Thursday, February 19, 2009

Tape Reading skills required for currency trading.

"Trading technique is simply the ability through study, observation and experience to recognize the signals in each of the several phases of market movement" George Douglas Taylor.Tape reading is nothing more than monitoring the current price action and asking 'Is the price going up or down right now?'Even most novice observer has the ability to see that prices are moving higher or lower at any particular moment or for that matter when prices seem to be going nowhere or sideways.It is also fairly easy to watch a price go up and then tell when it stops going up-even if it turns out to be only a momentary pause.
If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative."The only truth is current price". Your job as a currency trader will become ten times easier once you accept this.
There are two main tricks to monitoring price action.The first is to watch the price relative to another reference point.It is the easiest way to tell if the market is moving closer to or further away from a particular point.Some reference points, such as a swing high or the days opening price will have much more significance than those points involving some type of calculation.When watching price, the currency trader wants to know the following, how fast,how far, and in which direction.It takes two points to measure these things.One will always be the current price and pivot levels.
Watch the price with the intent to do something or to anticipate a certain response." The study of responses is an unerring guide to the technical position of the market" Richard Wycliff 1910.
The second main trick to monitoring price action is to watch for the markets response to a particular condition, in other words, anticipating a particular behavior.For example, if the market has been at a very low volatility point and just begins breaking-out of its particular trading range, one might anticipate that the price would begin to accelerate in an impulsive manner and not run into immediate resistance or on a directional play, if the price is moving in an impulsive manner in a trending market and then pauses to catch its breath on a mild reaction, one would expect it, then to continue on in the direction of the trend.When there is a particular behavior to anticipate it is easier to watch the price to see if it acts according to ones expectations.
Is the market failing to break on bad news?Is it find support after a series of advances?Does it run into an invisible overhead wall and sharply back off implying strong resistance?These are market responses to certain conditions.Part of studying price behavior and gaining experience as a currency trader is gradually learning what actions to anticipate.Then you must learn what the markets most probable response or outcome should be.
However it can also be a profitable strategy to recognize when a given signal or expected response is failing.Sometimes a failed signal can be more profitable than the normal expected response.For example, a classic failed response might be a scenario wherein price was consolidating in a pattern higher lows and higher highs-a classic triangle pattern.One would expect a break-out from a chart formation to have some follow through.However if price only penetrates the lows by a small amount and then turns upward, picking up volume and momentum as it goes, and comes out the upside, a very significant reversal has probably occured and there may be much more price advance to unfold.
One last trick to watching price action is to learn to think in terms of handles or levels.Use big round numbers as reference points for levels.It does not mean that you are placing orders at those numbers.It is just a simple way of organizing data that professional traders practice subconsciously.
PIVOT POINTS.An astute trader will always have the previous day's close in his head.He also knows the previous day's high and low.He also knows the opening price, for that tells if the buyers or sellers are in control for the day.The previous day's high and low and today's open have very strong psychological implications and are the most important pivot points to recognize.By concentrating on price action near these points, we can eliminate much of the hard work in tape reading.Many times the market will let us know right away if this is going to be an area of support or resistance.The previous day's high and low tend to overlap in congestion areas.Look to exit profitable trades immediately at these points in sideways markets.In trending markets the price will run through these points a bit before pausing.When the market is strongly trending the opening price becomes the most important.
If we are watching a high, low or opening price as a pivot point, we are watching to see whether there is any impulsive price action as the market approaches the point or moves further away from it.What is impulsive action?"A whoosh"The market moves rapidly as if just coming to life for the first time.It is usually a series of ticks in one direction without a tick in the opposite direction.A sequence like this tends to consolidate or pause a bit before being followed by more impulsive action.If we quantify these 'whooshes' which we can do in several ways, we will see that the market tends to have continuation moves at least 2/3's of the time.Not bad for arriving at a 'positive expectation' simply by following price action.
In conclusion, tape reading is not watching every trade that passes by but rather keeping an eye out for unusual impulsive action, unusual volume, or just observing the way the price trades at significant levels.Each price swing has forecasting value as to what the next most immediate move should be.We then follow the price action to see if that move plays out.
Tape reading is at the heart of swing trading.When looking for short term moves, price based derivative indicators will be too late to be of value.Ultimately, currency traders should feel a great sense of freedom when they can rely on simple charts to formulate a game plan or a conceptual road map in their heads and the movement on the tape to tell them their game plan is correct. Muraleedharan.

Wednesday, February 18, 2009

Be an Expert in your chosen approach.

You must devise a methodology and then use it.By practice, you become an expert in its application and then money flows in your way.To be truly successful you have to become intuitive, and this simply means you become an expert, in which you do, some thing you achieve through experience. You can observe market action and draw appropriate conclusions from that.But whichever style you adopt you need to decide what triggers you into a trade and also how to get out.To master trade selectivity, you have to become an expert in your chosen approach.The key aspect of your approach is that you filter out a vast amount of market information and just focus on those factors which you need to know.It is a lot easier becoming an expert in a narrow field than a wide one.The various sources of market information's are so vast, that is not possible to take it all in.Let alone become an expert in your chosen approach.You must decide what information you want, design your approach and then use it.Become an expert and you will find you become intuitive, that is when you can select only the best trading positions, the low risk ones.Then it will all go the right way.Muraleedharan.

Thursday, January 22, 2009

Trade mangement Currency Trading.

Trading and money management professions are expensive to learn an not everyone who attempts to learn succeeds.Those who do succeed may profit handsomely.In this respect the trading profession is no different from the medical, engineering,technical,artistic,sporting and political professions.
Trade management ( Two approaches).
1) Scaling out approach.
Putting on the entire position upon the initial entry and then liquidating positions, of that positions (a) to cover costs (b) take a small profit (c) and finally to ride the trade as far as it will go with what remains of the position after partial liquidation.
2) Pyramiding approach.
Build the position by entering a position of it to test the waters.If the initial position becomes profitable, you then add to the position in stages until you have put on the entire position.
Much of any acceptability of the approaches depends upon your personal comfort level in handling risk and your financial capacity for handling risk Muraleedharan and

Tuesday, January 20, 2009

Levels of Currency Traders.

The most important asset to you as a currency trader is your raw intelligence, common sense, intuition, emotional control and skills developed through dedication, time and copious amounts of hard work.
Level one. Beginner Trader. Beginners study and paper trade for a minimum of one moth with pretend currency, gaining the experience required to establish a track record of profitable performance.
Level Two. Advanced Beginner.Trades one or two lots with real money, learning to overcome emotions and at the same time establish a track record of making money.
Level Three. Competent Trader.Trades with control over his emotional distractions, utilizes proper equity management and achieves a financial return.
Level Four.Proficient Trader. Trades are made utilizing confidence, education, experience and the trader achieves financial returns.
Level Five. Expert Trader.Instinctively executes profitable trades without emotion.

Monday, January 19, 2009

Currency Trading is a Specialised Knowledge.

Knowledge will not attract money, unless it is organized and intelligently directed through practical plans of actions, to the definite end of accumulation of money. Knowledge is only potential power.It becomes power only when, and if, it is organized into definite plans of action and directed to a definite end.The meaning of the word 'education' is to 'develop within'.An educated man is one who has developed the faculties of his mind, that he may acquire anything he wants, or its equivalent, without violating the rights of others. Knowledge has no value except that which can be gained from its application towards some worthy end.Successful men in all domains never stop acquiring specialized knowledge related to their major purpose, business or profession.The order of the day is specialization. Hence in order to succeed in currency trading you should acquire and practice the knowledge and skills required for currency trading.How long one has to practice? The answer is ' till you succeed' using P3R principle which is discussed elsewhere in this blog series.Do you have the resources to pass through the learning curve which leads you to build expertise in currency trading? The answer is 'You have to decide whether you have it or not'.This is the hard truth of the reality.But once you pass through the learning artist's phase and build your expertise, you can enjoy the wonderful results too like the legend of value trading' Warren Buffet'.You should get specialized in currency trading and get specialized in a single currency pair of your choice so that you can become an expert in that one pair which is enough to give you financial freedom. Muraleedharan

Wednesday, January 14, 2009

Own your future focussing on what you want and use currency trading as a vehicle to reach your goals.

You always find what you are looking for? " In the high desert, the buzzard circles looking for decaying flesh and he finds it.In the same sky humming bird is focused on sweet nectar of brilliant flowers blooming in the cactus, in the same desert and she finds it" Own your future focusing on what you want, leveraging your time and activities that advance you directly towards definite dreams and goals.It is your future and you are only responsible for it.You can have broadly the following goal setting areas. Spiritual,Social,Family,Mental,Physical and Financial. The following are some of that people want from life.You can have your own choices
1 ) Peace of mind.
2 ) Currency Trading Business.
3 ) More time with family and good family relationships.
4 ) Meaningful work with sense of accomplishment.
5 ) More time for hobbies and recreation.
6 ) More friends, deeper relationships, acceptance.
7 ) Excellent Health.
8 )Happiness, opportunities for having fun.
9 )Recognition for achievement.
10) Education of self and children without financial strain.
11)Be able to contribute generously to charities.
12)First class travel, no more vacations on relative route.
13)Financial security and no debt.
14)Be able to support family members financially.
15)Nicer House.
16)Nicer Car
17)Prosperity,financial independence.
18)Be able to buy luxuries and material processions.
19)Not having to worry about unexpected expenses.
20)To leave an estate to heirs.
These are some of goals people desire to achieve.You can have your own goals.The Currency Trading career can serve as a good vehicle to take you to your goals.

Tuesday, January 13, 2009

Multimodel Processing of information & trainning in extremity.

There are different learning styles and most people have strengths and weaknesses as learners.An acronym that is useful in remembering learning styles is VARK .V for visual, A for auditory, R for read and write, K for kinesthetic (kinesthetic learners learns by doing).If we hear it , see it,read it and do it the skill and information is more likely to become your second nature.You internalise the skills. TIE (Trainning in extremity).Successful trainning and development of expertise commonly involves performing skills under highly challenging and even adverse conditions.The expert performer builds mental toughness and develops the inner confidence that he or she can handle anything.Speed of processing and executing skills is every bit as important as acquiring these skills.Expertise consists of taking what starts out as effortful and making it automatic more and more efficient.Currency trading is a crucible of life, it distills in a matter of minutes, the basic human challenge, the need to judge,plan and seek values under conditions of risk and uncertainity.In mastering currency trading, we necesarily face and master oursleves.

Thursday, January 8, 2009

The Cardinal Rules of Currency Trading.

Decide your trading float, set your maximum loss,Calculate your stop loss, calculate your position sizing before you enter into the trade .You should 'plan your trade and trade your plan' with utmost discipline to generate consistent profits from currency trading.Once you have set your initial stop loss, you have ensured a mechanism to cut your losses short.
How do you handle your profits, once the trade moves in favor of you? There are two types of exits. The stop loss exits and trailing stop exits.Trailing stop is the one you implement once you are in a profitable situation.Trailing stop losses will allow you to follow a trend as it develops and exit the position at trailing stops or at the point (Target) where you can realistically maximize your profits. You should have a way to look into your profits.Profit management is equally or more important in currency trading.This form of trailing stop is adjusted on a periodic basis according to a mathematical formula that keeps it moving upwards as the price moves upwards.The key to trailing stop is that you need to continually make adjustments to it,make sure that the stop is moved in your favor.With a trailing stop loss in place you will be able to let your profits run and let your trading system deliver the maximum profit.Stay with the trend as it develops and let your profits run.Then when the price turns you can exit.You have to monitor your position.Theoretically these lines look very simple.But when you are in the trade you will find it difficult to manage your positions.But practice over a period in the right way makes you comfortable which appeared uncomfortable in the beginning.Good trading readers.Muraleedharan

Tuesday, January 6, 2009

'Stops' are Risk control and Profit management tool in currency trading.

Stops are 1) Risk control tool 2) Profit management tool.The first protective stop (stop loss) is the initial risk control tool.Placing a stop loss limits our losses to a predetermined level in the event of an unfavorable move in the currency markets which often occurs in currency markets.How much you want to lose is a money management decision. Keeping a planned loss below 2% of your equity is a good money management rule.'Market goes your way'.You move your stop loss to entry point, then the stop now becomes the profit management tool.You are now holding a risk free trade, continue to let the profits run until your objective is reached.If something changes you simply exit the trade with what you have in it at that point.Your profit potential improves when you allow the market to behave as it needs to move on the way to your objective.You should also be aware of the negative characteristics of the stops.The number of profitable trades is sometimes reduced since these stops may allow modestly profitable trades to turn into losses .Also occasional large retracement in open trade profits can make the use of these stops quite difficult psychologically. No currency trader enjoys seeing large profits reduced to small profits or watching profitable trades become unprofitable.Your trading capital is your life blood in currency trading.Hence your first goal is to protect your 'currency trading capital'. Your second rule is only 'to maximize your profits'. Good trading for all readers.Muraleedharan

Monday, January 5, 2009

The Process of development in currency trading.

The process of development in currency trading can be described in three stages. 1)SKILL. A trading skill or pattern to trade currency is taught to the currency trader or identified by the currency trader as having profit potential.This corresponds to observe phase in Boyd's OODA loop.2)DRILL.The trading skill or pattern is rehearsed first via walk through' s (Simulated trades on historical data ) and then paper trading live market.The currency trader learns to recognize opportunities to utilize the skills and patterns as trading conditions unfold and formulate trading plans based upon the incoming data.This corresponds to the orient and decide phases of Boyds loop. 3) FULFILL .The traders development culminates in the fulfilment of actual trades in real time utilizing the entry, exit and money management skills that have been rehearsed.This provides practice in 'pulling the trigger' on ones decisions the act phase of Boyds loop.Successful trading is the result of learning process.The weeks of consistent ,hands on, real time rehearsal are more valuable than months or years of leisurely activity.The steepness of the currency traders learning curve is a function of several factors including the breaking down of skills into bite sized components, the relentless rehearsal of those skills in realistic conditions and the practice of skills in the face of extreme environmental ,emotinal and physical challenges.For example we may have traders rehearse their skills under conditions of high fatigue,distraction or time pressure as ways of simulating decision making under pressure.This really would train traders in a realistic way.Good trading for my readers.Muraleedharan

Sunday, January 4, 2009

The Principle of ' P3R ' in currency trading.

Many of the highly successful currency traders have acquired their skills through self development and relative minimum of guidance from senior traders.In these situations we can break-down their learning activities into four compartments that can be called 'P3R' prepare,plan,perform and review.'Prepare' refers to activities that orient the performer to the upcoming challenge.Reviewing charts and market data prepares a currency trader for the upcoming trading sessin..'Plan' relies on the assessment of strengths and weaknessess to guide how the performance will be undertaken.A currency traders plan includes the patterns he or she will trade, the capital to be allocated to trades,allowable risk etc.'Perform' is the execution of the plan with mid-course currection as needed.A currency trader may reassess a plan in the light of unexpected economic news and a price break-out.'Review' comes after performance as part of assessing what was done right or wrong.A currency trader utilizes review to identify flaws in trading plans and the execution of those plans, using the feed back to begin a new cycle of 'P3R'.Trading journals are a timebound tool for self mentoring, structuring and documenting 'P3R' process.How does your P & L break-down as a function of a day in a week?Do you make or lose more money in a particular day compared to other days? You must keep the size of the losers much smaller than the average winners to make your system profitable.Good trading to my readers. Muraleedharan

Saturday, January 3, 2009

The 'ODDA' Principle and importance of Demo Currency Trading.

The currency trading offers an environment typified by financial risk, danger and uncertainity.The currency trading also occurs in an environment that immensely, financially rewards the efficiency of mental processing.The successful currency trader is one who can, rapidly observe market conditions, orient himself, integrate information into effective decisions and quickly act upon those decisions.Larger currency traders may even issue their own disinformation, masking their intentions to buy or sell or leaking misleading informations to draw in the bulls or bears.The currency markets sometimes masks its intentions with false moves, quick thrusts and large periods of inaction.All these creates an atmosphere of risk, dander and uncertainity. This is the context in which 'ODDA' principle has its relevance.OBSERVE what market is doing? Rising, falling or consolidating.Is volatility increasing or waning? ORIENT by placing the market's present action into context.DECIDE upon the cource of action, once the currency trader has integrated the market's current action with in the broader context of financial and economic forces.ACT and place orders based upon the currncy traders analysis.This requires an ability to rapidly orient and assess whether the currency trader is in trending or non-trending markets, volatile conditions or non-volatile, near support or resistance or away from it etc.From the observation currency trader must rapidly create and update trading decisins and then find the will and clarity to act on the plan, approach or method.Making complex skills instinctive and familiar is the key to tightening OODA loops.This can only happen, if they have broken their trading down into easily identifiable processess that can be rehearsed under pressure until they are second nature.This is where the importance of rehearsing your method on demo trading account lies.You have to trnsform yourself into the level of an expert by continuous practice and evaluation.Good Trading for my readers. Muraleedharan.

Friday, January 2, 2009

Emotions like fear and euphoria in currency trading

Emotional currency trading is detrimental to the capital , the life blood of trading.However emphatically it is stated that emotional trading will take away all your capital, it is very difficult to keep away emotions from currency trading.Once you have a position in the market you will experience this swings of emotions.Fear and Greed are the two basic emotions that controls the market.When the market is adversely moving the fear creeps in and when the market moves favourably you will be engrossed by greed.The effect of fear is it drives out knowledge, it leads to myopia, it immobilises us and leads to inaction.The mirrror image of fear is euphoria, the feeling that we can do no wrong.As much as fear, euphoria will ultimately lead to trading failure.Since currency trading is a game of probabilities, we will experience times when we can do no wrong.But these times will come to an end.The trader caught in the euphoric trance will not recognise this and taking on risks too many will evenmtually get caught in a heavy loss.If the trader is lucky , the loss will not be a catastrophic loss.Fear and euphoria can catch not only newbies but also the most experienced and successful trader.The emotinal trading can be eliminted only by having an approach (Method) to the currency markets and keeping commitment and discipline to your approach all the time.Good trading to my readers. Muraleedharan

Thursday, January 1, 2009

Philosophy of Zen Buddism in Currency Trading.

How Zen Buddism is related to currency trading? As soon as the performer consciously think of his
performance he is no longer one with it.Trying harder at a task only compounds this seperation.The discipline of the zen archer can be found in the performers ability to still the mind, remove mental interference, and allow instinctively honed skills to manifest themselves naturally.Trading in the 'Zone',
emphasise the importance of focus and concentrating in reaching ' a state when trading flaws without seeming effort'. This is the level a trader should aim for.Once the trader is lost in the patterns of fear,greed and frustration, the zone is lost and instincts born of long hours of observing market patterns cannot emerge.For the trader as for the zen archer, turning off the mind is a crucial element in success.Or to put it in other way the state in which the performance is one and the same with the performer , that is the expert level in which an expert trader gets intutive feeling of the market.This level cannot be reached all of a sudden or overnight.This takes years of dliberate practice with defenite goals and innumerable hours of experiencing varied market under different conditions to internalise the nature of the market and to act instinctively.All successful traders who make their living has transformed to this level over a period of time.Muraleedharan