EURCHF, M1, 2011 December 28
..and one more time.
Profit: +438.15$
(4.3%)
..and one more time.
Profit: +438.15$
(4.3%)
Please suggest a simple & effective Method/System of "Trading System" Forum to newbie 180 replies
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200 Ema system - help me build a system ! 19 replies
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Leg No.2 - Attitude
Attitude in trading means ensuring that you develop your mindset to reflect the following four attributes:
Leg No.3 - Discrimination
Different instruments trade differently depending on who the major players are and why they are trading that particular instrument. Hedge funds are motivated differently than mutual funds. Large banks that are trading the spot currency market in specific currencies usually have a different objective than currency traders buying or selling futures contracts. If you can determine what motivates the large players then you can often piggy-back them and profit accordingly. (For more on this type of strategy, see Stop Hunting With The Big Players.)
Leg No.4 - Management (Implementation)
Since there is no such thing as only profitable trades, no system will trigger a 100% sure thing. Even a profitable system, say with a 65% profit to loss ratio, still has 35% losing trades. Therefore, the art of profitability is in the management and execution of the trade. (Learn more in The Myth Of Profit/Loss Ratios.)
The Bottom Line
There are as many nuanced methods of trading as there are traders. There is no right or wrong way to trade. There is only a profit-making trade or a loss-making trade. Warren Buffet says there are two rules in trading: Rule 1: Never lose money. Rule 2: Remember Rule 1. Stick a note on your computer that will remind you to take small losses often and quickly - don't wait for the big losses. (For additional information, take a look at our Forex Walkthrough, it goes from beginner to advanced.)
by Selwyn Gishen
Selwyn Gishen is a trader with more than 15 years of experience trading forex and equities for a private equity fund. For the past 35 years, he has also been a student of metaphysics, and has written a book called "Mind: How Changing Your Mind Can Change Your Life!" (2007). Gishen is the founder of FXNewsandViews.Com and the author of a forex trading guide entitled "Trading the Forex Markets: A Foundation Course for Online Traders". The course is designed to provide the trader with all the aspects of Gishen's Fusion Trading Model.
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Effect on Short- and Long-Term Trends
With these factors causing both short- and long-term fluctuations in the market, it is important to understand how all these elements come together to create trends. While these major factors are categorically different, they are closely linked to one another. Government mandates impact international transactions, which play a role in speculation, and supply and demand plays a role in each of these other factors.
Government news releases, such as proposed changes in spending or tax policy, as well as Federal Reserve decisions to change or maintain interest rates can have a dramatic effect on long term trends. Lower interest rates and taxes encourage spending and economic growth. This has a tendency to push market prices higher, but the market does not always respond in this way because other factors are also at play. Higher interest rates and taxes, for example, deter spending and result in contraction or a long-term fall in market prices.
In the short term, these news releases can cause large price swings as traders and investors buy and sell in response to the information. Increased action around these announcements can create short-term trends, while longer term trends develop as investors fully grasp and absorb what the impact of the information means for the markets.
The International Effect
International transactions, balance of payments between countries and economic strength are harder to gauge on a daily basis, but they play a major role in longer-term trends in many markets. The currency markets are a gauge of how well one country's currency and economy is doing relative to others. A high demand for a currency means that currency will rise relative to other currencies.
The value of a country's currency also plays a role in how other markets will do within that country. If a country's currency is weak, this will deter investment into that country, as potential profits will be eroded by the weak currency. (Unique features of the forex market may allow larger players to get a jump on smaller ones; check out The Currency Market Information Edge also read Forex Trading Rules: Always Pair Strong With Weak for more on weak and strong currencies.)
The Participant Effect
The analysis and resultant positions taken by traders and investors based on the information they receive about government policy and international transactions create speculation as to where prices will move. When enough people agree on direction, the market enters into a trend that could sustain itself for many years.
Trends are also perpetuated by market participants who were wrong in their analysis; being forced to exit their losing trades pushes prices further in the current direction. As more investors climb aboard to profit from a trend, the market becomes saturated and the trend reverses, at least temporarily. (Find out what effect institutional investors have on the stock market and individual traders, read The Market Participant Playbook.)
The S & D Effect
This is where supply and demand enters the picture. Supply and demand affects individuals, companies and the financial markets as a whole. In some markets, such as the commodity markets, supply is determined by a physical product. Supply and demand for oil is constantly changing, adjusting the price a market participant is willing to pay for oil today and in the future.
As supply dwindles or demand increases, a long-term rise in oil prices can occur as market participants outbid one another to attain a seemingly finite supply of the commodity. Suppliers want a higher price for what they have, and a higher demand pushes the price that buyers are willing to pay higher.
All markets have a similar dynamic. Stocks fluctuate on a short and long-term scale, creating trends. The threat of supply drying up at current prices forces buyers to buy at higher and higher prices, creating large price increases. If a large group of sellers were to enter the market, this would increase the supply of stock available and would likely push prices lower. This occurs on all time frames. (The A/D line highlights buying and selling pressure to confirm existing trends; check out Trend-Spotting With The Accumulation/Distribution Line.)
The Bottom Line
Trends are generally created by four major factors: governments, international transactions, speculation/expectation, and supply and demand. These areas are all linked as expected future conditions shape current decisions and those current decisions shape current trends. Government affects trends mainly through monetary and fiscal policy. These policies affect international transactions which in turn affect economic strength. Speculation and expectation drive prices based on what future prices might be. Finally, changes in supply and demand create trends as market participants fight for the best price.
by Cory Mitchell
Cory Mitchell is an independent trader specializing in short- to medium-term technical strategies. He is the founder of www.vantagepointtrading.com, a website dedicated to free trader education and discussion. After graduating with a business degree, Mitchell has spent the last five years trading multiple markets and educating traders. He has been widely published and is a member of the Canadian Society of Technical Analysts and the Market Technicians Association.
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