional view of price and you can decide which way to trade. Using the news in this contrary fashion is a great way to spot situations which you can time entry with your technical indicators.

There is an old saying:

“If you can hold your head, when everyone around you is losing theirs you probably haven’t heard the news”

In the above instance you have - but you’re not taking the view of the majority.

If you use news in the above way and combine it with forex charts to time your trading signal, then you have a powerful combination for bigger forex profits.