Professional traders look for "high-probability" trades. The following are 5 questions you should know before making a trade.

Let's say that the EUR/USD is in an uptrend and you see an opportunity to buy the currency pair. You would most likely just execute the trade if you were trading purely on the data of a single chart or setup. That is a recipe for disaster. At minimum, it is important to take a look at the general trend in the market because being unaware of the markets sentiment can lead to unnecessary losses.


Fundamental indicators, technical indicators, and the market sentiment are three factors that can and will affect every trade. If you wait for those factors to align in your favor, you have a far greater chance of reducing your risk and landing a potential profit.

Ask yourself these 5 questions to help determine whether a trade is worth the risk or not:

1. How deep is the retracement?

In trading, a very strong retracement is much more difficult to recover from than a shallow decline. Buying after a deep correction in an overall uptrend is generally a lower probability trade than buying after only a small retracement. The general rule is that a deep correction increases the risk of the currency pair breaking its uptrend.

2. What is the fundamental reason behind the decline in the currency pair?

If the decline in the currency pair was triggered by a very disappointing economic data such as an abysmal report on consumer spending, then this is a trade you should probably not take because the short-term fundamentals are not in your favor. If there is no major reason or news to explain the dip, there's a greater chance that the uptrend will resume and you may make profits on this trade.

3. What is in the economic calendar for tomorrow's news releases?

You should also place importance in checking if there's a piece of economic data scheduled for release over the next 24 hours that could affect the currency pair you want to trade.

When the trading the EUR/USD pair, if England's retail sales are on the market and the calendar believes the data could be strong, it creates a higher probability trade. This would also be true if there is U.S. economic data on the calendar that the market expects to be weak. However, if there is reason the British data is expected to surprise by being on the downside or the U.S. data is expected to surprise to the upside, then it may be better to pass on the trade.

4. What is the general sentiment in the market? Does it support the trade?

Considering the general sentiment in the market is also very important. If the Dow dipped 300 points, there is a good chance that the European markets will trade lower in the next session. It may not be such a good idea to buy the EUR/USD on a dip after a sharp sell-off in stocks because the dip could turn into further losses if traders in other countries join in on the selling.

However, if the general sentiment is steady and equities ended up, flat, or only slightly lower, then the trade looks good. There is a greater chance that the rally in the EUR/USD will resume if the general sentiment is actually positive with traders optimistic enough to rally stocks.

5. Which key levels could affect the trade?

If a dip in the EUR/USD stopped just above a significant support level like 1.3000, assuming the support level continues to hold, going long EUR/USD would be a higher probability trade. If that same trade broke below the support level, then there is a greater probability for additional losses if support turns into resistance.

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The top five techniques that successful traders use to identify where support and resistance lie are Fibonacci Levels, Pivot Points, Moving Averages, Trend Lines, and Chart Patterns. All five of these techniques are time tested and dependable.

Fibonacci Levels: Set your Fibonacci to 23.6%, 38.6%, 50.0% and 61.8% as support and resistance levels. These levels will help you determine when the price swings low to high or high to low. Tip: Many traders only trade when the price breaks out of the 61.8%level, which means a reversal of trend.


Pivot Points: This indicator is commonly used by breakout traders or range-bound traders and is based on the previous period. Simply put, prices above the pivot are bullish and prices below the pivot are bearish. To use pivot points, identify the upper resistance or lower support levels and target profit at S1, S2 or R1, R2 respectively.

Moving Averages: This is the most commonly used indicator. A good setup for this indicator is to set your EMAs (Exponential Moving Average) at 200, 100, 62, and 23. Under this setup, you will see the price bouncing off the EMA support and resistance. When the price breaks through the EMA channel, most of the time that means that the price broke through the resistance of support level and you can enter a trade.

Trend Lines: As the name suggests, trend lines show in which direction or trend the market is moving. By drawing trend lines, you can determine both how long to stay in a trade and, also, when to exit or reverse your trade.

Chart Patterns: Knowing chart patterns and how they can help you predict price direction is critical to every trader. Chart patterns come in many different shapes. Some examples are triangles whether they are ascending or descending, double top or bottom, head and shoulders, and reverse head and shoulders.

As a trader you should be knowledgeable of all these 5 techniques. You will encounter them in many chart systems and expert advisors. Once you master these techniques, you will start making more profits when you trade.

Learning the tools that successful traders use will make you a better trader. Whether you are just beginning or are in the advanced stages of your trading career, acquiring new knowledge and learning new techniques will make you a better trader and, by default, increase your overall profitability.

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Trading is summarized by 2 methods, the subjective method and the rule-based method. Both methods have their merits, however, if you are not a seasoned and successful trader, you should strictly use the rule-based method.

The subjective trading method combines multiple pieces of information to make a trading decision which can't be precisely defined in rule form. Subjective traders trade based on guidelines and not rules. With an established set of guidelines an expert trader has the flexibility to change a trade when new information is available. In some instances, where a rule-based system may pass on a trade, a subjective based trader may take a trade based on the "feel" for the market. A ruled-based system doesn't have such flexibility.


Unlike the subjective trading method, the rule trading method is simple and, because the rules are specifically predefined, it is mostly stress-free. The predefined rules account for your entry, stop loss, and take profit values among others. All new traders as well as those traders struggling to become profitable should use a rule-based method to refine their trading before ever considering a subjective method.

A rule based trading is designed to "set and forget." Once your orders are placed, they continue to progress until one of the following happen: you are either stopped out or your target price hits. As a trader, once a trade is placed, you never interfere with it until one of the actions previously mentioned happen. Since all entries are done following a specific predetermined set of rules, these rules must be followed until you exit the trade.

To do this type of trading, you need a system that has a highly advanced and rigorously tested Forex trading algorithm is already developed and predefined for you. The system should provide you easy-to-follow signals that are very precise and clear. Since the system is based on strict rules, whenever a signal is produced you enter a trade. This takes away all the guess work and uncertainties of trading. The system should also do all the analytics for you and give you clear entry, stop loss, and take profit values.

With a ruled-based system, all you need to do is follow the signals that the system produce. By doing this, you remain fully in control of your trading account and can have the confidence in knowing you are following signals generated by a strictly predefined set of rules.

With a rule-based system, there is not guessing of what a trade will look like. Your entry and exit are precisely defined by the predetermined rule and, for that reason, the system can be easily tested for profitability.

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How to identify a winning strategy is the most elusive answer for the 95% of traders that are not succeeding in Forex. The reason for it is that most traders lack the discipline to find a trading strategy that's proven to work and sticking to it. Every strategy will have some short periods where they lose money, however, the periods where they make money are longer and more frequent.


The problem is that most beginners think that they are going to start making money quick and abandon winning strategies after a few losing trades. By constantly changing strategies trying to find the Holy Grail of strategies, these traders can't create consistency and, furthermore, can't fully learn how a winning strategy works because they are too fast to abandon it.

As a trader, you should follow these four rules to implement your winning strategy and achieve success:

1. The KISS rule. The most successful strategies and systems are the easiest to learn and master. By Keeping It Simple S... , the more likely that you'll be able to follow the rules of your strategy, implement them, be successful, and, more importantly, you will stick with it.

There are plenty of very complicated strategies in the market and, even for the most experienced trader, they are very hard to implement because of their complexity. Stay away from complicated strategies and automated systems. Learn to stick to strategies and systems that are easy to use and implement and you will see your trading improve tremendously.

2. "I have the need for some speed!" When entering a trade, the shorter time you are in it, the better your chances to succeed. For example, when you enter a trade because of a breakout, you are better off taking just a few pips and exiting the trade than staying in the trade trying to maximise your profits. What you want to avoid is to be caught in the big sell off and the trend reversal. I personally like to sell 50% of my holdings when I get to my desired first level profit (10-20 pips depending on the pair), 25% on the second level (another 15-20 pips), and let the remaining 25% ride the trend until it reverses. That way, I don't miss on a big trend, but am minimizing my risk by taking profits along the way. An added benefit is that your level of stress will be greatly reduced when you trade this way.

3. Set a goal for the day and turn your computer off. Most people think that a winning strategy will require them to spend all day staring at their screen waiting for the good trades to come. What the most successful traders do is establish realistic goals for profits for a day and finish the day after they reach their goal. By that, I don't mean to say that if you are in a trade with a strong up or down trend that you should exit the trade when you reach your goal. I that case, you should end your trading for the day after closing the trend comes to the end a laugh all the way to the bank with your additional profit.

Important note here is that the goal is set for both sides profit and losses for the day. Once you reach your limit of losses for the day, you must stop trading! The biggest mistake traders make is to try to recover their losses immediately after a loss and they end up losing even more. There going to be days where our trading is just not working for whatever reason and you will be better off turning off your computer and starting over the following day. You will be surprise how effective setting your goals are in making you a better trader.

4. Discipline rules! The hardest thing to do for traders of all levels is to keep their discipline. I can't say how many times I got impatient with my trading strategy and deviated from it only to keep accumulating more losses. Only when I've gone back to KISS by following the rules of the strategy the way it was designed to work have I been able to start generating consistent profits again. Proven winning strategies and automated system require discipline to be successful. You must stick with the system as they were designed to work and you will succeed.

If you follow these simple rules of trading, you will succeed. These 4 rules are time tested and they work. They will work for you too!

Next... What I am sharing with you is the end result of my 10+ years of trial and error as a trader. I don't want you to make the same mistakes that I made. I want you to learn from me and I want you to learn for free through the blog I co-founded to help investors like you achieve their financial freedom.

For a limited time, we are giving away the Understanding The Myths Of Market Trends And Patterns E-Book free. You can get your free copy now by clicking here

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Price charts, whether they involve stock or a Forex/currency pair, often show the last stalling points of prices. Resistance is a point on the chart beyond which prices can't get or 'resist' to get higher. If prices can't get low beyond a point, that point is referred to as the support.

Resistance and support indicate the points where the prices last stopped at their highs and lows respectively. That level may hold as prices keep moving forming a channel (consolidate) but that's not always the case. The longer this consolidation goes on, the stronger the chance for the prices to breakout to new highs or lows.


In trading, more so day trading, you can use resistance and support in more than one way to quickly enter and exit trades with small gains without dealing with the risks that come with a whole move. This is only possible if we change the old perception we have about support and resistance.

First, start viewing support and resistance as points of entry and exit that are subject to abrupt movements or breakouts in either direction. Since the movement solely relies on probability, don't conceive your own notions about the two points. Let's take the movement of prices towards the resistance for example. Normally, movements above the resistance would mean BUY, so you would place a stop slightly below the resistance. In case the levels disobey your projections and instead gets lower, you can decide to place a stop at a point slightly above the previous resistance level. This way, you are said to be trading based on the market offer, not guesswork.

When trading a currency pair that is consolidating, keep a close eye to increased volume as it may signify an impending breakout with prices shooting through the resistance or support lines and starting a trend in that direction. Comparatively, slow prices creeping towards either level signify low volumes and lack of interest. For instance, rapid movement and lack of volume at the resistance means it won't breakout easily, hence a short trade will be appropriate. Always look out for these scenarios.

Volume and prices tend to move most at the open of the market. So breakouts are more likely around this time although you need to adhere to the rule of stay away the first 15 minutes after the major markets open and trade the developing trend afterwards. Breakouts are rare during lunchtime due to the drop in movement and low volume. So a resistance or support resistance will be expected although one or two wild false breakouts are still possible.

In case prices begin moving erratically back and forth, just sit back and don't trade. Instead, consider examining the high and low created by the back and forth movement and capitalize on it by putting the above trick to practice.

Therefore, keep in mind that the time of the day has an influence on the movement behavior. Besides, remember to make sure that there is interest and volume in the currency pair you want to trade.

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Although Bollinger bands is one of the most used and reliable indicators to determine trends and breakouts. You should use it in combination with other indicators such as the Parabolic SAR which indicates price reversal and the Stochastics oscillator which indicates momentum. These other indicator will help you determine whether the signals provided by the Bollinger Bands are in fact good.

Bollinger Bands (BB)


As we discussed in previous posts, the BB is made out of 3 bands: the lower, the middle, and the upper BBs. The middle band is comprised of your commonly used 20-day Simple Moving Average. The "juice", however, is in the upper and lower bands since they will indicate your trading signals. Depending on your setup, the BBs will show the price moving within a range, what is the range of the price 85-90% of the time.

By knowing the range within which the price is moving during a consolidation, you can buy or go long when the price hits the lower band and, conversely sell or go short when the price hits the upper band. Another signal for the BB is when the price breaks through the bands which usually indicate the beginning of a trend in the direction of the breakout.

The Bollinger Bands also help determine the volatility of the market. In a nutshell, a squeeze or narrow band width show a period of low volatility and usually indicates that a surge is impending and, therefore, a strong move in price is about to occur.

You should never use Bollinger bands alone to make your trading decisions. Use the BBs in conjunction with your trend or Fibonacci indicators to make a killer combination to successful trades.

Stochastic

Stochastic measures the momentum of the currency pair. The plot range for Stochastic goes from 0 to 100. When the Stochastic goes over 80 that usually indicated that the market is overbought and that a downtrend is about to develop. Conversely, when the Stochastic goes under 20 that may indicate that the market is oversold and an uptrend may be starting to develop. Obviously, at 50 the Stochastic would indicate that the price is flat and there's no movement. Keep in mind that, unlike other indicators, the Stochastic indicator does not signal the highest or lowest price level, but rather a possible reversal of price direction. Like any other indicator, the Stochastic oscillator should be used with other indicator to assist you with your trades.

Parabolic Stop And Reverse (SAR)

The Parabolic SAR one of the most used indicators to help determine a reversal in price. As a general rule of thumb, traders go long or buy when the Parabolic SAR dots go below the price line and the opposite is true when the Parabolic SAR dots go above the price line indicating a sell signal. Always keep in mind that this indicator only works when the currency pair is trending and will not produce reliable signals if the currency is consolidating or, in other words, a flat market.

Conclusion

Use your chart setup to determine a trend whether you use Fibonacci, MACD, candlesticks, line charts, or any other trend indicator of your liking. Corroborate your entry and exit points with indicators like the ones outlined above and your chances of a successful trade increase dramatically.

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If you're a trader, then you are constantly searching for the best tools to help you successfully trade. If you haven't yet heard about or tried to use Bollinger Bands and the Stochastic Oscillator indicator to aid in your day-to-day trading, then read on to learn all about this effective trading strategy.

Stochastic Oscillator


Also referred to as just the Stochastic, works under the assumption that prices continuously move back and forth. What causes this movement is when currency pairs are either overbought or oversold. The Stochastic was designed to measure the momentum of these currency movements by indicating price shifts and calculating their value.

Working with a range of 100 percent, the Stochastic will indicate over-bought stocks at the 80 percent level while over-sold stocks fall in at 20 percent. This means that anything above 50 percent is considered a bullish market while anything below the 50 percent mark is considered a bearish market.
The momentum indicator has two lines. The first line, the Stochastic line, is symbolized by %K, which is calculated by subtracting the lowest low from the current close. The second line is symbolized by %D and is the simple moving average of %K.

Bollinger Bands

Put simply, Bollinger Bands are the three lines on a currency graph that indicate these three things about 95 percent of closing prices: the average line, the upper standard deviation, and lower standard deviation.

When you study the three bands, you will see that they, in fact, signal when to buy and when to sell depending on the standard deviations. It's really that simple to use.

How to you use these 2 indicators together:

To enter a short or sell position, look for the following:

When the currency pair breaks the upper standard deviation and,
When the bar or candlestick turn negative;
The currency pair is thought to be overbought.
At this point, a short/sell position should be taken.
To enter a long or buy position, look for the following:
When the currency pair falls below the lower standard deviation and,
When the bar or candlestick turn positive.
The currency pair is thought to be oversold and
A long/buy position may be taken
Trades better suited for this strategy:
The best kinds of trades that traders should be looking for when using this strategy are quick, short trades, those that can be done in about ten to thirty minutes apart.

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