2Bull Forex Blog

Many traders use numerous indicators - but over the last 22 years I have four favourites and I will share with you here and they have worked for me and they will work for you. Let’s look at them…

Today, good old bar charts have gone out of fashion but I think their essential and use them in conjunction with the indicators below. I don’t use candlestick charts, there is a big myth there better but there not. If you like using them, then do so but the relationship between the daily range open and close is obvious.

Here are the four indicators and you can read more about them in our other articles. There available on most free chart services and will take you around 30 minutes each to learn and then, your all set to start using them on your forex chart and start making bigger profits.

1. The Stochastic

For me this is the ultimate timing tool.

Trading stochastic crossovers with bullish or bearish divergence, into chart resistance or support, from overbought or oversold levels, is simply the best market timing tool. If the stochastic crosses from chart highs or lows the signal is even more powerful.

2. Relative Strength Index

This gives you the strength of the trend and when RSI weakens or strengthens, when the trend is still up or down, especially from over bought or oversold levels, you have advance warning of a contrary move.

When combined with the stochastic, you have a great combo for better market timing.

3. The Bollinger Band

Gives you the volatility of price and you simply need to understand it to make money at forex trading.

I love using pops to the outer band, near chart support and resistance, to look to take profit or, initiate a contrary trend. Also in a strong trending market, dips back to the centre band ( the moving average) are great value areas to look to add extra positions in a strong existing trend.

You don’t time with them - you look for areas in line with support and resistance to trade into.

4. Moving Averages

Simple moving averages are great and I have just mentioned the mid band of the Bollinger band, which is in fact a simple moving average, to buy and sell back to in existing trends.

In strong trends dips to the 18 - 25 day moving average are a great place to load in new trades.

Another excellent time period is the 40 day moving average which acts as the last line in a strong trend with nearby support or resistance. In strong trending moves we like to trail our stop behind this level and it keeps us in the long term trends.

When trading with the above and support and resistance lines you will get market timing for your trading signals.

There are some other useful technical indicators and we like the ADX line and the MACD too - but the above are the four we use all the time. If you spend 30 minutes on each one you will soon have four powerful indicators that you can use in your own forex trading strategy, to seek currency trading success with.

Check them out, there simple, powerful and can work for you too with a little practice.

Moving averages are one of the most basic and widely used series of indicators by technical analysts of the Forex market. Moving averages are used to confirm existing trends, identify new trends that are possibly emerging, and to attempt to identify trends that are coming to an end before a market correction.

This knowledge can help a trader make smart trades in order to take advantage of the Forex market. When talking about moving averages, there are three main types of moving averages that you’ll see used: Simple, Weighted, and Exponential.

Simple Moving Average

A simple moving average is one that gives equal weight to every price point over the specified period being studied. The analyst can decide whether to use the high, low, or close prices, and then all the price points are added together and averaged out. After using the averages a line is formed.

Depending on the moving average you are using, you may have a line for the “high” averages and the “low” averages. Every new price point that gets added replaces the oldest point and the line adjusts accordingly.

This should provide you a “tunnel” for the highs and lows. Whenever the price of a currency pair approaches or goes outside of these lines, this will provide you strong clues as to what the market will do next, and what actions you should go through with to take advantage.

Weighted Moving Average

A weighted moving average does the same basic thing as a simple moving average, but as its name suggests a weighted moving average gives more emphasis to the most recent data. Basically the closer to present time the data takes place, the more the value of the data point.

This total is also added together then divided by the sum of the weighted factors. The major benefit of a weighted moving average is that it allows the user to smooth out a curve while keeping the “average” more closely related to the most current information.

Exponential Moving Average

An exponential moving average is a different way of weighing more current data. An exponential moving average multiplies a percentage of the most current price by the previous period’s average price.

Basically the oldest pieces of data are never removed, the way they are with other types of moving averages. Instead of replacing the oldest pieces of data with newer, the oldest pieces are given less and less value, creating an average that appears more like an exponential curve.

There are many trading theories which believe in mathematical order in the market and you can predict the future. Human nature is constant and therefore if you know the law of market movement you can make money but what are the best scientific theories?

The three major ones are those based on Gann and Elliot wave and the Fibonacci number sequence.

They all claim to be scientific but to be a scientific theory, they must conform to the following:

- Be totally objective with a set of rules to follow
- Work all the time.

This is the definition of a scientific theory and none of the above are.

Gann and Elliot wave are totally subjective and while you get various levels you can buy or sell to with Fibonacci, they certainly don’t work every time!

Markets are not scientific and while human nature is constant, it cannot be predicted with scientific accuracy and that’s a fact.

This is why all the scientific theories and complex computers today have not increased the amount of winners. Indeed, if a scientific theory did work we would have no market, as everyone would know the price in advance.

How to Win Without Science

A great book which any speculator can learn from is the Zurich Axioms.

This book devised a set of rules which a group of Swiss bankers, who used them to get rich and it lays out a number of rules and principles for speculators to follow and one of them is on forecasts which is very true.

“Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly”.
As the books points out if astrologers were always right they would all be rich and there not. Predicting markets is actually doomed to failure just like astrology and the book makes clear:

“Do not look for order where order does not exist.” And the book goes on…

“The Historian’s trap is a particular kind of orderly illusion. It is based on the age-old but entirely unwarranted belief that history repeats itself. People who hold this belief - which is to say perhaps ninety-nine out of every hundred people on earth - believe as a corollary proposition that the orderly repetition of history allows for accurate forecasting in certain situations…. Don’t fall into this trap. It is true that history repeats itself sometimes, but most often it doesn’t, and in any case it never does so in a reliable enough way that you can prudently bet money on it”.

In hindsight you can prove anything and this is known as the chartist illusion

“Beware the chartist’s illusion - it is characteristic of human minds to perceive links of cause and effect where none exist”

You can of course when you have all the facts at your disposal see things as orderly when there not.

Traders do this all the time - they test rules and parameters over a section of data and bend rules to fit it and think it will work in real life but of course the exact data sequence never repeats again and they lose.

Ever wonder why all those forex robots sold online, never make money in real life - despite having great track records?

The answer is the track record is a simulation backwards which appears logical- but when it’s traded going forward, it collapses.

Why You Can Make Money

Despite the fact markets don’t move to science you can still make money from them, if you see them as an odds game.

If you took a game of poker as an example of an odds game and talk to the best poker players, they know they are not going to win every hand - but they are confident of winning longer term. Why?

Because they know that if they bet on high odds hands and fold or pass by low odds hands, they will win longer term.

If you take trading forex who are some of the top traders in the world?

You guessed it - poker players!

So forget about predicting and science, see forex as an odds game and trade the reality of price change sure you wont win every trade but you will win more than you lose and this can mean huge profits.

Don’t look for perfection look to make money.

If you want to get rich, no matter how inexperienced you are in investment, then one of the best places to start is with the book the Zurich Axioms and here we will look at some that you can apply to forex trading to supercharge your gains…

In this article we are just going to focus on the risk element of the Zurich Axioms and how it relates to forex trading although the book gives you loss more great investment advice and is one of the greatest books on speculation ever written.

Love Risk!

The 12 major and 16 minor Zurich Axioms contained in the book are a set of principles providing you with realistic management of risk, which can be followed successfully by anyone, not merely ‘experts’. When dealing with risk, you have to see it as opportunity manage it and love it, as its your route to trading success

The book teaches you to take risks and meaningful ones at the right time which is what you have to do to make money in forex. You have to manage risk and the Axioms, will show you how.

Several of the Axioms do not conform to traditional wisdom but don’t let that worry you, most forex traders lose, yet the Swiss speculators who devised them became rich and the proof as they say is in the results.

Let’s look at the major Axiom on risk and how its view is very different to what most so called experts teach.

Axiom 1: On Risk

“Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough. Put your money at risk. Don’t be afraid to get hurt a little… Worry is the hot and tart sauce of life. Once you get used to it, you enjoy it”.

Most people are so afraid of risk they actually create it in forex trading. They end up having stops so close their bound to get stopped out or think they can make a regular income etc and then they get the reality check.

Related to the above Major Axiom are two minor ones which most forex traders would be wise to learn

Minor Axiom I

“Always play for meaningful stakes”.

How many times do you hear experts tell you to risk 2% of your equity? All the time but for a forex trader with a small account the reward isn’t going to be much say you have $1,000 and risk 2% that’s $20 bucks!

If your stop is that close. Then you are going to lose quickly.

My own view has always been look to risk 10 - 20% of your equity. If the opportunity looks good hit it hard and go for a meaningful gain. This isn’t being rash it’s how to win and if you don’t like doing this then forex may not be for you.

Minor Axiom II

“Resist the allure of diversification”

Diversification is another word for diluting your gains and if you diversify on a small account you will end of getting no where. Why on earth, would you want to simply diversify when you have a great high odds trade?

All you will do will see your great trade diluted by one that’s probably an also ran. Forget diversifying and hit the high odds trades with all you have and concentrate your effort on that trade. You don’t need to trade often be patient and wait for the high odds trades.

Sure most experts don’t agree with the above and it’s not conventional wisdom but how many traders are so frightened of risk they never take enough risk and get stopped out by volatility, or listen by so called experts, who tell them forex trading isn’t risky, when of course it is by its very nature.

The truth is forex trading is risky and if you learn to love risk, play for meaningful stakes and hit the high odds trades hard, you can win and make triple digit profits.

There are lot of forex robots for sale but most will soon wipe your equity out but there is a tiny minority Forex Robots - A Checklist to Follow to Find the Small Minority That Win which win and we will look at a checklist you should follow, to find them and get the right one for you…

Here is your checklist for finding the best forex robots.

1. Get a Real Track Record

Most of the forex trading systems online fail on this basic point - they don’t have one! All they have is back tested simulations on data and of course we can all make money doing this. You will normally see the words “simulated”, “hypothetical” and in “hindsight”. Lets be clear you are buying a trading system on the basis that it will make you money and if has never been traded why would you trust it?

If you pass by the simulated systems you already have got rid of 90% +. When looking for a real time track record two or three years is the minimum period you should consider remember, anyone can fluke a few weeks or a month and this time period means nothing.

2. Risk Tolerance

You will normally find that a system will lose for weeks on end, that’s just the way forex trading is so make sure you prepared for this and look at the biggest loss and time to recovery - i.e. if you joined the system on the worst possible day.

3. You Need to Know The Logic

Never by a system which doesn’t have the logic disclosed. Ideally, it should tell you the exact rules and parameters used and the logic behind them. This will give you the confidence to keep executing the trading system through periods of losses until you hit a home run.

You need to maintain discipline of execution and make sure the trades are placed exactly as the system dictates. If you can’t do this with confidence and discipline you don’t have a system.

4. Curve Fitting

The reason most simulated trading systems fail is because they are curve fitted. This means the rules are bent to fit the data. As no two pieces of data ever come around in the same price sequence again the system collapses in real time trading. Even proven systems get curve fitted. The system makes money, so the vendor offers new improved rules but don’t fall for this, use the original ones, curve fitting sees systems fail.

5. Best Time Periods

The idea of an automated trading system is to save time and you should really use a swing trading or long term trend following system - never a day trading system. Day trading is based on logic that doesn’t work and anyway, you will never find a real track record so steer clear.

Follow the above 5 points and you will find the best forex robots and then you can choose one that fits your risk criteria. Forex robots do work but don’t forget they will lose for long periods to so you must have the confidence and the discipline to take these loses, until profits come.

There are some good automated forex trading systems and the above information will help you to find one which will lead you to currency trading success.