Technical Analysis (Part 2)

by  Zaheer Anwari

Continued from Part 1

So what is the advantage in technical analysis?

As it is this human element that moves price, the nature of the market can to a certain extent be predicted, but only over the long term. Let me illustrate this point with a simple example. Call 50 people and we could comfortably predict that a good portion of them, say 50% to 60%, would answer with the classic “hello”. So natural is this response that most would be willing to bet a wager on this. But here is the catch; it is not guaranteed what each individual will say, rather similar to flipping a coin and guessing heads or tails. However, over a large number of guesses we will be correct around 50% of the time.

Technical Analysis (Part 1)

by  Zaheer Anwari

What is technical analysis?

Technical analysis is a rather posh name for a very simple concept in trading. It is basically the study of charts on a computer to determine the best areas to invest in a tradable financial instrument, whether it be stocks (e.g. Google, Facebook or Apple), the Forex or currency market (e.g. USD, EUR or GBP) or commodities (e.g. gold, silver or oil). The charts are made up of price movements which comes through as a live data feed over the internet. Traders can see both what has happened in the past and also what is happening in real time, and can choose to see the data on the time frame suited to their trading style. A scalper may use, say, a 1-minute or a 5-minute chart, a day trader may use a 1-hour chart, and a long-term trader would use the daily and the weekly chart.

What Time of day Suits you Best in Forex Trading?

Generally speaking, the most active forex trading hours all around are between the London markets opening around 8:00 GMT and end with the markets in the US closing around 22:00 GMT. The absolute busiest time in the forex markets are during the London to US overlap between 13:00 GMT to 16:00 GMT. These are the hours that are the most liquid or when the most traders are in the markets making trades. If your intention is to do daytrading, these are key hours!

What are the major sessions for forex trading?

 

There are 3 major sessions each day in the forex markets. They are the London session, the US session and the Asian session.

The London Session
The London session starts around 8:00 GMT and winds down around 16:00 GMT. The currencies that are the most active during these hours are EUR, GBP, and USD.

The US Session
The US session starts around 13:00 GMT and winds down around 22:00 GMT. The currencies that are the most active during these hours are AUD, EUR, GBP, JPY and USD.

The Asian Session
The Asian session is a reasonable quiet session on most days. All pairs are pretty slow moving and it is not a good time to day trade. The only real currency that has noteworthy activity is the JPY and the activity is slow unless a major financial event happens.

 

Summary

The best hours for trading the forex market, no matter your method, are during the London and US session overlap. The markets are full of active participants during these hours and the currencies really move. For the most part, even the larger fundamental news comes out during these times. Trading during these hours is your best chance to get in while the market is making decisive moves and it will be your best chance to score quick profits.

25 Disciplinary Rules in Day Trading.(V)

21. Learn to sweat out (scale out) your winners. The net effect of scaling out of your winners will be an increased average win per trade while keeping your losses to your pre-defined risk parameters. You should never scale out of your losers. If your trade size is more than a one lot and your trade is a loser, you must exit the entire position en masse. If your trade size is more than a one lot and your trade is a winner, it is best to exit one-half of your position at your first price target. If you trade with protective stop loss orders, you should amend the order to reflect the change in trade size (remember you have exited one half of your position) and raise or lower the stopp price, depending on whether it’s a long or short position, to your original initiating trade entry price. You now are essentially “playing with the house’s money.” You can’t lose on your remaining position, and that’s obviously a fantastic position in wich to put yourself. Place a limit order a few tics above or below the market, depending on your possition, sit back and relax.

22. Make the same type of trades over and over again-be a bricklayer. A bricklayer shows up for work every day of his working life and executes with the same methodology – brick by brick by brick. The same consistency applies to traders, as well. Please review Rules 6 and 20. I have not changed my trading methodology and execution strategy in 20 years. I guess I’m the bricklayer.

23. Don’t over – analyze. Don’t procrastinate. Don’t hesitate. If you do you will lose. I can’t tell you how many times traders have come into my office terribly depressed because they “knew” the market was going one way or another however, they failed to put a position on. When I asked them why they did not put the trade on, their responses are always the same: they did not want to chase the market. They were waiting to be filled at the absolute best possible price ( and never got filled ), or only two out of three of their market indicators were present and they were waiting for the third. The net result of all this procrastination and hesitation is the trader was corect in deducing market direction but his profit on the trade was zero. We don’t get paid in this business unless we put the trade on. Don’t over analyze the trade. Place the trade and then manage it. If you’re wrong, get out. But you’ll never be right unless you actually make the trade.

24. All traders are created equal in the eyes of the market. We all start out the day the same. We all start out at zero. Once the bell rings and trading begins, it’s how we conduct ourselves from a behavioral standpoint that will dictate whether or not we will make money on the day. If you follow the 25 Rules, you should do well. If you do not, you will do poorly.

25. It’s the market itself that wields the ultimate scale of justice. The market moves wherever it wants to go. It does not care about you or me. It does not play favorites. It does not discriminate. It does not intentionally harm any one individual. The market is always right. You must learn to respect the market. The market will mercilessly punish you if you do not play by the rules. Learn the condition yourself to play by the 25 Rules of Trading Discipline and you will be rewarded

25 Disciplinary Rules in Day Trading.(III)

11. The first loss is the best loss. Once you come to the realization that your trade is no good It’s best to exist immediately. “It’s never a loser until you get out” and “Not to worry, it’ll come back” are often said tongue in cheek, by traders in the pit. Once the frase is stated, it is an affirmation that the trader realizes that the trade is no good, it is not coming back and it is time to exit.

12. Don’t hope and pray. If you do, you will lose. When i was a new and undisciplined trader, I can’t tell you how many times that I prayed to the “Bond god”. My prayers where a plea to help me out of  a less than pleasant trade position. I would pray for some sort of divine intervention that, by the way, never materialized. I soon realized that praying to the  “Bond god” or any other “futures god” was a wasted exercise. Just get out!

13. Don’t worry about news. It’s history. I have never understood why so many electronic traders listen to or watch CNBC, MSNBC, Bloomberg News or FNN all day long. The “talking heads” on these programms know very little about market dynamics and market price action. Very few, if any, have ever even traded one lot in any pit on any exchange. Yet they claim to be experts on everything. Before becoming a “trading and markets expert,” the guy on CNBC reporting hourly the Bond Pit, was a phone clerk on the trading floor. Obviously this qualifies him to be an expert! He, and others can provide no utility to you. Treat it for what it really is… entertainment. The fact is: The reporting that you hear on the business programs is “old news.” The story has already been dissected and consumed by the professional market participants long before the “news” has benn diseminated. Do not trade off of the reporting. It’s too late.

14. Don’t speculate. If you do, you will lose. In all of the years that I have been a trader and associated with traders, I have never met a successful speculator. It is impossible to speculate and consistently print large winners. Dont’t be a speculator. Be a trader. Short-term scalping of the markets is the answer. The probability of a winning day or week is greatly increased iy you trade short term: small winners and even smaller losses. (I like this one)

15. Love to lose money. This rule is the one that i get the most questions and feed -back on by traders from all over the world. Traders ask, “What do you mean, love to lose money. Are you crazy?” No, I’m not crazy. What I mean is to accept the fact that you are going to have losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly. It will save you a lot of trading capital and will make you a much better trader.