Can you give an example of some of things (signals) you look for in what you refer to as a higher probability entry? Thanks.
Power Course Instructor’s Response:
Sure...
Take a look at the historical chart of the USDCAD below…
First off, at the time of this chart, the Daily trend on this pair was to the upside.
Our first “filter” in determining a higher probability entry is one that is in the direction of the Daily trend.
Next, we see that price action has broken above resistance. When a candle closes above a resistance level, that in an indication that a continued bullish move may ensue.
We could then check other indicators…the MACD in this instance. When the MACD line is above the zero line (the mid point of the histogram bars) bullish positions are favored. Also, we see that the MACD line (green) has crossed over the Signal line (black) to the upside. Moreover, the angle and the separation between the two lines is increasing…another bullish signal. Lastly, in this instance, we see the histogram bars building in the direction of the overall move…to the upside.
In this trading scenario we have several signals that are confirming the uptrend that we have noted on the chart.
The reverse of all of the above would be signals that we look for if the trend were to the short side…a selling opportunity as opposed to a buying opportunity.
HI Richard
Do you think If we Calculate the Starting Point Of daily Green Candle Of 10!!!
To a Variance All of them So Do u think If We Put the Fibonnaci Golden Number 1.618,,, .618...
So We Can Identify The next Bearish Level of Future Current Pair Which We are messaging~~~
What You Say My Good Man!!!
here s a Chart For Little Example, but I am talking about the Different
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I am not as involved in equties, Vincy. There may indeed be some out there.
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When using Fibs in a downtrend, the ideal retracement level is the 61.8. Should that retracement occur, shorting back in the direction of the primary trend would be the prudent way to go.
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The bearish engulfing patterns I see elsewhere don’t look similar to the pattern shown in the example. How do you identify them and how can you be certain?
Power Course Instructor’s Response:
Many have said that the interpreting and drawing of candlestick charts is really more of an art than a science and I would agree.
With that in mind, as long as the body of a candle "engulfs" the previous candle in terms of the body (some will say wicks as well) it would be considered an engulfing candle. As such, that can indicate that a move in the opposite direction of the candle that was “engulfed” may take place.
Below you will find some additional examples of engulfing candles. No two will be exactly alike although you will see that the criteria of an engulfing candle is met in each.
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I still cannot understand what FX means by "risk appetite"
Please explain....thank you
Hello...
Risk appetite refers to a trader's willingness to take on or avoid risk. (Also keep in mind that this is a relative term since a tolerance for risk can differ from trader to trader.)
When the economic conditions are, shall we say, very challenging and no one quite has a handle on how things might go, the average trader might be termed risk adverse. At that point the have a very low appetite for risk. If economic indicators "perk up", however, that same trader might find themselves willing to take on more risk in their trades.
When more risk is perceived in the economy, you will find that the USD and JPY experience an influx of capital since those two economic systems are deemed more stable than some of the others. When less risk is evident in the economy, generally funds will flow from the USD and the JPY.
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Once a pair is in a trending move, how do know where to enter?
Power Course Instructor’s Response:
Take a look at the chart below...
On this 1 hour chart we can see that the pair is in a downtrend. Assuming that the trend on the Daily chart is also to the downside, we would sell or short the position on this 1 hour chart each time the pair rallies up. On the chart we can see each new opportunity to sell the pair is labeled. We would sell at that point with a stop above each pullback.
The opposite would be true in an uptrend.
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These patterns (Morning Star/Evening Star) seem to give you an indication of a trend reversal quite late on!
By the time the 3rd bar closes it seem that most of the profit potential is gone.
Is there a way of forecasting the reversal earlier by moving to a shorter timeframe (or am I missing something?)
Thanks
Power Course Instructor’s Response:
You make a fair observation...
Yes…a trader could go to a shorter time frame to see how price action is behaving in that "faster" time frame and take that as an “early warning”, if you will.
Keep in mind, however, that using the shorter time frame, the greater the potential for a "false entry" will be. With longer time frames a trader will take fewer trades but their success ratio will be higher. With shorter time frames they will take a greater number of trades but the success ratio will drop.
I would not say that “most” of the profit potential is gone by the time the third bar closes, but rather a portion of it is gone. But that portion that is gone, that movement, can play into the confirmation of the greater overall move.
There is an old trading adage that I observe...”I would rather be late and correct than early and wrong”.
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Risk appetite refers to a trader's willingness to take on or avoid risk. (Also keep in mind that this is a relative term since a tolerance for risk can differ from trader to trader.)
When the economic conditions are, shall we say, very challenging and no one quite has a handle on how things might go, the average trader might be termed risk adverse. At that point the have a very low appetite for risk. If economic indicators "perk up", however, that same trader might find themselves willing to take on more risk in their trades.
When more risk is perceived in the economy, you will find that the USD and JPY experience an influx of capital since those two economic systems are deemed more stable than some of the others. When less risk is evident in the economy, generally funds will flow from the USD and the JPY.
One of the most effective methods for exiting a trade is to employ a Risk Reward Ratio on the trade. By doing so, there is no question of when to exit...when the limit hits, you are profitably out of the trade. Very straight forward and it eliminates any emotion.
For example, if a trader were to employ a 1:2 Risk Reward Ratio on a trade (the minimum that we would recommend), and a 100 pip stop were set, then a 200 pip limit would be set.
Another method that could be employed if a trader were trading multiple lots. Using this scenario, a trader would open, let's say, two lots on a trade. At a level of profitability, perhaps 75 pips, one of the lots would be closed...thereby locking in that amount of profit. On the remaining lot, the stop would be moved to breakeven...the point at which the trade was entered. Then, should that lot move in the favor of the trader, the stop could be advanced periodically to continue to lock in profit. The worst that would happen on the second lot would be that it would do an about face and the trader would be stopped out at breakeven...no gain on that lot but no loss either.
A trader could also simply observe levels of support and resistance. As their trade is approaching levels of significant support or resistance, they could exit all or a portion of their position at that point, or perhaps simply tighten their stops. By so doing, should the pair hit the support/resistance level and retrace, a major portion of their profit would be protected and should the pair breakthough and continue on, they would still be in the trade.
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Please comment on my candlestick identification…is it OK? Thanks.
Power Course Instructor’s Response:
Good work on the hammers.
Below there is an example of both the Evening Star pattern and Bullish/Bearish engulfing patterns.
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I like the idea of using longer wicked candles to identify a potential trade. My question is what exactly are you looking for in terms of a “long” wick? Thanks.
Power Course Instructor’s Response:
The wicks that you are looking for can be identified in a couple of ways: they are long relative to the body of the candle and they are long compared to other wicks on the chart.
Take a look at the chart below for a visual…
A long wick on the bottom of a candle, for example, indicates that the sellers had pushed the price down quite a bit during the course of the candle’s time frame but they were not able to sustain the low that is indicated by the low point of the wick. Since sellers were not able to maintain that level and price closed quite a bit higher than the low, there is a greater likelihood that buyers will continue to be the influencing force and will push the pair higher. The opposite would be true in the case of long wicks on the top of the candle.
Bottom line: Long wicks to the downside indicate a potential for the pair to move higher. Long wicks to the upside indicate a potential for the pair to move lower.
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As previously said a professional trader is most concerned about risk. If they have a system that they have tested and know to be profitable then they know that if they look after the risk, the profits will look after themselves.
The novice trader is unlikely to have a system and will trade on instinct and try to chase trades and quite often trade at exactly the wrong moment as the market makes a correction. They will become frustrated and double up on the next trade to win back their losses and quite often lose more. The more they lose the more impulsive and emotional they become and are even less likely to be successful. Quite frequently they will get to the end of the day and realise that they were convinced the market would go in a certain direction, say down, and it has ended lower as they thought it would. Unfortunately they were in and out of the market half a dozen times buying and selling the wrong way all over the place. Tomorrow they resolve to make their money back.
The next day they're feeling a bit tense and are telling themselves not to be so stupid again and if they're lucky (or unlucky), they win the first trade of the day but without any consideration for money management they will be lucky to make money by the end of the day, or week or month. Overall they will win a little and lose a lot.
The professional trader should start the day with psychological self analysis and mental rehearsal of placing his trades. He will have a low risk idea that signals an entry for his trades so he isn't trying to predict what the market is doing. He is not trying to predict the future just basing his trades on ideas that he has tested. His ideas will suit his personality and temperament so he will not be trying to day trade if he is more suited to the detached analytical analysis of end of day trading. He will know that his money management method produces profits in the long term so will not be concerned about expected losses. Nobody has a 100% success rate so losses are inevitable and are not something to worry about. He is not trying to predict the market or be a Master of the Universe so is not taking the losses personally.
If however he is drawn to day trading he will have realised the importance of his psychological welfare (a subject completely ignored by novices who would think that kind of thing was for wimps, if they thought about it at all); and will start the day recording his psychological self analysis and feelings in his trading diary (something else that novices do not bother with). He will trade with detachment and will have no emotional attachment to any trade. His trading diary will also be used to record trades placed and reasons why. At the end of the day he will record his feelings about the day, his mental state and whether he has followed his rules. If he has followed his rules he will be proud of himself and pat himself on the back whether he made any money or not. He knows that if he follows his rules in the long run he will make money. As said before, everybody has losing trades. He knows he will only lose money if he breaks his rules. Self discipline is the key. His rules will include provision for what to do if he breaks his rules, such as closing the invalid trade immediately and stopping trading for the day or week or as long as required to understand why he tried to sabotage himself.
He will also have fixed amounts of loss depending on the time frame he trades. A short term trader might allow himself a certain number of losing trades a day or a fixed percentage of equity. For longer term traders it may be a fixed amount per week or month. If he hits his limit say for the month he will analyse his results (he has a trading diary) to see if there were any problems with his rules or how he traded them. If there is a problem he will work to correct it. If the loss was through no problem of his and was just one of those days/weeks/months then he may demo trade to keep a feel for the markets until the next new time period.
The novice trader will put a dollar trade on and win twenty points and realise that if he had used lots of leverage and put on $100 he would have made $2,000 and so he has just lost $1,980. He will therefore, whilst mentally polishing his new ferrari, put on the largest trade he can straight away as there is no time to lose.
The professional trader knows that sometimes the best trade is the one you do not take, especially if you are not feeling 100% that day, and sometimes it is better to take the day off and go out and enjoy yourself and think about something else. A private trader does not have to trade. This is a big advantage. A professional will not be constantly flicking through all the charts desperately looking to put a trade on for the sake of it. If they do not receive a signal to trade they won’t trade (rules again).They place a trade following their rules because they have worked out that it gives them a statistical advantage. Placing a trade that doesn’t follow their rules is an unknown.
The market will always be there tomorrow.
Course Instructor's Response:
Great post...as a matter of fact it made me shudder thinking about when I made the mistakes you mention back when I started out trading. Also thanks for posting what you see as the way to change those bad habits to good habits. But you are correct in that the biggest challenge is us....how we handle trading and our own emotions. Successful traders will tell you that profitable trading can be quite boring. They see this happen and they do that....time and time again. But there are other things in life that offer excitement for these professionals. Taking unnecessary risks is definitely not one of them. Thanks for taking the time to share your thoughts.
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