Overbought vs. Oversold (baseed on dailyfx article)
Learn Forex: USDJPY Hourly Chart – Overbought
The term Oversold describes a period of time where there has been a
significant and consistent downward move in price over a period of time
without much pullback. Basically a move from the “upper-left to the
Because price cannot move in one direction forever, price will turn
around at some point. Currency pairs that are overbought or oversold
sometimes have a greater chance of reversing direction, but could remain
overbought or oversold for a very long time. So we need to use an
oscillator to help us determine when a reversal is actually occurring.
But, we must be patient before we enter our trades, because sometimes
the RSI can stay overbought or oversold for quite awhile. The worst
thing we can do is try to pick a top or a bottom of a strong move that
continues to move into further overbought or oversold territory. So we
must wait until the RSI crosses back under 70 or crosses back above 30.
When the RSI falls below 30, same rules apply. We want to wait until the RSI crosses back above 30 before we place a buy trade.
Putting RSI to Work
Why Traders Lose Money (based on dailyfx article)
The Difference between Trading and Analysis
Many new traders come to the market with a bias or point-of-view.
Perhaps this is built from a background in economics, or finance, or
maybe just a keen interest in politics. But one of the biggest mistakes a
trader can make is harboring the expectation that ‘the market is wrong
and prices have to come back.’
But let’s face it: Markets are unpredictable, and it doesn’t matter what
type of analysis you use. As new information comes into the market,
traders and market makers price it accordingly; because these folks
don’t want to lose money just as much as you don’t want to lose money.
Is this to say that analysis is worthless? Absolutely not: It merely
means that analysis is only a part of the equation of being a successful
trader. Analysis is a way to potentially get the probabilities on the
trader’s side, even if just a by a little bit; a way to maybe get a 51%
or 52% chance of success as opposed to a straight-up coin flip.
Good analysis, whether it be fundamentally-driven or technically-driven,
can be right a majority of the time. But no form of analysis will ever
be right all of the time. And this is the reason that there is such a
large chasm between analysis and trading.
In analysis, it doesn’t matter how wrong you are when you aren’t right.
In trading, this matters quite a bit. Because even if you’re winning on
70% of your trades, if you’re losing $3 for every trade in which you’re
wrong but only making $1 every time that you’re right, you’re still
losing. It might feel good, because 70% of the time you’re walking away
from your positions with the feeling of success; and as human beings
this is something we generally strive for (to feel good).
The example below shows how bad risk management can destroy even a strong winning percentage of 70% success.
But logically, it doesn’t make sense to embark on this type of endeavor
because the goal of trading is to make money; not necessarily to just
‘be right’ more than 50% of the time.
How to actually trade analysis
First thing first, traders need to crystallize what their actual goal is
in trading in markets; and point-blank, that goal should be to make
After that, traders need to expect that they will, at times, be wrong.
So given these two facts, the next logical assumption is that without
being able to control the damage from those instances in which we’re
wrong, the prospect of profitability is a distant one.
So risk management isn’t just a preference or a style of trading: It’s a
necessity for long-term profitability. Because even if you’re winning
90% of the time, the losses on the other 10% can far outstrip the gains
that are made on the 90%.
I fully realize this isn’t necessarily exciting information. When I
teach risk management, rarely do a see a student-trader ready to burst
out of their seats to go and manage some risk. Most people want to hear
about entry strategies, and analytical methods to try to get those odds
of success tilted even higher in their favors.
But until a trader learns to manage their risk, much of this additional
work is a moot point. Because as long as the risk exists that one bad
position can and will wipe away the gain from many other ‘good’
positions; that trader is going to struggle to find profitability.
So, to properly trade analysis one needs to first observe proper risk
management. Because trading isn’t just ‘guessing’ and ‘hoping’ that we
get it right. Profitable trading is implementing analysis while properly
managing risk factors; implementing a defensive approach so that when
one is wrong, the losses can be mitigated and when one is right, profits
can be maximized.
How can one begin to use ‘proper’ risk management?
We’ve already encountered one of the biggest mistakes of risk
management, and that’s controlling the size of the losses relative to
the size of the gains.
The solution is simple; implementing it not as much. As human beings,
we often follow our gut instincts or our ‘feelings.’ But in trading, we
have to keep the bigger picture in mind. When we place a trade, we often
try to win on that one trade. This can keep traders holding on to
losers for far too long, and closing out winners way too quickly.
Trading the News: U.K. Retail Sales (based on dailyfx article)
The British Pound may face a larger correction over the remainder of the
week as U.K. Retail Sales are expected to contract 0.5% in March.
Why Is This Event Important:
A decline in private sector consumption may prompt a bearish reaction
in the GBP/USD as it limits the Bank of England’s (BoE) scope to
normalize monetary policy sooner rather than later, but the data print
may exceed market expectations as Governor Mark Carney sees a stronger
recovery in 2014.
Sticky price growth along with the slowdown in private sector credit may
drag on consumption, and a marked decline in retail sales may prompt a
larger pullback in the GBP/USD as it dampens the outlook for growth and
Nevertheless, positive real wage growth paired with the ongoing
improvement in the labor market may prompt a further expansion in
household spending, and a better-than-expected print may heighten the
appeal of the sterling as it puts increased pressure on the BoE to raise
the benchmark interest rate off of the record-low.
How To Trade This Event Risk
Bearish GBP Trade: U.K. Retail Sales Disappoints
February 2014 U.K. Retail Sales
GBPUSD M5 : 64 pips price movement by GBP - Retail Sales news event
Retail sales out of the U.K. beat across the board in February and sent
GBP over 50 pips higher against the greenback. Textiles saw heavy
weakness relative to other stores while predominantly food stores had a
healthy 1.9% gain vs. a 3.7% decline in January. After the Pound pulled
off key resistance levels on Wednesday, room remains for another test of
resistance if we do see another beat this month. Note that we have U.K.
GDP data to kick off event risk on Tuesday of next week.
MetaTrader Trading Platform Screenshots
GBPUSD, M5, 2014.04.25
MetaQuotes Software Corp., MetaTrader 5, Demo
GBPUSD M5 : 30 pips price movement by GBP - Retail Sales news event
Strategy Video: Ranking the Best Breakout Potential
We have watched longingly this past week as a range of high-profile
technical patterns further shaped their breakout potential without
making the final move. Between markets running out of room, a docket
full of major event risk and over-extended fundamental themes nearing a
flip; the risk / potential of finally realizing these trades looks to be
at hand. In the weekend Strategy Video, we look at the scope of
breakout opportunity - from an imminent GBPUSD move to more resilient
EURUSD pattern - and how these setups should be approached.
USDJPY Fundamentals (based on dailyfx article)
GBPUSD Fundamentals (based on dailyfx article)
GOLD (XAUUSD) Fundamentals (based on dailyfx article)