The most important step for a forex trader is to begin on a solid foundation of a good education. This is key to preserving capital and ensuring the long term survival and ultimate success of the Forex trader.
The key to a good forex education is to get a great Mentor. A Mentor is defined as a wise and trusted counselor; someone who has already proven themselves and can hold your hand and guide your footsteps as you walk along the path to success. Market Traders Institute, http://www.markettraders.com/landings/forexIQ/forexIQ.aspx?id=THEFOREXMOM(Blog), have been excellent mentors for me. They have provided me with a solid foundation for understanding the forex.
The easiest way to begin your forex education is to read my posts in this order:
1. Introduction to the forex
2. Candlestick Formations
3. Forex Trading Strategies
An Evening Star candlestick formation is a sign of a possible trend reversal. It is a bearish sign.
4 key skills to trading the forex:
- Determine the trend direction. Is the trend going up, down, or sideways (consolidation)?
- Determine where to get in and what strategy you will be trading.
- Determine where to get out for profit and why.
- Determine where to get out for loss and why.
Every trade must have an entry and two exits, one for profit and one to protect you from loss.
Remember – There are many ways to make money in this market, but there is only one way to loose it… not setting a stop loss!
If a bullish candle follows a bearish candle, and it completely engulfs the previous candle (it is higher and lower than the previous candle), than it is a Bullish Engulfing Candlestick Formation. This is a bullish sign and a trend reversal usually follows.
If a bearish candle follows a bullish candle, and it completely engulfs the previous candle (it is higher and lower than the previous candle), than it is a Bearish Engulfing Candlestick Formation. This is a bearish sign and a trend reversal usually follows.
Tweezer Candlestick Formations are a sign of a potential trend reversal.
Tweezer tops consist of 2 or more candles that have long wicks on the north side of the body. The wicks need to be at least 60% of the candle. The tops of the two candles forming the tweezer tops must be within a couple of pips in height. Bodies can be bullish, bearish, or both. There can be other candles in between the tweezer top candles.
A Piercing Line Candlestick Formation consists of a decision bearish candle followed by a decision bullish candle. Both candles need to have long bodies. The bullish candle must closer higher than 50% of the body of the bearish candle.
A Dark Cloud Candlestick Formation consists of a decision bullish candle followed by a decision bearish candle. Both candles need to have long bodies. The bearish candle must closer lower than 50% of the body of the bullish candle.
Bullish Candlestick Formations –
- Engulfing Bullish
- Morning Star
- Tweezer Bottoms
- Piercing Line
Bearish Candlestick Formations –
- Engulfing Bearish
- Evening Star
- Tweezer Tops
- Dark Cloud
This letter is really going to p&!# some people off!! I’m sorry about that, but it’s time for a dose of reality. Do these headlines look familiar to you? I get a new one in my mailbox every week.
“The new XXX Forex Robot is taking the forex community by storm!!”
“There is no other way to put it, the buzz surrounding the XXX Forex Robot is….Huge!!”
“It’s official… the boundaries of Forex Artificial Intelligence robot trading has been pushed forward.”
“The XXX Forex Robot went live yesterday and, as I predicted, it rocked the Forex industry…”
“XXX Forex Robot will change history…”
“So after 24 hours, the industry buzz behind the XXX Forex Robot is reaching fever pitch!!”
It’s a seductive concept …. the Money Machine. Let’s be honest here. All of us in our heart of hearts dream about finding the “Holy Grail:” The infallible system that tells us to buy at the bottom and sell at the top. Taking it one step further, we want this system to run on “auto-pilot.” We just get up in the morning, start our “Money Machine,” and then collect our profits a little later in the day on our way to dinner in Paris. (As long as we’re fantasizing, we might as well have a private jet.) Ok, now let’s get real. The money machine doesn’t exist. Billion dollar companies, that can afford banks of super-computers and teams of programmers have gone bankrupt trying to create that “Holy Grail.” (Does the name Enron ring a bell?)
Wall Street brokerage houses consistently lose millions on programmed trading. Do you really think you are going to find a “Money Machine” that’s going to run a few lines of code on your home computer and automatically fill your bank account? Of course not. Yet many traders wind up jumping from one trading program/method to the next looking for just that. They don’t make the commitment necessary to succeed with any of them because when they start one method, they are already looking for the next. I know that’s the case because I’ve “been there and done that.” The fact is that no programmed trading system can work because every day is different than every other day there ever was. Market movement on any day is the result of all human experience up to and including that day.
So how do these little desktop robots show such great back tested results? Simple, they are simply algorithms designed to show great profits on one set of historical data. How it does going forward is anybody’s guess. It’s the ultimate in curve fitting. That’s why each robot can only “trade” one currency pair in one time interval. In other words, these “Robots” are designed to be back-tested. Then they are updated monthly so the most recent data can be used to maintain the illusion. Essentially, they are picking the winner of the race after the race has been run!
The idea behind most of these robots is to trade when the markets are very quiet and take very small profits from the random movement of the market while using very wide stops. This allows a lot of “wins” in a row (maintaining the illusion) before a big loss wipes you out. If you really want to be successful trading you have to put in the effort to learn to trade, and use the “Secret Weapon” that each of us has.
Scientists have never even come close to producing a super-computer as powerful as the human brain. We can process amazing amounts of data instantaneously. That’s why systems don’t work, but trading methods do work. When you look at a chart you can easily understand the national, international and financial forces affecting that chart. Yes, even technical trader should be aware of the world around them. Do you really think what happens in the equity markets don’t effect the currency markets (or visa versa)?