Money Flow Trading Method along with Risk Management

Charts for today, thought I would do it later each day, after 1 pm SA time (GMT +2)

Good Morning Ladies and Gentleman

Before I comment on the post of KeepCalmfx , I will share my thoughts on where we are this morning. Overnight both in Asia and Europe the mood for the moment is Risk On. That may change at 8:30 AM EST or before because of Bank Earning about to come out and the big FUNDAMENTAL number for today, to set the TONE for the morning is Retail Sales. It does not matter what the actual number is to determine if we go to Risk Off because it is all about MOOD !!!

I am going to start talking more about MOOD or to explain it another way the PSYCHOLOGY of the markets and more important the PSYCHOLOGY of the Forex and other traders. Other traders include the front running Robo traders in the Equity Markets since they start the NEW MONEY FLOW each day based on what NEW FUNDAMENTAL FACTS that come out. (Please keep in mind these facts may or may not be accurate and by understanding the condition of the economy without the spin and the wrong information you definitely have an EDGE.) The best example of that is NFP and the FANTASY UI number of 4.7% that ignores 95,000,000 Million humans not in the work force.

Now to my comments and reaction to the following words of KeepCalmfx.

With the money flow method it takes time and research to get to the big picture, the truth. Now all of the hours you have put into researching has paid off. Now that we have a sneak peak in the future, we know that the US 30 will fall and so will the JPY.

COMMENTS FROM BENJAMINIS: You are correct however in your particular case you have learned a tremendous amount in under one month which confirms the work and learning ethic. My comments enforce the importance of knowing the difference between PERCEPTION AND REALITY. That goes to the PSYCHOLOGY of the people and the markets. I am going to post less information through articles because we have much already on our thread and the knowledge is there if anyone wants to read and understand it. I will start to discuss more about MOOD or as I have started to say today the PSYCHOLOGY.

Now most of the work has been done and we just wait patiently for the price to get at a certain resistant levels to short in the trend's direction which is clearly down. Then the price will retrace again and we short again when we have our confirmation through technical analysis until something change then we re-evaluate our trading plan.

COMMENTS FROM BENJAMINIS: Excellent KeepCalmfx , you now understand and now what you need to do is practice and now you just need to KEEP learning in a CALM way without FEAR or GREED as you have demonstrated that you are capable of. We again go to my new words , MOOD and PSYCHOLOGY. They are new in that now my focus starts to turn more there because of the good success of our better students. All those that have taken the time and effort have improved as the results clearly show. My own Forex Trading has improved as we have put together a team and it focuses my attention as I go through my Forex Trading day. When I am not around others here as KeepCalmfx has demonstrated can carry on. This of course includes wayfarer and other regular posters. It does not exclude some others that for the moment cannot post more regularly however they are there and will start posting and sharing in the near FUTURE.

So before you enter any position you check for big news events, watch the US30, US Dollar index and US 10 Yr bond and they will tell you if we have risk on or risk off. When we have risk off you wait for confirmation to enter a position through doing technical analysis and then you must just act in placing a position with your SL and TP.

So now trading becomes so easy and very enjoyable.

Trading without fear really makes trading so much fun. The last 2 week has been the most fun I every had trading! And we also don't need to be greedy because the next trade is just around the corner.

Good morning wayfarer

You also have an excellent understanding and your technical skills add much to our ability to have a much better X RAY of what is happening at the moment.

YOU HIT ON THE RIGHT WORD , some call it by another word which is CORRELATION which is what we use however because of the GREAT AFFECT sometimes in seconds by the Robo Traders programmed by humans of course they do not think as they are PROGRAMMED through algorithm.

That then moves the markets and is the reason sometime that we have great volatility and why the Pivot Points and the Supply and Demand and Support and Resistance is also KNOWN to the TOP COMMERCIAL TRADERS and the Robo Traders.

Now you need to work on your Forex Trading along the lines of KeepCalmfx who has this done almost perfect by seeing the actual results produced to date.


Benjaminis

I want to point out to everyone that we have some very IMPORTANT serious GEOPOLITICAL EVENTS that we must be aware of and monitor.

There was an attack by Israel on a Syria Military base late last night. Syria of course have said that they will retaliate. When this is probably about is the meeting of 72 Nations in Paris on Sunday absent Israel and the Palestinians. Monday is Martin Luther King day in the USA and all the confirmation hearing are postponed now until Tuesday. You need to monitor these events for obvious reasons. The earnings for the large banks have come in and since they are part of the Dow 30 (US 30) they could move the Dow UP or Down starting at 9:30 AM EST.

Another MAJOR event starting on the 17 of January is the Annual Davos Meeting in Switzerland is where behind the scenes SECRETLY the Power Brokers and Billionaires of the World start to plan out what they hope to have happen for at least the next six months so WE just need to be aware of it and hear what they then publically say to the world and then expect them to do the REVERSE.

The World Economic Forum’s big annual meeting in Davos, Switzerland, begins on Jan. 17. While the full roster of attendees has been closely guarded at times in the past, the forum now makes a list of participants public ahead of the conference. Released today, we used that document to create the tool above.
The attendee list provided by the WEF isn’t comprehensive. There is still time for people to change their schedules or run into a conflict that would force them to cancel their plans. And as in prior years, certain high-ranking government officials don’t appear on the list ahead of time. Chinese president Xi Jinping will be the first person holding that office ever to attend, and yet he is not listed.
Nonetheless, this year’s confab includes government ministers, titans of industry, academics, philanthropists, and royalty from around the world, according to the names that are on the list. Use our tool to explore the list of those expected to attend, according to the WEF, and follow the rest of Quartz’s coverage here.

https://qz.com/881899/the-list-of-wh...in-davos-2017/

I am going out for breakfast now and will come back in about two hours or less.

Have a good trading day and get ready to smell the roses and enjoy your Weekend.


Benjaminis

Just an observation I made on the US30 - 30 min chart.

Look at the 2 blue squares.

The 1st square's fall started last week Thursday, 5 January at 17:30 GMT+2
+/- 43 x 30min bars

The 2nd square started this week Thursday 12th of January at 16:00 GMT+2
+/- 42 x 30 min bars currently

I took as a basis for the consolidation zone, a short upward movement - it's landing "extra passengers." Perhaps the price will go down further. According to JPY I have not yet opened the transaction, but it also will move down.

Very interesting article, on our theme! https://goldswitzerland.com/2017-spe...ds-and-stocks/

Это рок-н-ролл! [Приложить] Screenshot_63.png; 2139330 [/ приложите] [приложить] Screenshot_64.png; 2139340 [/ приложите]
10 year bonds down - up indexes. Began, 20 January - 7 days!

I am back online. Would you please explain to everyone here in case they are not clear what the significance is of the two blue boxes.

Keep in mind Option Expiry and Europe close for the week at 11:30 AM. There is more news coming out at 10 AM EST. Keep your eye on everything. Make good use of the RANSQUACK 30 day free trial. Focus on your trading.

Let us do it as we now know how and please anyone if you do not understand please ask questions. carbonado has asked many many good questions and no question is bad or stupid because if you KNOW then we also KNOW !!!


Benjaminis

I found the following reply that I made to KeenPips here on Forex Factory on December 11, 2016 that I have copied and will paste here as it contains information that now is understood on our thread.

Thanks brother KeenPips

I really enjoy sharing my experience and knowledge with fellow traders which of course includes any ladies out there.

The KEY for me is to develop a Trade Plan. I have 2 right now that is based on logic and my Money Flow Method.

As you asked about Risk Management that is the KEY !!! I teach people by having them use a $50,000 US Funds Demo Account with FXCM UK. That way you can learn without having any FEAR !!!

Now to my actual strategy. On a $50,000 US Dollars Demo Account , I NEVER USE more than 20% of my trading capital. I also NEVER risk more than 6% of my capital on any one Trade Plan.

I learned a most valuable lesson during the start of my Forex trading career during March 2006. I had a client that deposited a total of $25,000 US Dollars with Trade Freedom in Montreal. I was up $25,000 US dollars within 30 days or so and my new balance trading under a LPOA (Limited Power of Attorney) was around $50,000 US dollars. I decided to go long One Million Dollars EUR/USD and to my horror one afternoon around Noon Time Alan Greenspan said something that caused EUR/USD to go down over 200 PIPS. I was SO SURE that it would REVERSE so I held it for another 30 days or so and I actually got out of my one position with a small profit. I was using the Saxo Platform at the time.

The GREAT LESSON was to in FUTURE SCALE in my positions up to my maximum Risk Management Strategy. I usually have a MAXIMUM LOSS of 100 PIPS so on one of my Trade Plans of short USD/JPY , I scale in my first position as I have done on my present demo account with FXCM UK posted on my thread. The second position is put on as it moves against me and it is usually my third position that turns out to be most profitable. If I have made a mistake on my Trade Plan then my MAXIMUM LOSS is 3 positions and the loss is $3000 US Dollars or 6% of my trading capital.

If you have any questions at all please post them and if you would like to open a demo account with FXCM UK and mail me your User Name and password then over the next 30 days I can see how you are doing. I also need to show you or anyone what symbols are needed. I use 16 different ones for my Money Flow Method. They are EUR/USD EUR/JPY USD/JPY GPD/USD USD/CNH US Dollar USD/CHF EUR/CHF AUD/USD USD/CAD XAU/USD XAG/USD US30 NAS100 SPX500 Copper UKOil and BUND.

You can clearly see how by watching these symbols I have a much better handle in live time on Money Flow. I also always have LIVE CNBC and use a service like Trade The News where I have LIVE VOICE commentary on the Forex and other markets which again give me an EDGE. I hope this information has been helpful to you and other Forex traders on Forex Factory.

DO NOT FORGET THIS PLEASE !!!

What's the most most important thing a trader needs to know?

Answer: The most important skill you
have in trading is knowing exactly what
to do after a loss. What you do
next is what makes you great.

Let me take you through a little
progression.

If you know how to trade, you love it!
If you love trading, you know that losses
happen.

If your trade loses, you might think
it happened because you were wrong or
you made a mistake, or you just didn't
know what you were doing.

I have good news for you. None of that is true.
You were not wrong. You did not make a
mistake, nor did you fail to understand
what the market was doing.

When your trade loses, it's because the market's
timing was not there for you. Not only were
you not wrong to stop out of the trade, you
were exactly right!

What you do next is what defines you
as a trader.

Anyone can trade. Anyone can learn a strategy
and open and close a trade. What separates the
winners from the losers is what the trader does
after a loss.

- Jennifer Thornburg

Thanks for the link wayfarer

US dollar on the way to new lows
A collapse of US bonds would not just cause panic in global bond markets but also in currency markets. Just as the bond market has turned down (yields up), it seems that the US dollar has now topped and will continue its long-term downtrend. The US dollar index below shows that the new correction high of the dollar is not confirmed by the technical indicators. The dollar against the Euro shows a similar picture.
https://i0.wp.com/goldswitzerland.co...27%2C316&ssl=1
Weak dollar – a sign of a mismanaged economy
For anyone under the illusion that the dollar is a strong currency, just look at the chart below of the US$ against the Swiss Franc. During my working life, I have seen the dollar fall 76% against the Swissy. Hardly the sign of a strong currency. It now looks like the next leg down of the dollar is imminent. Against the Swissy, I would expect another 50% fall of the dollar to 0.50. That doesn’t mean that I believe that the Swiss Franc will be a strong currency. But I do see a collapse of the US dollar until it reaches its intrinsic value of ZERO or just above.
https://i2.wp.com/goldswitzerland.co...13%2C275&ssl=1
2017 last chance to take dollars out of the US
The weak dollar shows the total mismanagement of the US economy and thus of the US currency. With total debts in excess of $ ¼ of a quadrillion including unfunded liabilities, there is only one direction the dollar can go. Currently the dollar is massively overvalued due to its reserve and petro currency status. The main reason for the dollar demand has been it use as the currency for all global oil transactions. Although this is now only changing slowly, it is likely to accelerate in 2017 and onwards. Once the yuan, ruble, euro and gold assume the role of the dollar as the preferred payment for oil, the reserve currency status of the dollar is finished.
So it looks like the dollar will lead the race to the bottom of all the currencies. No currency will fall in a straight line and they will all take turns in this race. What holders of dollars and other currencies must remember is that governments and central banks will be under tremendous pressure during a simultaneous fall of credit markets and currency markets. Because both these events will lead to a massive pressure on the financial system and especially the banks. Governments will need to take draconian measures in their futile attempt to save the banks. It will be impossible to take any money out except for very small spending money and even that might not be available. It will be mandatory to invest the major part of deposits and any other assets in your bank account in government bonds that must be kept for an undetermined period.
At the same time, as most bank assets will be frozen, there will be very strict exchange controls. This will make it totally impossible to transfer any funds out of the country except for some commercial transactions. There is therefore probably not much time left for investors to put their house in order and take the necessary wealth protection measures. This involves holding physical gold and silver in the safest jurisdictions outside your country of residence and outside the banking system.
Bitcoin is not wealth preservation
Bitcoin has benefitted from the current fear in financial markets and has risen 100% since January 2016. But it is a volatile market and in the last few days we have seen a 33% fall. It is likely that Bitcoin will continue to rise since many investors believe that this is the best way to avoid any currency restrictions, regulations, bank failures or confiscation. But investors must remember that Bitcoin has nothing to do with wealth preservation. Bitcoin is an electronic currency not dissimilar from paper money. Bitcoin, like paper money, has zero intrinsic value. Also, the risks are manifold. Bitcoins can disappear without trace. And if something happens to the internet, like temporary shutdown or cyber-attacks, investors will have a problem using their Bitcoins. But I see the biggest problem being government regulations. If Bitcoin and other cyber currencies are too successful, governments will start regulating that market until it becomes just another paper currency.
HUI – the Gold Bugs Index – indicates a big move coming in gold and silver
I still don’t see a better form of wealth preservation than precious metals. Gold in many currencies bottomed in 2013. In dollars, gold bottomed at the end of 2015. We saw a strong move up until mid-2016 and since then both gold and silver have corrected down. It looks like this correction has now finished and the clearest indication is given by the HUI or Gold Bugs Index. Since December 19, 2016, the HUI is already up 27% and it is also up 27% against the Dow since December. HUI will continue to vastly outperform all other stocks globally.
https://i2.wp.com/goldswitzerland.co...13%2C275&ssl=1

Just comparing charts and not questioning others charts however a question that I have for our skilled Forex traders using various technical indicators.

http://www.forexfactory.com/attachme...9&d=1484316025

Has the addition of SAR and Fractal and Awesome Oscillator been of help ? I have a few others to suggest however for now we have good coverage. Please give me feedback concerning the linked chart. Thanks !!!


Benjaminis

As I said earlier today now my focus goes back to you the Forex Trader.

I share the following general rules that always work as long as you know them and have the DISCIPLINE to follow them.

Trading Rules for Successful Traders

1. Limit your losses.

2. Let your profits run.

3. Keep position sizes within reason.

4. Know your risk-reward ration.

5. Be adequately capitalized.

6. Dont fight the trend.

7. Never add to losing positions. Dont average out.

8. Know market expectations.

9. Learn from your mistakes keep a trading journal.

10. Have a maximum loss or retracement in profits.



Some more useful information.

1. Never let a winner turn into a loser


2. Logic wins, impulse kills


3. Never risk more than 2% per trade


4. Trigger fundamentally, enter and exit technically

5. Always pair strong with weak

6. Being right but being early simply mean you are wrong

7. Know the difference between scaling in and adding to a loser

8. What is mathematically optimal is psychologically impossible

9. Risk can be and is predetermined but reward is unpredictable

10. No excuses, ever

The stock Market opens at 4:30 SA time, so the volatility is then much more, also with sentiment long or short, will then usually make a move and then back to main trend. Also depends on news events? Then when some of the markets close, volatility becomes less, then market range again?

Update on charts.

On that chart seems to be a fib retrace entry off of a range or break out zone. I personally entered long a little lower yesterday in the same demand area. Added today on retest of area but was stopped at break even during news release. I've locked in 1:2 profit stop loss a little below upper zone targeting 115.80-90 where i'll short to get back with the money flow.

This is probably a scalper or contra trend trader, trading against the trend or with. Trader trade the retracement, target 70 pips. Would have probably change after target to re-enter short? Not sure. But better probabilities in trading with trend.

I use the Fractal and SAR, not so much Awesome oscillator. what other indicators do you have up your sleeve? lol

Why Currency Trading Is Not For Everyone?

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, it is advisable to seek advice from an independent financial adviser.


Psychological Challenges of Speculative Trading

An Extract from the book of “Beat the Odds in Forex Trading” by Igor Toshchakov, published by Wiley

A successful trader’s career mainly depends on his or her psychological stability in stressful situations, which are common in the process of trading. Theoretical knowledge can be acquired by reading professional literature; practical skills and experience are acquired in the process of actual trading. The most difficult process is adjusting psychological stress, because in real life it is impossible to completely eliminate the stress factor influencing human activity.

Underestimating the stress factor could play a mean trick on trader and even completely block their abilities to make reasonable decisions in real trading situations. The psychological stress of those trading in the FOREX (and any other) market is extremely high. Traders must work under permanent psychological pressure, making decisions in highly unpredictable and uncertain market situations.

Each trader goes through mistakes, failures, and losses in his or her own way, in accord with his or her personality and temper. Some might blame their failure on market’s “wrong behavior”, which didn’t comply with the trader’s brilliant forecast and caused the failure of the magnificently planned speculative combination. Others blame themselves and their own inabilities to make right decisions in situations, which afterwards seem to be simple. It is an interesting fact that, in hindsight, traders usually find the decision that should have been made at the lost critical moment and can reasonably prove their point of view.

Why can they find the right decision so easily and quickly in hindsight? Was the trader unable to do so at the right moment? I don’t think it can be simply explained by looking at yesterday’s situation from today’s point of view. I do not think it can be explained by the fact that classical technical analysis at allows
for multiple explanations of almost any market situation. It is always possible to find an appropriate basic explanation for any market shift after the event takes place. In the heat of the moment, however, the trader was influence by stress, and that stress caused the error. This is proven by the fact that most novice traders show exceptionally good (and even phenomenal) results trading dummy accounts but can’t even come near those result when trading with real money.

Being permanently under stress, a trader can often make insufficiently considered, impulsive, and therefore, wrong decisions that result in losses or premature liquidation of profitable position, that is, in lost profit. Sometimes, after a few successive failures with various trades, traders become fearful of the market. They are in as state of psychological stupor, and even a simple market situation may cause panic. They cannot overcome their emotions or soberly evaluate the current situation, and they are unable to make any decision – reasonable or otherwise. In many cases when the market situation shifts against the trader’s position, they can only passively watch the growth of their losses, because they are unable to make any decision at all. Often, after the market stabilizes and traders have the opportunity to calmly analyse daily diagrams of currency fluctuations, they come to the conclusion that the main cause of failure was not the lack of knowledge or training but their own emotions. However, the situation cannot be reversed. Time has passed, money has been lost, even everything should be begun again.

Another problem that causes severe and even catastrophic consequences is the trader’s willful thinking. In this case, traders are sure that their forecast of market trends is solely correct. They feel the market cannot and should not give any surprises. They do not consider other options that could be helpful or they think of other options in a vague and uncertain form. Sometimes, traders consider a market shift against their positions. They acquire new contracts at a lower price in the hope that the market situation will come back, and all the positions will become highly profitable. Afterwards, as the situation worsens, they will be able to come out of the market without serious losses. Being sire they are right, traders lose the ability to critically evaluate the condition of the market and accordingly their own position in the market. In this case, they consider only those basic and technical features that justify their wishful thinking, and they
discard the contradicting features. This wishful thinking costs them dearly and can lead to psychological frustration. The market’s “wrong behaviour” not only deprives traders of a certain amount of money and often ruins their trading account, but also undermines their self-esteem and their hopes of being a winner in the trading battle.

After such a loss, traders blame themselves, repeatedly going through the details of the unsuccessful trade. They blame the market for the “wrong behaviour” or themselves for errors in what then seems an absolutely clear situation. Sometimes, the trader-market relationship takes the form of a vendetta. Traders consider the market as their personal enemy, treat it in an unfriendly way (even with hate) and dream of immediate revenge. Doing so, they miss the fact ht at they are essentially blaming nature for changing sunny weather to rain. It is very important to be prepared beforehand for this change. Traders should always have close at hand one or few options in case of sudden change of the situation/weather, so that their foresight assures their good time or good profit.

The third main psychological problem is trader uncertainty, especially when traders are inexperienced in abilities and skills – specifically about each market position they hold. Immediately after each position is opened and a money contract is bought, treaders start questioning their choices. This is revealed most vividly in the case of a moderately active market at the moment of fluctuations close to the opening price of the position. Any moment (even insignificant) against their position causes traders to have an irresistible desire to sell the recently acquired contract to limit losses, until it is too late and the market does not shift too far away from their position opening price. On the other hand, an insignificant market shift in the desirable direction causes the same desire to eliminate the position, until it provides for any (even tiny) profit and before this profit does not turn into losses.

Sacred and trouble traders rush and race about. They open and liquidate their positions too often, and experience many small losses and gains. Within a short period of time, they turn intermittently into bulls or bears. As a result, they suffer losses on a dealer’s spread and/or commissions when there were no significant market changes, and all the market fluctuations were no more than just regular market “noise”. Such losses are typical for beginners and individual traders with small investment capital or little experience and insufficiently psychological preparation.

Not uncommon are cases of traders’ impulsive decisions on trading, without any plans or serious preliminary market analysis. The position is opened under an impulsive, invalid emotional reaction. Often, it can be explained by traders’ fear of losing a brilliant opportunity to earn money they think is being offered by the market at that moment. I have witnessed these attempts to jump onto the last carriage of a departing train, and such attempts have ruined a lot of traders. Many traders cannot calmly watch any kind of market movements. Some of my students have confirmed this reality. If they have no positions at the moment of more or less significant market movement, they consider it as a lost opportunity to gain profit. This can inflict a serious shock to them.

When they have no position, they seem unable to realize that each market movement can be considered both ways, and the opposite situation can quite possibly develop. Statistics show that, at each market movement, the chances to lose are much higher than to profit. How does it happen that reasonable people (who in everyday life, without any emotion, can watch a bank casher counting other people’s money) consider the fact of market movement as a threat to their own pockets? Why is other people’s money in the hands of a bank cashier not considered as a lost profit, whereas capital shift on the market and the corresponding quote fluctuations are causes of negative emotions? I think the answer is in the illusory simplicity of business itself, which is considered by many people as a good and simple opportunity to earn a lot of easy money. Similar notions are widely spread among novice currency traders. The soon traders abandon such ideas, the sooner they become professionally efficient traders.

The most difficult problem for every trader (regardless of their experiences) is to learn as quickly as possible how to recover quickly from losses, which are inevitable in this business. At the same time, they must learn to handle shocks and psychological damage inflicted by the losses, because there situations could negatively influence their future work.

The losses themselves and the fear of losing, both of which permanently torture traders, negatively influence their ability to make reasonable decisions in a complicated situation. These factors also undermine traders’ ability to follow their own rules about trade strategies and systems.

I have become personally acquainted with hundreds of traders and have watched their activities. I have taught many students, and have had my own experience as a trader at various steps of my career in the currency market. Therefore, I have come to the conclusion that the main causes of trader failures in speculative operations in the FOREX marker are without a doubt those associated with psychological trauma – the inability to control their own emotions and to find an adequate way to fight stress.


Comments from Benjaminis: The above is important since as I have stated the most important person to make money trading Forex is "YOU"

Europe closes in 15 minutes so watch for Short Covering and the VOLUME goes down as only North America is on board and of course those HFT (High Frequency Traders) or Robo Traders. They are one CLICK AWAY (FLASH CRASH ANYONE)

According to some analysis: although defining trade parameters is important to traders in any market, it is particularly important in the currency market since over 80% of the volume is speculative in nature. This means that currencies can spend a very long time in a certain trading environment. Also, the currency market obeys technical analysis particularly well given its large scale and number of participants.


Too many traders have tried to pick the top within a trend, only to wind up with consistently unprofitable trades.

There are basically 2 types of trading environments, which means that at any point in time an instrument is either range trading or trending. The 1st step every trader needs to take is to define the current trading environment. The shortest time frame that traders should use in step one is daily, even if you are trading on a 5-minute time frame.


How to Trade Trend?

To trade trend the trader needs to answer 3 basic questions:

1. Trend detection - When is a trend in place?
2. Trade entry – How is a position initiated?
3. Trade exit – What constitutes trend exhaustion?

The use of Bollinger Band is a more accurate way to glean trend, though it is often used for range-bound markets.

What is trend really? The author will postulate that trend is actually a deviance in price. Typically, in all markets prices stay in a range somewhere between 70 and 80% of the time. Therefore, when prices decide to trend they in fact deviate from the norm. That is why Bollinger Band (“BB”) becomes one of the best tools to measure deviation in technical analysis. The BB formula contains the standard deviation (“SD”) calculation within it. BB measures the standard deviation of price away from its 20-period moving average. … Price action is captured within the 1SD – 2SD Bollinger bands.

THESE BB bands divide the price action into 3 separate areas. If prices are between the upper 1 standard deviation BB and the upper 2 standard deviation BB, they are in the buy zone. If a specific currency is trading between the lower 1 SD BB and the lower 2 SD, then its price is in the sell zone. Price candles that exists in the area between the 2nd BB bands are in effect in no-man’s-land as markets struggle to find direction.

With the BB bands approach, the trend detection rule is quite straightforward. The author considers the uptrend to have commenced once the price closes – not simply penetrates, but closes – in the buy zone. The idea behind this rule is that buyers must have enough conviction behind their actions to sustain a rally into the upper BB channel. If prices merely pierce the channel but cannot hold their value, then we do not have enough evidence of a clear up move in place.

The second component of the trade is perhaps the trickiest. Instead of simply entering the trade at market we will look for an opportunity to buy on any small dip into the no-man’s-land zone. IF the penetration of the buy zone is so powerful that prices reach the upper 2 SD BB, then we will wait for prices to retrace to the middle of the bands or to the 1 SD band. Why such hesitation? Shouldn’t we jump in the moment the trend becomes clear? No. Not if you want trade FX like a professional.

When it comes to trend trading in FX, the difference between professionals and amateurs is that while the pros are trend followers, the amateurs are trend chasers. The distinction may seem like nothing more than semantics, but in fact it’s often what separates those who earn money through trading from those who lose it.

Where would the trader abandon his position? At what point on the chart will be proven most likely wrong? If prices retreat all the way back to the lower 1 SD BB, then the trader should stop out. The probability that trend is over is very high. Note the difference in approach. In order for us to consider the trend valid, prices must not only touch but close through the upper 1 SD BB. As for our exit, a mere tag of the lower 1 SD BB will take us out of the trade. Why be so slow to enter and so quick to exit? Because, as I noted before, trend is not the common state of price, so price must really prove to the trader that it is making a directional move. Once price can’t hold trend, there is absolutely no reason for the trend t trader to stay around. His risks far outweigh potential rewards because he now faces 3 possible scenarios – consolidation, trend reversal, or trend continuation. 2 out of the 3 outcomes are unfavorable to his position and the last choice, which is advantageous, is usually the least likely under such circumstances.

Using the lower 1 SD BB provides ample room for the trend trader not to be falsely shaken out of the trade while the price meanders through the no-man’s-land zone before it decides whether it wants to continue its initial impulse higher.

Understanding the exits – the 3rd rule of the trade – may now be helpful to appreciating the 2nd rule of buying only when price retraces. It all has to do with risk and reward. Remember that in real life prices frequently fake out the trade. Just because price enters into the trend channel is no guarantee that it will remain there. If markers were highly predicable most traders would make money rather than losing it. The key to positioning in a trend-based setup is to minimize the amount of losses for the countless times you will inevitable be wrong, rather than to maximize the gains for the few times that you will be right. In trading, trends are the exception, not the rule, and in order to avoid being wiped out, traders need to try to always enter the market under the most advantageous of circumstances no matter what the market environment holds. Novice traders tend to succumb to the lure of the crowd and not restrain themselves from buying at the top or selling at the bottom. The more patient trader, however, who would wait for a retracement down to the upper 1 SDBB, would suffer only a smaller loss.

- Boris Schlosseberg, Technical Analysis of the Currency Market