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126 Pip Pivot Point Profit

Pivot Points are an incredibly useful online forex trading technique. A recent trade of mine yielded a 126 pip profit in only 50 hours, which grew my entire trading account by 10.04%, which is exceptional for 20-30 minutes worth of work!

Why Forex Pivot Points?

Pivot Points are one of the most commonly used methods of online forex trading. The pivot point takes the High, Low, & Close prices from yesterday and generates Support & Resistance target prices.

Forex Pivot Points are uncannily accurate when combined with the right directional entry strategy. In the example below you’ll notice the predictive nature of forex pivot points for online forex trading success.

Spotting Trend Direction

In the Forex Sailing course I explain the fibonacci wave theory for determining trend direction. In a recent post, I also explained EMA/MACD divergence for signaling key trend movements.

While the trade below could have been an excellent Sail, it also would have required a stop of several hundred pips, which would have violated the money management system followed by the LIVE Forex Training class.

For this reason, I used pivot points to capture a shorter term profit of 126 pips in 2 days. Here’s how the trade unfolded.

EUR/USD Daily Trend Moves Down

From Forex Sailing we had a forex umbrella handle form after breaking a longer uptrend on the daily chart for the EUR/USD. I’ve labeled the fibonacci wave with the key points of I, II, II on the daily chart below:

In the chart shot above notice how there is good separation of the EMAs and how the MACD is increasingly negative as prices make new lows. This is a strong signal that prices will continue moving down for several days. We also moved past II, which means we should move to a lower low to reach IV.

To confirm this direction I also looked at smaller timeframes, which lined up nicely as well to indicate downward movement. As indicated on this 4 hour chart below:

In this chart we also had nice EMA separation, and an increasingly negative MACD. While there was a fair amount of divergence, the trend direction was still downward. But a large enough stop was needed to make sure the divergence didn’t retrace too much before the trend continued.

The 15 min chart below also indicated a downward moving trend:

As newer lows were made we maintained a widening of the EMA, we also maintained strong negative MACD divergence as new lows were made.

Downtrend Confirmed -> Let’s Trade

With a downtrend confirmed on these timeframes, it was time to look at our pivot points for good stop/limit prices. For the entry price I used a price close to the pivot and found a EMA/MACD divergence on a 5 min chart.

Initially I set the following trade parameters:

Entry: 1.3397 short

Stop: 1.3547

Limit: 1.3274

This gave us a good reward/risk ratio of 82%. We were below the pivot price of 1.3453, so the stop was less likely to be hit than our limit. This initial trade would have netted 123 pips profit.

24 Hour Adjustment

The next day the pivot points were recalculated because the trade was still in progress.

Entry: 1.3397 short

Stop: 1.3411

Limit: 1.3271

This reduced our risk to only 14 pips, and increased our profit 3 pips from 123 to 126 pips. The next day the trade was exited for a profit. Here’s the picture of what happened during the life of this trade on the hourly chart:

You can see the entry price of 1.3397 (red line). You can see the price at which the limit was hit 50 hours later at 1.3271 (blue line). The stop isn’t included on this chart because that price was never approached

As you can see the price consolidated a bit, but moved downward overall. We managed to get in near the top of this price movement and captured a 126 pip profit in only 50 hours.

Posted in Technical Analysis

Forex Gambling Mentality Kills Profits

Every forex trader understands that we need to use basic forex money management to be successful at forex trading online.

This mentality caused a winning series of trades (60% success) to lose 700% of a forex trading account that should have gained 520%. Read this post to see how a profitable forex trader can still lose so much money, and how you can prevent this from happening to you.

Confession: This trader was me a few years ago when I got started trading forex online. I’d be willing to bet something like this has happened to you…

Why is Money Management important?

It prevents what I call the “Forex Gambling Mentality,” when you see how this can turn online forex trading PROFITS into LOSSES, hopefully you’ll beat this dangerous way of thinking forever.

What is the Forex Gambling Mentality?

When you follow impulsive decisions to determine the amount of risk you take on a forex trade, you are falling into the Forex Gambling Mentality. Anything outside of a predetermined money management strategy is considered a forex gambling mentality.

Let’s look at an example:

• You enter trade #1 and risk 10 pips to make 10 pips. The trade succeeds and you make 10 pips!
• You enter trade #2 and risk 10 pips to make 10 pips. The trade succeeds and you’re now up 20 pips!
• You are felling good, so on trade #3 you risk 20 pips to make 20 pips.  The trade succeeds and you’re now up 40 pips!

At this point you’re feeling like you’ve mastered forex trading. You get out your calculator and start figuring out that at this rate of compounding your forex trading profits you’ll have $2.5 million in your online forex trading account in about 9 weeks (TRUST ME – I’ve actually thought this way, and you probably have to).

You are now cocky and you start trading again, since you’re on a roll you decide to trade more lots to make more money faster.

• You enter trade #4 and risk 40 pips to make 40 pips. The trade fails and now you are at breakeven!

You’ve still been successful 3 out of your last 4 trades, so you do another trade:

• You enter trade #5 and risk 40 pips to make 40 pips. The trade fails and now you are down 40 pips!

Now you get nervous and decide to be more conservative, so you go back to what was successful for you in the past:

• You enter trade #6 and risk 10 pips to make 10 pips. The trade succeeds and you’re only down 30 pips!
• You enter trade #7 and risk 10 pips to make 10 pips. The trade fails and you’re down 40 pips!
• You enter trade #8 and risk 10 pips to make 10 pips. The trade succeeds and you’re only down 30 pips!

You now look at your past 8 trades. You think to yourself  “I’ve been right 5 out of 8 times, or 62.5% of the time.  I’ve been allowing my emotions to control me. I need to stick to my plan. If I just risk 20 pips to make 20 pips, I’ll be successful.”

So you do the following:

• You enter trade #9 and risk 20 pips to make 20 pips. The trade succeeds and you’re only down 10 pips!
• You enter trade #10 and risk 20 pips to make 20 pips. The trade fails and you’re down 30 pips!
• You enter trade #11 and risk 20 pips to make 20 pips. The trade fails and you’re now down 50 pips!

You’re down 50 pips, so you look at what you’ve been doing to try to analyze patterns and stop making the same mistakes. You’re not too worried yet, so you notice the following. You’ve still been right 6/11 times. You also notice that you’ve never had three failing trades in a row. Since you just had two failed trades, now’s your turn to put the odds in your favor. So you decide to go for breakeven and risk 50 pips to make your money back:

• You enter trade #12 and risk 50 pips to make 50 pips. The trade fails and you’re now down 100 pips!

Now you feel like you’re having bad luck and aren’t going to risk any more money wildly. You’re still in the game and you know you can still make money with trading forex online, so you go back to risking 10 pips and the following happens:

• You enter trade #13 and risk 10 pips to make 10 pips. The trade succeeds and you’re only down 90 pips!
• You enter trade #14 and risk 10 pips to make 10 pips . The trade succeeds and you’re only down 80 pips!
• You enter trade #15 and risk 10 pips to make 10 pips . The trade succeeds and you’re only down 70 pips!

STOP! END OF EXAMPLE

It doesn’t seem right that a forex trader who is profitable 9 out of 15 times (60% of the time) could lose so much money trading forex online. This is the same reason that compulsive gamblers lose money, they don’t follow basic forex money management of trading only 2% of their account per trade. By doing this the forex trader gets to be more profitable. This is what forex losers do.

A forex winner who is free of the forex gambling mentality would have had the following experience (with the same trades):

• You enter trade #1 and risk 10 pips to make 10 pips. The trade succeeds and you make 10 pips!
• You enter trade #2 and risk 10 pips to make 10 pips. The trade succeeds and you’re now up 20 pips!

You notice that your account size has grown & you can now safely risk 12 pips to make 12 pips.

• You enter trade #3 you risk 12 pips to make 12 pips.  The trade succeeds and you’re now up 32 pips!
• You enter trade #4 you risk 12 pips to make 12 pips.  The trade fails and you’re still up 20 pips!
• You enter trade #5 you risk 12 pips to make 12 pips.  The trade fails and you’re still up 8 pips!

You notice that your account size has shrunk & you can now only safely risk 10 pips to make 10 pips.

• You enter trade #6 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 18 pips!
• You enter trade #7 and risk 10 pips to make 10 pips. The trade fails and you’re still up 8 pips!
• You enter trade #8 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 28 pips!

You notice that your account size has grown & you can now safely risk 12 pips to make 12 pips.

• You enter trade #9 and risk 12 pips to make 12 pips. The trade succeeds and you’re up 40 pips!
• You enter trade #10 and risk 12 pips to make 12 pips. The trade fails and you’re still up 28 pips!
• You enter trade #11 and risk 12 pips to make 12 pips. The trade fails and you’re still up 16 pips!

You notice that your account size has shrunk & you can now only safely risk 10 pips to make 10 pips.

• You enter trade #12 and risk 10 pips to make 10 pips. The trade fails and you’re still up 6 pips!
• You enter trade #13 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 18 pips!
• You enter trade #13 and risk 10 pips to make 10 pips. The trade succeeds and you’re up 28 pips!

You notice that your account size has grown & you can now safely risk 12 pips to make 12 pips.

• You enter trade #14 and risk 12 pips to make 12 pips. The trade succeeds and you’re up 40 pips!
• You enter trade #15 and risk 12 pips to make 12 pips. The trade succeeds and you’re up 52 pips!

You notice that your account size has grown & you can now safely risk 14 pips to make 14 pips.

Would you rather be up 52 pips, or down 70 pips?

This is the difference between the Forex Gambling Mentality and Basic Forex Money Management.

Posted in Money Management

Six Killer Forex Trading Strategies

There are several forex trading strategies that can bring you profits. However, what works in a trending market may not work in a sideways market (and vice versa).

Here are six general strategies for placing trades in different forex trading situations. You may have seen some of these ideas in previous blog posts, but this will be a nice summary of forex trading rules to print and keep by your forex trading desk.

Remember to combine the general information listed here with the more detailed, case-specific information you’ve learned throughout this blog.

Strategy #1: This forex trading strategy works well in both sideways markets and trending markets. To trade the first trading strategy, follow these steps:

1. Enter with one lot.

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).
3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.
4. Go for small profits, don’t get greedy.
5. Exit just before the market makes a new high or low. Exit as the market passes through the previous level of support (resistance) to make a new low (high).

Strategy #2: This forex trading strategy works better in sideways markets, but also works fine in trending markets. To trade the second forex trading strategy, follow these steps:

1. Enter with several lots (5 or 10, for example).

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the risk-reward ratio. Keep your potential losses small.

4. Go for small profits (20-30 pips). You should be in and out of the trade quickly.

5. Exit just before the market makes a new high or low. Exit as the market passes through the previous level of support (resistance) to make a new low (high).

Strategy 3: This forex trading strategy works well in trending markets and poorly in sideways markets. To trade the third forex trading strategy, follow these steps:

1. Enter with one lot.

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Cancel and replace your original stop loss order (to seal in profits). Only cancel and replace the previous stop loss order after the market has made a new high (low).

5. Don’t set a profit limit order. Stay in the market until you are automatically exited when the market hits your stop loss order price (when you are stopped out).

Strategy #4: This forex trading strategy works well in trending markets and modestly in sideways markets. To trade the fourth forex trading strategy, follow these steps:

1. Enter with two lots.

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Exit with one lot for a small profit before the market makes a new high or low. Exit as the market passes through the previous level of support (resistance) to make a new low (high).

5. Exit with the second lot just before the market hits to Fibonacci extension bounce point (you will be going for a larger profit with this lot).

Strategy #5: This forex trading strategy works well in trending markets and poorly in sideways markets. To trade the fifth forex trading strategy, follow these steps:

1. Enter with multiple lots (5 or 10, for example).

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Place limit exit orders for each lot at different pip increments (e.g. place your first exit order to exit one lot at 40 pips away from entry; place your second exit order to exit one lot at 60 pips away from entry; place your third exit order to exit one lot at 100 pips away from entry; place your fourth exit order to exit one lot at 150 pips away from entry; place your fifth exit order to exit one lot at 200 pips away from entry).

5. Once the market has started to trend and has moved 100 pips or more away from entry, cancel and replace the stop loss orders for your remaining lots to eliminate your risk. In this case, cancel your original stop orders for the fourth and fifth lots, replacing those stop orders at the breakeven point (the market price 100 pips away from entry).

Strategy #6: This forex trading strategy also works well in trending markets and poorly in sideways markets. To trade the sixth forex trading strategy, follow these steps:

1. Enter with multiple lots (5 or 10, for example).

2. Place your stop loss order at the last level of support if you are a bull (you are buying) or the last level of resistance if you are a bear (you are selling).

3. Analyze the potential risk compared to the potential reward in the trade. Keep your potential losses small.

4. Place limit exit orders for each lot at different pip increments, just as you would in the fifth trading strategy, except this time don’t set a limit exit for the last lot (the fifth lot, in this case). Instead, allow your trade to take advantage of potentially huge moves.

5. Once the market has started to trend and has moved 100 pips or more away from entry, cancel and replace the stop loss orders for your remaining lots to eliminate your risk. In this case, cancel your original stop orders for the fourth and fifth lots, replacing those stop orders at the breakeven point (the market price 100 pips away from entry). As you follow the market with your fifth lot, continue canceling previous stop loss orders and replacing them at new highs or lows, to lock in your profit.

Now you have 6 different forex trading strategies for different market situations. Mastering a few of these could become your bread and butter as a forex trader. The rapid forex blog will continue to teach you more forex trading strategies, but knowing these will add valuable tools to your forex trading toolbox!

Posted in Money Management