“One man’s ceiling is another man’s floor.”
(Bob Dylan)

A support level is established when a tradable stops declining. A resistance level is likewise set when a rally stops rising.

A look at market movement tells us that price fluctuates between a level of support and a level of resistance. Properly identifying key support and resistance levels can improve your ability to enter, exit, and manage your trades. So, how can we determine which support and resistance levels are the most important? One way is to follow the traditional method of plotting the pivot point, and its associated resistance and support levels. There is a standard way of making these calculations.

As you might expect, there are other approaches to identifying support and resistance levels for a tradable, but a great number of them are unreliable. These approaches include, but are not limited to, methodologies that utilize Fibonacci numbers and ratios, Gann concepts, moving averages, and trend lines. Those techniques all have a very static view of the tradable. They assume that the market will repeat past behaviour and experience, and can therefore be viewed linearly. They also use fixed intervals for inputs, which creates yet another dilemma. The old maxim: “A study of the past does not tell you anything about the future.” The exception here is our interest in last week’s resistance and support levels and those of the last trading session.

A tradable is not a static phenomenon. It will not disregard changes related to news and economic and industrial macro forces that influence price movements. A tradable is a complex and dynamic phenomenon, but it is clear that price fluctuates between levels of support and resistance. One way we can identify these levels in advance is through the use of pivot/resistance/support points previously mentioned.

Popularity: 6% [?]

The idea that Rich had left out some key ideas was the easiest way for our paranoid Turtle to explain his inability to trade successfully during the program. This is a common problem in trading and in life. Many people blame their failure on others or on circumstances outside their control. They fail and then blame everyone but themselves. Inability to take responsibility for one’s own actions and their consequences is probably the single most significant factor leading to failure.

Trading is a good way to break that habit. In the end, it is only you and the markets. You cannot hide from the markets. If you trade well, over the long run you will see good results. If you trade poorly, over the long run you will lose money. Despite the obvious and unavoidable link between what you do and your trading results, some people still try to blame the markets. They invent scenarios in which the “specialists” or another mysterious group of traders conspires to steal their money rather than taking the blame for their own trading mistakes.

Although there is no question that there many traders endeavoring to take your money at any point in time, I have never seen any evidence of mass-scale collusion or fraud of the kind imagined by those who blame their failures on the market, their brokers, or other participants.

The bottom line is that you make the trades and you are responsible for the outcome. Don’t blame anyone else for giving you bad advice or withholding secrets from you. If you screw up and do something stupid, learn from that mistake, don’t pretend you didn’t make it. Then go figure out a way to avoid making that same mistake in the future.

Blaming others for your mistakes is a sure way to lose.

Popularity: 8% [?]

The currency (foreign exchange) market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or “FOREX” or “FX” market for short. It is the biggest and most liquid market in the world, and it is traded mainly through the 24 hour-a-day inter-bank currency market – the primary market for currencies. The forex market is a cash (or “spot”) inter-bank market. By comparison, the currency futures market is only one per cent as big.

Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs – Euro/Dollar, Dollar/Yen, etc. In excess of 85 percent of all daily transactions involve trading of the major currencies – Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dollar.

Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centres of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.

In the past, the forex inter-bank market was not available to small speculators due to the large minimum transaction sizes and often-stringent financial requirements. Banks, major currency dealers and the occasional huge speculator used to be the principal dealers. Only they were able to take advantage of the currency market’s fantastic liquidity and strong trending nature of many of the world’s primary currency exchange rates.

Today, foreign exchange market maker brokers such as FX Solutions are able to break down the larger sized inter-bank units, and offer small traders the opportunity to buy or sell any number of these smaller units (lots). These brokers give virtually any size trader, including individual speculators or smaller companies, the option to trade the same rates and price movements as the large players who once dominated the market. Market makers quote buying and selling rates for currencies, and they profit on the difference between their buying and selling rates.

Popularity: 8% [?]

This is an Excel spreadsheet. It calculates the low and high, pivot point, and resistance and support points for the current trading session, based on the open, high, low, and close of the preceding session. All you have to do is input the open, high, low, and close (no decimal points) and click on any open space in the spreadsheet. And, there you have it … walaa … all pivot/resistance/support points for the next trading session will appear before your very eyes. It is important to track the average range, as this information is not available anywhere else. Going into a trading session, it is important to know this average.

For forex traders, you get the open, high, low, and close from the nearest daily session at your trading platform. At www.fxsol.com, the one we use, the daily session is defined as 12 am to 12 am New York time.

The actual range refers to the actual range of the trading session just past, and is calculated based on the open, high, low, and close values you input at the top of the spreadsheet.

Where it says CD H2 26/02/02 at the top of the spreadsheet, you can change that to reflect what you are trading, and use the current date. The effective date at the bottom of the spreadsheet should also reflect the current date.

Popularity: 6% [?]

The primary goal of trading should be to stay in the game. Time is on your side. A system or method with positive expectation eventually will make you rich, sometimes beyond your wildest dreams. This can happen only if you can continue trading. For traders, death comes in two forms: a slow painful death that causes traders to stop out of anguish and frustration and a spectacular rapid death we refer to as a blowup.

Most new traders overestimate their tolerance for pain, believing that they can live through a 30 percent or 40 percent—or perhaps even a 50 percent or 70 percent—drawdown when they can’t. This can have an extremely adverse effect on their trading because it usually results in their stopping completely or changing methods at the worst possible time: After they have incurred a drawdown and suffered significant losses.

The uncertainty of the future is what makes trading so difficult, and people do not like uncertainty. Unfortunately, the reality is that the markets are unpredictable and the best you can hope for is a method that generally works over a relatively long period. For this reason, your trading methods should be designed as much as possible to reduce the uncertainty you can expect to encounter when trading. The markets are already uncertain enough; there is no sense adding to that variability with poor money management practices.

Since the Turtle Way is not to predict which markets will trend and which trades will be successful, as Turtles we approached each trade with the same expectation and commitment. To the extent possible, that meant risking the same amount of capital in each market. Implementing money management according to the Turtle Way increases the likelihood that you will achieve consistent returns because our approach adjusts for the relative volatility and risk between markets.

Oversimplified strategies such as trading one contract per market and methods that do not normalize for volatility can cause trades in certain markets to overshadow those in other markets. So, even a large gain in one market may not compensate for a small loss in another market if the losing market has a much larger contract.

Although many traders intuitively know this is true, many still use fairly simplistic mechanisms for deciding how many contracts to trade in any specific market. For example, they may trade one contract of S&P 500 futures per $20,000 in the trading account. They may have used this same formula for the last 10 years, during which time that market’s volatility has fluctuated greatly. These rule-of-thumb approaches can increase the variability of returns unnecessarily.

Popularity: 7% [?]

This is my favourite indicator. If you want to fully understand its use, please refer to www.tradingsmarts.com/macdindicator.htm. That page will tell you all you really need to know about this truly powerful indicator.

It is important in forex trading, as in other forms of trading, that you use MACD in different time frames to get a handle on where price action really is going. Don’t just depend on any one time frame. It’s best to view this indicator at different levels, starting at higher levels – i.e., longer-time duration – and then cranking the microscope down to lower levels.

To explain, a downtrend can persist in spite of higher MACD lows on a shorter time frame, indicating that, if the price range has been huge, it has progressively reduced the effectiveness of this indicator on the shorter time frame. The higher time frame can remain in a “sell” mode, and confirm a downtrend, even though the shorter time frame is faking you out with what appears to be a buy signal.

As with all forms of trading, keep your eye on the big picture, and look at things topdown. Macro-manage your trades. If you are working at a lower level, crank the microscope up a notch to see what is really going in the grander scheme of things.

Popularity: 6% [?]

When you use retail spot forex software, it only requires an internet connection to trade real-time. No extra data-feed is required. All online forex brokers’ software is real-time, rather than delayed.

If you download a free 30-day demo of the software, you can “practice trade” in real-time with the exact same quotes as a live account. The software is exactly the same, and you receive virtual money for the account. You are then able to enter trades in real time, and monitor them just as though it were a real account. You will experience no difference between the demo account and a live account. When you log onto your trading platform, you see your price quotes, and you simply click on the price to sell or buy. It will ask you how many lots or contracts you want, and then you click ok, and you are in. You can also use the charts they provide with the trading platform; they will reflect the movement of the real-time price of their trading platform. With those charts, you usually have the ability to place horizontal lines where you choose (pivot numbers).

Each currency is quoted with a pip spread. This is how the dealer makes his money. With most online retail brokers, there are no commissions. For example, I want to buy the Swiss Franc, and the current quote is 1.7205/1.7210. The dealer will give me the 1.7210 price, and I would start the trade -5 points which equals $30.00. In my trade window, I would see my money change as the market price moves back and forth. As it moves in my favour, my negative position is removed as soon as the market is trading 1.7210/1.7215, or higher.

In the spot forex market, it is common for currencies to move 100 to 300 pips/points in a 24-hour session. For example, using my pivots spreadsheet, at one point the projected range for tomorrow’s Swiss Franc trading was 308 and the actual range was 154. I recommend the Swiss Franc, because of all the currencies it moves the most. If you like volatility, there is no currency more volatile than the Franc.

If you want to see the software in action, just register for it at www.fxsol.com, and download a free demo. You will get your password and username immediately by email.

If it’s action you’re looking for, like Mr. Magoo driving a sports car, then the forex is the place to be, and the FX solutions trading platform is the right place to trade.

Popularity: 6% [?]

Traders deal in risk. There are many types of risk, and for each type of risk there is a corresponding type of trader. For the purposes of this article, we divide all those smaller risk categories into two major groups: liquidity risk and price risk.

Many traders—perhaps most of them—are very short-term operators who trade in what is known as liquidity risk. This refers to the risk that a trader will not be able to buy or sell: There is no buyer when you want to sell an asset or no seller when you want to buy an asset. Most people are familiar with the term liquidity as it applies to finance in the context of the term liquid assets. Liquid assets are assets that can be turned into cash readily and quickly. Cash in the bank is extremely liquid, stock in a widely traded company is relatively liquid, and a piece of land is illiquid.

Suppose that you want to buy stock XYZ and that XYZ last traded at $28.50. If you look for a price quote for XYZ, you will see two prices: the bid and the ask. For this example, let’s say you get a quote on XYZ as $28.50 bid and $28.55 ask. This quote indicates that if you wanted to buy, you would have to pay $28.55, but if you wanted to sell, you would get only $28.50 for your XYZ stock. The difference between these two prices is known as the spread. Traders who trade liquidity risk often are referred to as scalpers or market makers. They make their money off the spread.

A variant of this kind of trading is called arbitrage. This entails trading the liquidity of one market for the liquidity of another. Arbitrage traders may buy crude oil in London and sell crude oil in New York, or they may buy a basket of stocks and sell index futures that represent a similar basket of stocks.

Price risk refers to the possibility that prices will move significantly up or down. A farmer would be concerned about rising oil prices because the cost of fertilizer and fuel for tractors would increase. Farmers also worry that prices for their produce (wheat, corn, soybeans, etc.) may drop so low that they will not make a profit when they sell their crops. Airline management is concerned that the cost of oil may rise and interest rates may go up, raising airplane financing costs.

Hedgers focus on getting rid of price risk by transferring the risk to traders who deal in price risk. Traders who jump on price risk are known as speculators or position traders. Speculators make money by buying and then selling later if the price goes up or by selling first and then buying back later when the price goes down—what is known as going short.

Popularity: 6% [?]

Day trading is not so much a style as it is a reference to the extremely short-term time frames involved. A true day trader looks to exit the market before it closes each day. This makes his or her position less susceptible to large adverse moves spurred by news occurring overnight. Day traders generally use one of three different trading styles: position trading, scalping, or arbitrage.

Day traders generally use a style such as trend following or counter trend trading but do it over a much shorter period. A trade may last a few hours instead of days or months.

Scalping is a specialized form of trading that was once the domain of only those traders on the floor of the exchange. Scalpers are looking to make the difference between the bid and the ask, which is known as the spread. If gold is $550 bid and $551 ask, a scalper will be looking to buy at $550 and sell at $551. For this reason scalpers create liquidity by bidding and offering, hoping for a balance of buy and sell orders.

Arbitrage is a form of trading that capitalizes on price differences in the same market or in very similar markets. Often these markets are traded on different exchanges. For example, an arbitrage trader may buy gold on the Comex floor at $550 and sell five e-mini gold contracts on the CBOT’s globex exchange for $555 to capture a very short-term price mismatch.

Popularity: 7% [?]

Dos and Don’ts for Thinking Forex Like a Turtle

1. Trade in the present: Do not dwell on the past or try to predict the future.The former is counterproductive, and the latter is impossible.
2. Think in terms of probabilities, not prediction: Instead of trying to be right by predicting the market, focus on methods in which the probabilities are in your favor for a successful outcome over the long run.
3. Take responsibility for your own trades: Don’t blame your mistakes and failures on others, the markets, your broker, and so forth.Take responsibility for your mistakes and learn from them.

Popularity: 7% [?]