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Trading Forex on a Trading Day

Yesterday you were introduced to the concept of forex trading and trending days, Today you’re going to learn how forex trading on trading days works.

The best chart for trading forex on a trading day on is a 15-minute or 30-minute chart.

When trading forex on a trading day, your best bet is to trade the formation of an upper bell curve or a lower bell curve.  You will find additional security in that trade if you look for a convergence (a price where more than one indicator signals a buy or a sell).  First, draw all of your trendlines.

Second, set your Fibonacci lines from the last swing.  Try to imagine the market forming an upper (lower) bell curve – if it did, would it be at a convergence price?  If so, prepare to trade that convergence.

For example, you draw your trendlines and find, based on your outer trendline that the market is in an overall uptrend.  You will then be looking for a lower bell curve to form.

Find the market’s last up swing and, from there, draw your Fibonacci number lines.  You can anticipate that the retracement of that up swing (the left side of the lower bell curve) will bounce at the .382, .618, or .786.

Say that you find the .786 is at the outer trendline – you have just found a convergence (there are two educated reasons for the market to bounce at this price).  You now have two good reasons to believe that the market will bounce, forming the tip of the lower bell curve, at the .786 (also the outer trendline).

Create a market order to buy at the .786 (also the outer trendline and the tip of the lower bell curve) and anticipate the market to carry you to near the session’s opening price (on this type of trade you should expect a 60-90 pip profit).

You have just traded a convergence that offered you three educated reasons to buy: a .786 Fibonacci line, an outer trendline, and a lower bell curve on a trading day.  Remember to trade in the direction of the trend!  Do not sell at the beginning of the lower bell curve, planning to get out at the tip; instead, buy at the tip of the bell curve, where you have two other good reasons to buy, trading in the direction of the overall uptrend.

Rules for Trading on a Trading Day

As always, there are several general rules for trading forex on a trading day:

1. Check to ensure that no fundamental announcements will be released during this trading session.
2. Draw a horizontal line at the opening price of the session – you can expect the market to close near that price.
3. Find and draw all of your trendlines. In order to trade the bell curve in the direction of the trend, you need to accurately understand what that direction is.
4. Look at the price where the market opens and anticipate a 60 to 90 pip move upward or downward from that price.  Look for a .618 or .786 Fibonacci trendline convergence as an upper or lower bell curve forms.  If you find a convergence price, set up a trade there, planning to buy or sell at the tip of the bell curve.
5. Locate all of your levels of resistance and support.  Set your stop loss at the last level of resistance (support).
6. Practice sound money management.  If the trade presents too much risk for you, don’t trade.
7. Create a trading plan.  Trade the plan.  Traders get in big trouble when they become emotionally invested in a particular trade and so hang on too long to a losing trade.  Even if you follow all of the trading rules and trade all of your indicators correctly, you will lose on some trades, just as any business takes losses as well as profits.  By sticking to your trading plan you will maximize your profits and minimize your losses.

Now that you know how trading forex works on a trading day, tomorrow I’ll show you the procedure for trading forex on a trending day.

Posted in Fundamental Announcements

Fibonacci Number Trends in Forex Trading Online

I’ve been describing the fibonacci sequence & trading forex online in the last several blog posts. There are a few more concepts to share to give you the full story about fibonacci numbers trends applied to forex trading online. If it seems like this is too complicated, it will seem much easier in the video examples I’ll be sharing soon

Looking at a Fibonacci ratio in an uptrend for forex trading online, buy after the market has reacted (retraced) back to the .618 or .786 of the last up price swing to make a higher low.  Set your stop loss order at the last low.

The best place to trade, of course, is at a convergence, where the market has more than one reason to bounce.

If, for example, the market makes a higher low at a Fibonacci ratio and at the trendline, that is a convergence.  Generally speaking, in order to use the Fibonacci ratios to make money, you must place your entry order before the projected retracement bounce (at .618 or .786, for example) and place your exit order before the projected extension bounce (at 1.618 or 1.27, for example).

The .618 and the .786 offer the least amount of potential loss (risk) so they are the safest places to trade.  At the .382 the market is moving fast and aggressively, so the potential loss could be quite high.  Remember to only trade if equity management allows.

If you do decide to trade the .382, do not buy at the projected retracement bounce (at the .382), but instead buy at the price of the last high.  Set your stop loss order at .382 and your profit limit order at 1.618.

If you decide to chase the market for profit, canceling and replacing as the market moves, do not cancel your stop loss order (originally set at the last low) and replace it with the new low at the Fibonacci bounce until the market makes a new high.

If you enter at the projected bounce (.618, for example), setting your stop loss order at the last low and, after the market begins to rally, you cancel and replace your stop loss order from the last low to the .618 new low you risk being stopped out early if prices return to the .786 and bounce before going into the extension.  Remember that the uptrend is not extending until the market passes the last level of resistance and makes a new high.

The rules of cancel and replace, therefore, provide that you only cancel and replace your stop loss order if the market has made a new high.  The .786 is the last hidden level of support; if the market, in retracement, takes out the .786 and goes on to cover more than 88% of the original up swing, it is highly probable that the market is reversing.

Once the market has bounced at the .786 (not taken it out), move your stop loss order to that new low at .786.  That way you will be protected if the market does not go into an extension.

Forex Trading Online Fibonacci Numbers in a Downtrend

To trade a Fibonacci ratio in a downtrend, sell after the market has reacted (retraced) back to the .618 or .786 of the last down price swing to make a lower high.  Set your stop loss order at the last high.  As with an uptrend, the best place to trade is at a convergence.

Generally speaking, in order to use the Fibonacci ratios to make money, you must place your entry order before the projected retracement bounce (at .618 or .786, for example) and place your exit order before the projected extension bounce (at 1.618 or 1.27, for example).  The .618 and the .786 offer the least amount of potential loss (risk) so they are the safest places to trade.

At the .382 the market is moving fast and aggressively, so the potential loss could be quite high.  Remember to only trade if equity management allows.  If you do decide to trade the .382, do not sell at the projected retracement bounce (at the .382), but instead sell at the price of the last low.  Set your stop loss order at .382 and your profit limit order at 1.618.

If you decide to chase the market for profit, canceling and replacing as the market moves, do not cancel your stop loss order (originally set at the last high) and replace it with the new high at the Fibonacci bounce until the market makes a new low.

If you enter at the projected bounce (.618, for example), setting your stop loss order at the last high and, after the market begins to down swing, you cancel and replace your stop loss order from the last high to the .618 new high you risk being stopped out early if prices return to the .786 and bounce before going into the extension.

Remember that the downtrend is not extending until the market passes the last level of support and makes a new low.  The rules of cancel and replace, therefore, provide that you only cancel and replace your stop loss order if the market has made a new low.

The .786 is the last hidden level of resistance; if the market, in retracement, takes out the .786 and goes on to cover more than 88% of the original down swing, it is highly probable that the market is reversing.

Once the market has bounced at the .786 (not taken it out), move your stop loss order to that new high at .786.  That way you will be protected if the market does not go into an extension.

Posted in Fibonacci

Price Swings Down in Online Forex Trading

Understanding price swings is a great skill to have for online forex trading.

The downtrend price swing, retracement, and potential extension are the exact opposite of the uptrend price swing, retracement, and potential extension explained in my last post.

We all benefit from multiple examples, so if you want to succeed in online forex trading, it’ll crystalize your understanding.

A downtrend price swing is a wave (swing) that starts at the high and stops at the low.  Remember that to qualify as a downtrend the market must be making lower lows and lower highs.  Following the down price swing is a reaction, also called a retracement of the down swing.

This reaction becomes an up price swing, which is also followed by another reaction (also called a retracement of the up swing). This happens in forex trading online frequently (just look at practically any forex price chart).

The retracement of the up swing becomes a down price swing that can either lead to a sideways movement or an extension (of the overall trend).  The retracement of the up swing often moves sideways before it makes a new low (that is, before it becomes an extension of the overall downtrend).

As it is important to not lose sight of the original price swing in an uptrend swing, it is also important to not lose sight of the original price swing in a downtrend swing. 

The market does not make an extension (extending the overall downtrend within which the swing exists) unless it passes through the last level of support and makes a new low.

The market can move sideways within the original swing before breaking or continuing the downtrend.  Always keep in mind that there are swings inside of swings and trends inside of trends. You’ll be much better at online forex trading when you can fully understand this concept.

Don’t lose sight of your long-term outer and outer trend lines as well as your inner trend lines.

In the next rapid forex blog post I’m going to explain how the fibonacci sequence can be applied to online forex trading

Posted in Fibonacci