2Bull Forex Blog

Many forex traders think they need to study news stories and the fundamentals to win on the other hand, forex chartists think that charts move to some hocus pocus theory that predicts the future but the most important variable is much simpler and learn how to gauge it and you can enjoy currency trading success.

Let’s start with a simple equation:

Fundamentals (Supply and demand) + Investor Perception = Price

Nice and simple that’s the way any investment market moves and it’s obvious that the most important variable is investor perception or sentiment.

The person who simply acts on news has no chance of winning, as it’s discounted immediately and he is playing catch up. For evidence of this look at every major bull move and bear move and you will find that the fundamentals are almost always at their most bullish at an important market top and most bearish at an important market bottom.

The person who uses forex technical analysis will argue that as the fundamentals are immediately discounted in the price, so all you need to do is follow price action and this is by far the better way of trading – but it has one flaw.

You can’t see how far a move will go as greed and fear take hold of investor’s. Sure price spikes never last – but when are they going to end?

This is where you look at the fundamentals for clues to warn of technical tops i.e the sentiment.

You can do this by watching the news.

For example recently it was said the euro would gain on the dollar and make new highs because the US had cut interest rates – what happened?

The euro tried to get through an important resistance price and failed (we pointed this out in an article last week and the euro has plunged since) what was going on?

The news was discounted and bullish euro news didn’t push it higher.

This meant the sentiment was at a bullish extreme and prices recoiled back.

If ever you see bullish news that doesn’t push a market higher and bearish news that doesn’t push a market lower, combined with a price spike on the charts, chances are you are going to get a move the other way.

There is a famous saying:

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

In forex terms you have but you are drawing different conclusions – while the lemmings are blinded by greed and fear and never see a move ending, you are looking for a contrary trend.

If you look for price spikes and then look at the contrary view, then you can get some trading opportunities.

Are there any concrete indicators for judging investor sentiment?

Yes there are two great ones – % bullish and the Net Traders Positions report and we will look at these in the next article in this series.

If you want to maximize your profits and enjoy currency trading success you need to use market sentiment to anticipate forex price movement.

You will see numerous forex trading systems on the net and they all promise you big gains but the reality is very few of them deliver forex profits – so how do you pick a good one? You check one key point which is enclosed.

The first and most important point you need to do when choosing any forex trading system is look at the disclaimer that it carries. If the trading system carries the one below or a similar one, you need to be very careful – let’s look at it:

“CFTC RULE 4.41 – Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown“.

If a forex trading system carries this disclaimer it doesn’t in anyway indicate the profitability of the trading system and the reason is obvious – because if you put the above disclaimer on you can simply simulate anything you like in hindsight and of course vendors do.

Now the naive or greedy forex trader simply swallows the story, buys it and then wonders why it loses!

If a vendor promotes and an automatic buy and sell trading system and hasn’t had the confidence to trade why should you?

Avoid simulations and ask for a track record of real gains over 2 – 3 years with supporting broker statements

I recently saw a vendor who prints his bank statements as evidence of the profitability of his system but the money is from selling systems!

Don’t be sucked in by greed check the system out and make sure its been traded for real – sure it doesn’t guarantee profits but at least it shows what the system is capable of and that the vendor has had the confidence, in his own ability to trade it.

If you haven’t heard of the phrase “the trend is your friend”, you’re either new to trading, or have been living under a rock. Trend trading is one of the most popular methodologies used by most people today.

What is Trend Trading?

As the name suggests, it simply means trading in the direction of the prevailing trend. You buy in an uptrend, and sell on a downtrend. It’s a simple concept.

However, the specifics of this way of trading are often overlooked by amateur traders. Also, there are some complications about trend trading that they don’t know about. In this article, I hope to be able to explain to you a little bit more in detail about how to trade trends.

When to Buy/Sell

I’ve known many people who enter into trades at the wrong time while trend trading; and I found out that the reason for this is because they listen to the advice of so-called online “experts”.

Here’s what these “experts” tell you: in an uptrend, buy on a downward retracement. Although this piece of advice is probably well-intentioned, it’s actually quite dangerously misleading. The people who follow this advice often end up finding themselves right at the top of a reversal.

The right way ro trade Retracements

When trading a trend retracement, you should first identify significant support/resistance points where the retracement is likely to end, such as at Fibonacci levels or at pivot points. Wait for the retracement to hit that level.

Next – and this is the part most people ignore – you must wait for a confirmation candle/bar before you enter into the trade. This means that on an uptrend retracement, you should wait for a green up-closed candle to form before you enter. Never enter into the trade before the candle/bar is completely formed!

The reverse is true for downtrend retracements.

Trading on price consolidation breakouts is a popular choice among Forex traders. In this article, I will present to you one of the most effective and simplest ways to trade consolidations.

What Is A Price Consolidation?

Price consolidation occurs when there is no obvious uptrend or downtrend in short-term time frames. Ranging markets are not considered to be consolidating because prices are still fluctuating up and down. In a true consolidation, market prices don’t fluctuate and typically stay within a 10 to 15 pip range.

What Time Frames Should I Trade?

Consolidating prices don’t usually last very long. That’s why you’ll usually trade using intraday time frames (i.e. hourly charts or minute charts). Occasionally, daily charts may show flat prices as well… but these are more the exception rather than the norm.

How Do I Trade It?

Most people enter into a trade when prices break out of the highest price (or lowest price) of the consolidation. If prices break upwards, they buy. If prices break downwards, they sell. The decision to trade on breakouts is based on the assumption that the momentum of the break will be strong enough to push price further in the same direction.

How Effective Is It To Trade Breakouts?

In my experience, breakout trading can yield rather consistent profits. This is because they usually follow through. The hard part is deciding when to exit your trade once it’s in-the-money, because breakouts sometimes reverse directions quite quickly.

What Should Be My Profit Target?

Usually, a profit target of 30 pips is good enough. Sometimes, you may want to try for 50 pips. I don’t usually hold breakout trade positions after I’m in-the-money for 50 pips because then the price action will usually turn erratic.