Courage Under Stressful Conditions When the Outcome is Uncertain
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you’re taking.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a ‘hold on until it comes back’ strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).
So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.
Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?
If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.
Patience to Gain Knowledge through Study and Focus
Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.
To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.
Sunday, 2 May 2010
PIVOT LINES
Pivot Lines is what usually called as Pivot. In different post, I wrote Pivot Point as the other definition of Pivot. However, as I know, in common discussion Pivot term usually refers to Pivot Lines.
Pivot Lines are lines of support and resistance which are calculated from the High(H), Low(L) and Close (C) price of the previous bar on the timeframe you are using. The most common used is Daily Pivot (Daily Pivot Lines). There are some trader who trade using 1 hour or 4 Hour pivot. Well, the choice is up to you and really depend on your experience and skill.
If you use daily pivot, you calculate the present day’s pivot using HLC price of the previous day. If you use 1 hour pivot, you should use HLC price of the previous hour.
I personally never use pivot lines other than Daily Pivot. So, I use daily pivot as an example here. Below are formula to calculate present day’s pivot and the support and resistance lines:
The Pivot = P = (H+L+C) /3
1st Resistance Line = R1 = 2P- L
2nd Resistance Line = R2 = P+ (H-L) = P+(R1-S1)
3rd Resistance Line = R3 = 2P + (H-2L)
1st Support Line = S1 = 2P – H
2nd Support Line = S2 = P – (H-L) = P – (R1 – S1)
3rd Support Line = S3 = 2P – (2H – L)
Is it looks confusing? Come on, it is just an explanation of the basic theory. You dont have to manually calculating the pivot. I know there are mt4 expert advisors which draw the pivot automatically for you. I will try to search the expert advisors and post it here. Otherway, you can use my pivot-calculator.
How to trade using those lines? We use those lines as a reference lines of price motion. If price move above the Pivot (P), it usually will continue to move untill hitting R1. Price find it Resistance at R1, it can continue the upward move (breaking R1) or rebound to P. If price breaking the R1, it usually continue to move untill it meet the 2nd resistance line at R2. After price breaks R2, it usually move up to R3. And vice versa if the price move below the Pivot (P).
Above is the best case scenario. Sometime price stop just before reaching pivot lines and then reverse. In other occasion price go slightly past pivot line, allow a bit of leeway.
Defining previous day/candle OHLC (Open High Low Close) data
1. Open the chart on your chosen time frame. For this example purpose, we use daily timeframe
2. Point your cursor to previous candle close or open side and wait until a text box show up showing the candle OHLC data
3. That’s it.
See below picture for better figuring out
Pivot Lines are lines of support and resistance which are calculated from the High(H), Low(L) and Close (C) price of the previous bar on the timeframe you are using. The most common used is Daily Pivot (Daily Pivot Lines). There are some trader who trade using 1 hour or 4 Hour pivot. Well, the choice is up to you and really depend on your experience and skill.
If you use daily pivot, you calculate the present day’s pivot using HLC price of the previous day. If you use 1 hour pivot, you should use HLC price of the previous hour.
I personally never use pivot lines other than Daily Pivot. So, I use daily pivot as an example here. Below are formula to calculate present day’s pivot and the support and resistance lines:
The Pivot = P = (H+L+C) /3
1st Resistance Line = R1 = 2P- L
2nd Resistance Line = R2 = P+ (H-L) = P+(R1-S1)
3rd Resistance Line = R3 = 2P + (H-2L)
1st Support Line = S1 = 2P – H
2nd Support Line = S2 = P – (H-L) = P – (R1 – S1)
3rd Support Line = S3 = 2P – (2H – L)
Is it looks confusing? Come on, it is just an explanation of the basic theory. You dont have to manually calculating the pivot. I know there are mt4 expert advisors which draw the pivot automatically for you. I will try to search the expert advisors and post it here. Otherway, you can use my pivot-calculator.
How to trade using those lines? We use those lines as a reference lines of price motion. If price move above the Pivot (P), it usually will continue to move untill hitting R1. Price find it Resistance at R1, it can continue the upward move (breaking R1) or rebound to P. If price breaking the R1, it usually continue to move untill it meet the 2nd resistance line at R2. After price breaks R2, it usually move up to R3. And vice versa if the price move below the Pivot (P).
Above is the best case scenario. Sometime price stop just before reaching pivot lines and then reverse. In other occasion price go slightly past pivot line, allow a bit of leeway.
Defining previous day/candle OHLC (Open High Low Close) data
1. Open the chart on your chosen time frame. For this example purpose, we use daily timeframe
2. Point your cursor to previous candle close or open side and wait until a text box show up showing the candle OHLC data
3. That’s it.
See below picture for better figuring out
SUPPORT AND RESISTANCE LEVEL
Support and Resistance is a trading concept which interprete whether the market is currently in doubt and probably will have a direction change. A price level, at which this market situation occur, is called as Support or Resistance level. We expect or predict that on this level market will change its direction.
Traders have many different way to determine Support and Resistance level. To mention some of the most popular : using recent price motion, using pivot point formula and using fibonaci lines.
In this article I’m going to write only about the technique using recent price motion. I will write the Fibonacci technique on separate article. There are already 3 articles I wrote explaining pivot lines, pivot point and also pivot point calculator, a free forex tools to help you calculate pivot point.
Determining Support and Resistance Using Recent Price Motion
In this technique Support is determined as a price level at which market seems to having difficulty to go lower. In the contrary, Resistance is a price level at which market seems to having difficulty to go higher.
The difficulty to break certain level is indicated by several unsuccessful trials to go lower or higher than that level. Agressive trader probably use only 2 unsuccessful trials, while conservative traders use 3 or more unsuccessful before they notice a support or resistance level. Many traders believe that the more often price tests a level of support or resistance without breaking it, the stronger the area of resistance or support is.
If a level of support is broken, it usually become the next resistance. In the contrary, if a level of resistance is broken, it usually become the next support
Traders have many different way to determine Support and Resistance level. To mention some of the most popular : using recent price motion, using pivot point formula and using fibonaci lines.
In this article I’m going to write only about the technique using recent price motion. I will write the Fibonacci technique on separate article. There are already 3 articles I wrote explaining pivot lines, pivot point and also pivot point calculator, a free forex tools to help you calculate pivot point.
Determining Support and Resistance Using Recent Price Motion
In this technique Support is determined as a price level at which market seems to having difficulty to go lower. In the contrary, Resistance is a price level at which market seems to having difficulty to go higher.
The difficulty to break certain level is indicated by several unsuccessful trials to go lower or higher than that level. Agressive trader probably use only 2 unsuccessful trials, while conservative traders use 3 or more unsuccessful before they notice a support or resistance level. Many traders believe that the more often price tests a level of support or resistance without breaking it, the stronger the area of resistance or support is.
If a level of support is broken, it usually become the next resistance. In the contrary, if a level of resistance is broken, it usually become the next support
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