Explain for Sonic R System in Forex 2

Forex Strategy

Explain for Sonic R System in Forex 2

This is a trend following trading system. It is based on some indicators and there is a
template ready for you to download.
Indicators
Stealth LCD V10 default setting
QQE MTF
CCI indicator Period 63
34 EMA HIGH/CLOSE/LOW
50SMA
Trading time
1AM – 4 AM EST (UK session)
7AM – 11 AM EST (US session)
Pairs
I have tested: EURUSD, GBPUSD, USDCAD, EURJPY, GBP/JPY.
Timeframe (TF)
5M Timeframe
15M Timeframe (recommended)
Buy signal
When v10 show blue color
When QQE is above 50 line
When CCI period 63 is above 0 line above +75 or above give safer signal
When the price is above 50 SMA.
And price is above the upper white line and the slope points up
Always wait until candle close and then place your order 5-7 pips above last closed
candle.
Stop Loss. I use 50sma as SL. So if price close below the 50 sma I close the trade.
See PIC.1

Sell signal
WHEN lcd v10 show yellow colour.
When QQE is below 50 line
When CCI period 63 is below 0 line -75 or below give safer signal
When the price is below 50 SMA.
And price is below the lowest white line and the slope points down.
Always wait until candle close and then place your order 5-7 pips below last closed
candle.
Stop Loss. I use 50sma as SL. So if price close above the 50 sma I close the trade.
See pic.2 and pic 2A

PIC 2A

My daily routine before I start trading.
First I start to look at the 1our timeframe. Just to get an overview. Start to look from left
and go to right. It will give you a view about what is going on. Is it
uptrend/downtrend/ranging.
See pic. 3

Here you see we have had a huge down move. Then a bit up and then again down. The
last couple of days we see almost ranging. So it give you an Idea that until EURJPY is
ready for a new long-term trend we can expect to go up/down up down. Its ok but it gives
us a clue about what to expect. If you look it seem like the overall bias is still down.
After that overview I go into 15M timeframe and put in some SR line (support-Resistance)
It just to give me some levels where price maybe will turn or respect the lines. We really
don’t know what will happen but for me its nice to see what price has done let’s say
yesterday, because it can give me some levels to look for..
see pic. 3 and 4

Just look at the red lines I put in. It just levels where price found support and resistance.
They are drawn on a 15 min timeframe from Thursday 20 Nov 2008.


See how price have reacted from the lines we draw on 15 mins chart from Thursday. And
now we see how price have reacted on a 5 mins timeframe on Friday,
And remember when a support or Resistance level is broken then it change.
That means if a level have reacted earlier as support and then later get broken. Then next
time price is close to that price or touch it then it will react often as resistance. See chart
above.
Daily goal and money management.
I have a daily goal that I want to make 5% profit every day.
That means I can double my money every 15 day.
Yes you right every 15 day. SO IF IT TAKE 20-25 DAY, TO DUBBLE YOUR MONEY ITS
OK IS´N IT.
And I only risk a max of 2% of my money in any trade I take.
Let’s say you have an account with 1000$ it means you can risk max 20$ on any trade you
open
If you trade 1minilot you can take a risk of 20 pips.
If you think its too small SL then you need to lower your lot size and trade micro lots.
VSA (Volume spread analyzing)
VSA is a theory about how we better can see how the smart money behaves along the
trading day.
If we learn more about reading volume and compare it to the closed candle we time by
time can see what the smart money is doing.
And if we can trade in harmony with the smart money it will give us better chances to trade
in profit.
But it’s a diff. Stuff to explain in short, so below is a link where you can download an
EBOOK about VSA.

explain for Sonic R System in Forex

Forex Strategy

Explain for Sonic R System in Forex

Introduction
Pay attention to the "Angle" of the the slope. The steeper, the better. Avoid
horizontal ranging periods. Follow the trading time period closely.
- Have general trend/bias on mind, To check/determine the general trend, flip the
screen to 15M/1H/D1 TF with same setting and look at the slope.
- Patience, Do not chase the trade. Let it comes to you.
Trading Time
1AM - 4 AM EST (UK session)
7AM - 11 AM EST (US session)
Pairs
Any Pairs (try EUR/USD & GBP/USD or if you choose XXX/JPY pairs, change ur trail
stop and SL to at least 80 pips)
Time Frame
5M TF
15M TF (recommended)
Buy
Look for the candle go above upper white line and wait till the candle ends...and put
the "Buy stop" few pips above the "High" of that candle.
MACD sloping up. (or QQE Sloping Up)
Stoch pointing up.
Sell
Look for the candle go below lower white line and wait till the candle ends...and put
the "Sell stop" few pips below the "Low" of that candle.
MACD sloping down. (or QQE Sloping Down)
Stoch pointing down.
TP
For Long, few pips below the lower white line when the price touches the lines again
or Use Trail Stop (e.g +40 Pips).
For Short, few pips above the upper white line when the price touches the lines again
or Use Trail Stop (e.g +40 Pips).
SL
For Long, few pips below the lower white line or nearest Support or min 40 pips.
For Short, few pips above the upper white line or nearest Resistance or min 40 pips.
Money Management
Start with 1-lot-stage.
After 20 consecutive wins, increase to 2-lots-stage and so on.
Once u have a single loss, reset the counts in the stage you are in.
If there is another loss in the same stage, move back to the one stage lower.
Part 1 End

Forex Strategy : learn How to Trade Both Trend and Range Markets by Single Strategy?

Forex Strategy

learn How to Trade Both Trend and Range Markets by
Single Strategy?

S. A Ghafari
What Happened to Me?
Seven years ago when I was about to finish a long time study on how to understand the real
meanings of economic concepts and in a shiny day when apparently everything did worked
out well , I found myself a leading scientist of economics, someone who will be rich in
couple of months. Seasons passed but nothing really happened with my saving account and I
was fully desperate when I did get into disappointment hole.
One year later I met an old friend of school days, and he told me something that made me feel
like a baby found his mother, a passion of life. Yes, he introduced me the global currency
market.
Just like anyone else in the beginning of a long road, I asked my friend about how to trade?
He has guide me how to take the courses and I did .one more year has passed and I was still
thinking why every time I get into trade using trend based tools, the market turns to a boring
range market, the situation of forcing me to close the trades loosing what I earned from last
couple of trades and much worse when I use overbought/oversold strategies and the market
turns to trend situation. That was my destiny while I've ruined two consecutive accounts like
a peace of cake.
After those failures I decided to not open any trading accounts unless I know how to trade
both moods of the market and to be an approved Emotionally Controlled Trader. Well, what
happened next..? I have a real account now.
Before any specific suggestion, I must do first advice to not to do what I did unless you prove
yourself just like last part of my story. Second advice is to avoid complex trading systems.
Yes I mean customized complicated experts or trading systems, why? Because the only
elements that can take you to gold mine is your understanding of the market behavior and
sticking to what the simple indicators say and more importantly the passed license of
Emotionally Controlled Trader. Don't go far while a simple Moving Average line next to a
simple oscillator like RSI can give you enough signals to make money, but not easily as I say.
Why it is not easy?
The fact is, it is not honestly easy to make money at the end of a year through using this
trading set up or the other ones, because as I said already, it is impossible for a trader to
predict every next action of the market. The reasons behind this saying, would be "no one had
100 % wining trades in such a market" and the other reason that I personally refer to when I
think I'm OK enough in trading is "when I see the huge currency market screen on my laptop, I really see nothing while the real huge market is hidden behind the screen and you don't
actually know what's going to happen next with unexpected Iraqi, Iranian, Chinese or
Mexican gulf storms cases next". So all I am trying to emphasize is not forget to that a real
trader must know as much as he/she can from all market movers first and always has an eye
on possibilities that could easily turn to a nightmare. Those possibilities often come up with a
300 pips bar or a scary gap just against your technically approved trade.
HOW?
Well, whether you have a magic expert indicator or not, with no doubt you must combine at
least two different ways or indicators to produce a signal which is reliable for both trendy and
range market situations. Briefly I show you how and which ones I prefer to use.
Draw:
- 3 Moving Averages of 13, 21 and 55 EMA in green, blue and red.
- (8, 21,8 ) MACD.
- Relative Strength Index (RSI) of 21 period with a line of 50.
@Go LONG when a new candle opens over triple MAs + MACD make second bar above
zero line + Value line of RSI moves above RSI Trend Line.
# EXIT when the value line of RSI breaches the given Trend Line downward.
@Go SHORT when a new candle opens below triple MAs + MACD make second bar below
zero line + Value line of RSI moves below RSI Trend Line.
# EXIT when the value line of RSI breaches the given Trend Line upward.
How to Draw the RSI trend line?
you simply have to connect at least two turn points of RSI value line which can interpret into
drawing a line which connect the last value line top (the last value line Top is the one that
formed much closer to your current signal than the others and match better to correction on
the price chart) to next line top with is normally lower than the first top in a Short trade and
higher than the first top in a Long trade.
The Top of RSI value line is the hump that formed because of a correction (Fibo ratios for
correctional pullbacks), so try to filter the useless RSI Tops with the real chart formation as
you may get it wrong when a hump has formed on the RSI while there is no correction on the
price chart.
Also, if you realized that you actually took the wrong Top for the trade and you already
entered the market, please and for god sake, exit the trade and open another one on the true direction of the market (As I said always there will be some wrong trades. So assume it as a
lesson and exit immediately and run with the trend).

Key Notes:
- In fast moving market situations (when the signal confirm after one or two long
candles) wait till the price bounce back to correctional level of % 23 Fibo and then
enter the trade.
- Most reliable signal confirms when the RSI running Above / Below 50 line when you
go for a Long / Short.
- A break of RSI Trend Line confirms when the second candle opens on the suggested
direction.
- Don't ever take the trade unless the second bar opens Above / Below MACD zero
line for a Long / Short trade while the MACD signal line will just give you an in
advance alert to be ready for the trade.
- Once again, the cross over of MACD Value and the Signal Line will warn of a
potential trade but don't ever take it unless you have your own reasonable reasons to
do that.
- If you get out of a Buy trade upon an Exit signal, you can go for an immediate SHORT
trade with a 50 point Target (Take Profit) and if the trade hit 50 point target while another
SELL signal confirms, just follow the signal and go for the second SHORT. And vice
versa, if you get out of a SHORT trade.
- Don't ever take second trade of LONG / SHORT in line with the first trade order
type unless a FRESH signal of aforementioned conditions confirm to trade.
- Don't ever risk more than % 5 of your account balance unless you have your
reasonable money management rules that suite you.
- Avoid the side markets by observing a narrowed Bollinger Bands or flat RSI line.
- Place the Stop Loss 10 pips Above / Below of Bearish / Bullish Parabolic SAR first
appeared dot or 10 pips Above / Below the current Resistance (R2) / (S2) Support
levels.
- Most of the false signals come when you trade against the major trend of the market.
To know how to define the major trend use bigger time frame like daily or even
weekly chart and apply the same setup on that chart to know what is probably the
right direction of the market. Sometimes when the price touch the 55 EMA line react
as a support or resistance level and at the same time you may have a trading signal
against this fact. In this case you are probably against the major trend.( Pic.3)
- Exit the trade as soon as you see the clear signals (Don't be too optimistic when the
market tell you another story. Exit the trade if you want to win)
- Don't hesitate to apply what the system show you while an over guess trader normally lose
money.

Be relax, don't risk too much and stick to the plan. Also I don't want to leave you alone to
process everything by yourself

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Forex for Beginners courses : Basic Training6

Forex for Beginners courses : Basic Training6

Part 6

Fundamental or Technical
Another important decision which ideally should be made prior to the start of your trading is whether
your approach will focus primarily on trading signals from technical indicators or from trading ideas
based upon fundamentals.
I distinguish here between ideas and signals because they are two distinctly different types of
approaches generated by two distinctly different understandings of the futures markets.
Later on I will provide a very thorough discussion of the two approaches, outlining their strengths,
assets, liabilities, differences and methods of implementation. For now, suffice it to say that a decision will need to be made, preferably sooner than later, about the approach you wish to employ in
your trading.
Some individuals may seek to implement a hybrid approach, incorporating what they feel are the best
aspects of each technique. I also will discuss the merits of this approach, or the lack thereof.
How Much Risk do You Want to Take on Each Trade?
A significant question, one that is perhaps best answered prior to the start of trading is, “how much do
you want to risk on each trade?” Many factors enter into this decision, and there are many different
opinions regarding the best answer.
On opposite ends of the continuum, we find the two most extreme approaches.
Those who belong to the “money management school” will tell you that the best approach to take is a
per-trade risk based strictly on money management. In other words, you decide ahead the maximum
risk you want to take, in dollars. When a trade goes against you by the predetermined amount, you
close it out.
On the other end of the spectrum is the “systems approach.” Proponents of this approach claim that
each trade is unique. Every trade has specific levels of support and resistance and, therefore, it is not
possible to determine a prior rule for dollar risk.
My approach to this aspect of futures trading is essentially similar to my approach in other areas. I
prefer not to be in the middle of the road. Rather, I would align myself with either of the extremes.
As you continue to read this course, you will understand more clearly why my preference is usually to
be found on one end of the spectrum or the other, but rarely in the middle.
It’s been said that you can walk on the left side of the road or the right side of the road, but if you walk
in the middle of the road you will get squashed. There are merits to each approach and there is no right
or wrong answer to the question. There is, however, an answer that is your answer. My job is to help
you find it.
Hopefully, by the time you have finished this course, you will have found the answer falling naturally
into place. For the time being, however, I will tell you that each approach has its strong and weak
points and you can be successful by following either of the extremes.
Summary
This section reviewed some basic principles and distinctions. You must learn them before you can
continue.
Lesson #1 Quiz (Course 1)
1. The concept of hedging is based upon the assumption that movement in cash and futures
do what with each other?
a. They move in opposite directions.
b. They lead one another.
c. They parallel each other.
d. They follow 3 points behind.
2. When you begin trading, what is the minimum amount of completely disposal, specula-
tive capital that I feel you need to being with?
a. $12,500
b. $5,000
c. $25,000
d. $2,000
3. Another name for a cash market is a spot market. Why is this?
a. Because the market is often spotty and uneven.
b. Because transactions are made on the spot.
c. Because they help you spot moves.
d. Because it makes a spot for you in the market.
4. The following is a list of four things that speculators do. Only three are true. Which one
is false?
a. They do not take delivery of the goods.
b. They often trade for short-term swings.
c. They are buyers and sellers of cash commodities.
d. They are often called traders.
5. What do producers do?
a. They produce or process the commodity that is being traded.
b. They produce the final manufacturing of the commodity.
c. They produce the contracts to be traded.
d. They oversee the production market deliveries.
6. How should you get your starting capital to begin trading?
a. Borrow it from the bank or from a member of your family.
b. Take a second mortgage on your house.
c. Borrow it from your children’s college fund.
d. Use only extra money that you have on hand and will not miss if you lose it.
7. When deciding how much you risk on each trade I told you that those who belong to the
“money management school” will tell you to take a per-trade risk based strictly on
money management while those who believe in the “systems approach” claim that each
trade is unique and that it is not possible to determine a prior rule for dollar risk. What
position did I suggest you follow?
a. The middle-of-the-road approach is usually safest.
b. Align yourself with one or the other extreme but be consistent.
c. Ask a friend or associate what they do and do the same.
d. Take a percentage of what you feel the profit potential could be and use that.
8. What is the amount of profits I feel you should remove from your account for every
winning trade that you make?
a. 50 to 75%
b. None
c. 10 to 25%
d. 2 to 3%
9. If you decide to become a day trader what kind of data should you have?
a. Information that you can glean from reading the daily papers.
b. Up-to-date, tick-by-tick, accurate and reliable data.
c. A friend or associate who trades also that you can compare notes with.
d. Only the history of past trades is needed.
10. When you use leverage, what is the typical percentage of the total value that a contract
can be bought or sold for?
a. 10 to 15%
b. 5 to 7%
c. 1 to 3%
d. 20 to 25%

The End
With My Best Wishes

Forex for Beginners courses : Basic Training5

Forex for Beginners courses : Basic Training5

Part 5

Other Important Issues
In addition to the points just raised, a number of important issues warrant attention from all aspiring
futures traders, regardless of their eventual orientation, system, or trading methodology.
Trade Alone or With a Partner?
There are pros and cons to each alternative. If you trade alone, there will be no one to help you with
your work (unless you hire employees) and there will be no one who can trade for you in your
absence. Furthermore, there will be no one with whom you can discuss various markets, indicators,
techniques and trades.
To those individuals who need this type of assistance, a partner or well-trained assistant might be
desirable. However, before you make such decisions consider the potential negatives of having a
partner.
Too Many Cooks Spoil the Broth
Futures trading is a ‘loner’s game’. Sometimes a partner or partners will get in your way. You
may be influenced to avoid some trades you should have made and to make some trades you
should have avoided.
Who’s Responsible?
It is always good to know that you alone have the responsibility for profits and losses. If you
have a partner or partners, it may be difficult to know who is responsible for each decision.
Lacking such knowledge will slow the teaming process and may, in fact, stall it entirely.
Sharing the Profits
Do you really want to share your profits with partners? Granted, they may also share in your
losses, but since you may end up with more losses if you have partners, the benefits may prove
nil.
Do you Want to Share Your Research?
Many of us consider our research proprietary. We work long, hard hours to develop trading
systems and methods and we may not want to share these with a partner regardless of what he
or she may bring into the relationship.
Slower Decision Time
As you know, decisions in the futures markets must be made quickly. Many times the
presence of a trading partner may slow down the decision-making process and, hence,
severely limit the speed with which you can execute orders. This, as you can well imagine,
can frequently have negative results.
Trade for the Short Term, Long Term or Immediate Term?
I could teach several courses just addressing this subject. There are so many variables to
consider, not the least of which are your personality and temperament.
Factors You Should Consider in Making this Decision
• Trading System
While some trading systems are more ideally suited to short-term trading, others are
better suited to long-term trading.
• Time Availability
Only you know how much time you have available. To trade for the short term or
intraday you will need to make a major time commitment.
If you have another job and you can’t make this commitment, don’t even try! Be
realistic and determine what you can do with the time you have available. This may
automatically make your decision for you.
• Commissions
Are you paying sufficiently low commission’s to permit short-term trading with a
positive bottom line?
• Personality
Can you take the pressure of short-term trading? Are you more in tune with long-term
trading, its less demanding pace and the patience required?
• Health
Believe it or not, health is a consideration. If your health is at stake, then by all means
don’t push your luck. Trade with that period of time in mind, which will best be suited
to any health concerns. Answering this question honestly will help make many deci-
sions for you without considering any of the other aspects.
• Data
Many individuals are under the false impression that they can day trade the market
without a steady source of tick-by-tick data. Don’t fool yourself.
To day trade you need up-to-date, tick-by-tick, accurate and reliable data. If you can’t
afford it, if you don’t know how to use it, then don’t kid yourself. Day trading is not for
you.
In addition to the above, there are other factors which are specific to your individual situation that
must be considered before a final decision is made about the type of trading you wish to do.
This is an important decision. Do not take it lightly.
Part 5 End

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Forex for Beginners courses : Basic Training4

Forex for Beginners courses : Basic Training4

Part 4

Additional Uses of the Futures Markets
This course has, to this point, briefly outlined preliminary concepts and applications of futures trading.
Naturally, as a vehicle for speculating, hedging, or spreading risk, futures trading has significant
importance. As a vehicle for stabilizing costs to producers and end-users, futures trading is a vital tool.
On a more pervasive level, however, an understanding of futures trading can prove very valuable to the
investor not interested in actually trading futures.
This course gives considerable attention to the hypothesis that a knowledge of futures price trends and
futures market behavior can assist one in understanding economic trends as well as in forecasting the
short-term to intermediate-term direction of prices. There may also be long-range implications for
investors.
Conclusions
• Futures trading is a technique whereby one can buy and/or sell a variety of raw
and processed commodity items, including financial instruments and stock
indices, for anticipated delivery at some point in the future.
• There are three major categories of participants in the futures markets, each
with their own expectations, goals and market methods.
• Futures trading allows producers and end-users to lock in costs of production,
improving economic stability as well as the stability of their particular business.
• Speculators, by far the largest category of traders, have no interest in making or
taking delivery. Rather, their interest is in playing market swings for dollar
profits.
• There are many common objections to futures trading. Some have merit, others
are not well-founded.
• There are specific methods, systems and procedures used in futures trading
designed to reduce its inherent risk, a majority of which have been time-tested.
• Futures trading involves considerable risk. However, this risk can be greatly
reduced by consistent application of various principles.
• Futures trading can be an excellent vehicle for immense profit, or it can be a
dangerous tool for financial ruin. Those who win often attribute their success to
an attitude, which reflects self-discipline, courage, consistency, persistence,
specific trading techniques and a willingness to learn from mistakes.
Dealing with Basic Issues First
The goal of profits in futures trading can be achieved through many ways -- long-term trading, short-
term trading, speculating on an intraday basis, spreading, options trading, option spreads, floor trading,
as a broker or by a combination of these strategies. In addition, there are many vehicles which can
lead you toward, or away from your goals.
How Will You Achieve Your Goal?
You must make some important decisions as to how you will achieve your goals. Some of these
decisions can be made based on your present knowledge. Others, however, cannot be made until you
have a broader understanding of the field.
I would suggest that even if you feel you already know the answers to these issues, you come back and
reread this section after you have finished reading the entire text in this course. In future sections, I
will revive some of these pressing issues, providing you with some suggestions as to their resolution.
The Vehicle
Many vehicles can take you to your goal. Some will lead you in the right direction, whereas others
will take you in the wrong direction. These vehicles are the systems and methods of futures trading.
I can’t tell you which system is best for you. All I can do is to acquaint you with the various methods
and with the guidelines for deciding which techniques are best for you.
The performance of trading systems is not static. Systems go through good times as well as bad.
Traders go through good times as well as bad. Traders and systems interact in a complex combina-
tion.
I can’t give you the ultimate answers, but I can acquaint you with the tools. I can give you the
knowledge to help you make your own decisions based upon the facts. As you read the remainder of
this course, keep your mind tuned to the issues I have just raised, looking for answers as you go.
Assuming that you have already had some experience in this area, you will recognize the answers
more easily.
The Fuel
The energy that drives the wheel of successful speculation is good old-fashioned money.
To make it, you have to have it, and to multiply it you have to use it wisely. You know the risk is
immense and that the odds are stacked against you. Your chances of making it in the competitive
world of futures trading are probably five or ten in 100, but they are reduced to zero by starting with
nothing.
Successful speculation is not a get-rich-quick scheme, a no-money-down real estate venture or a 15-
million-to-one odds lottery ticket. The facts of futures trading dictate very clearly that the more you
start with, the greater your chance of success and the less you start with, the greater your chance of
failure.
“How much is enough?” you ask.
I can give you some guidelines. Based on current conditions in the futures market, the beginner
should have sufficient capital to meet liberal marginal requirements on at least five contracts in the
futures market.
If we assume, for example, that the average margin on a futures contract is $2,500, then we are looking
at approximately $12,500 in speculative capital. I don’t think it is realistic for you to expect success if
you begin with less.
Don’t be fooled!
Some individuals will tell you that you need virtually nothing in the way of starting capital, whereas
others will tell you need much, much more. I won’t argue the fact that the more you have to start with
the better your odds of success, however, there is a limit on the downside.
Certainly you must consider the fact that you don’t want to risk everything. When someone asks me
how much he or she should risk in futures trading, I answer the question with a question. I ask, “How
much can you afford to lose?” One answer might be $10,000. I respond, “Take this slip of paper on
which I have written $10,000. Rip it into shreds. Flush it down the toilet. How do you feel?”
This small test represents a little experiment that may help you determine how much you can afford to
lose in the futures market without too serious an emotional reaction to the consequences.
Financially, the answer is different. How much can you afford to lose from this standpoint? I would
suggest that as a rule of thumb, you risk not more than 25 % of your total liquid risk capital!
Don’t Borrow Your Starting Capital
Let me caution you against a practice I have witnessed on a number of occasions during my years in
the futures market. It has become more and more common for individuals to borrow money in order to speculate in futures. Specifically, second mortgages or home equity loans are often used for this
purpose.
I recommend you do not consider this foolish behavior. There is no sound judgment in such behavior
and the results of such actions can be disastrous.
The individual not only places him or herself at financial risk, but jeopardizes his or her trading by
using funds that should not and cannot be placed at risk.
Certainly it takes no great insight to see that the trading decisions of the speculator will be based on
fear and this will seriously affect his or her judgment.
Another pitfall to avoid is the following mental trap: “I’ll put more money into my account than I
intend to lose, but the rest will draw interest and, of course, I will watch the money closely.” As
I explained, this is a rationalization based on unrealistic thinking.
Even with the best intentions, when “extra” money is in the account, chances are it will be used for
trading. Put into your account only what you can afford to lose in its entirety.
Don’t be fooled by the lure of interest rate earnings on the unused funds, especially low-risk trading
programs, fail-safe programs, “no risk” option strategies, minimal risk spreading programs and a host
of other seemingly simple “minimal risk” programs.
I’ve seen them come and I’ve seen them go. There are some big winners, but there are many, many
more big losers. Do not accept the claims of any trading system, your own or that of someone else, as
the basis for deciding how much of your money you will place at risk.
Reach Your Goal by Stages
The most fruitful and consistent means to achieve a goal is through stages or steps. Unfortunately, or
perhaps fortunately, our dimension in time and space does not permit thoughts to become actions
instantaneously and, therefore, goals must be attained slowly.
Whether you decide to trade for the short, intermediate or long term, it is advisable that you regularly
withdraw profits from your account once you have reached a certain level of successful performance.
Generally, I recommend 10 to 25% of profits be removed from every winning trade in your account.
This need not be done on a trade-by-trade basis. You can do it weekly or perhaps bimonthly, but
remember to do it!
More speculators would be successful if they approached futures trading as though it were a business.
After a period of teaming and initial cost, a business that reaches the point of profitable operation will
generate income for its operators. The profits are then taken and employed in some other fashion not
directly connected with the business itself. Some of the other profits are turned back into the business
in order to expand its base.
It is the same with futures trading. On occasion, speculators have achieved tremendous initial growth
in their accounts. Lured by greed and the promise of even greater profits, they have plowed every
penny, if not more, back into the market, only to lose it all. When all is said and done, they have
nothing to show for their great efforts.
This is why you must formulate and institute a specific program for systematically removing
a percentage of your profits from your, trading account. This rule is applicable whether you are
speculating for the long-, short- or an intermediate-term time frame.
Part 4 End

Forex for Beginners courses : Basic Training3

Forex for Beginners courses : Basic Training3

Part 3

The Three Categories of “Players” in the Futures Game and their Roles
Producers
These individuals and/or firms actually produce or process the commodity that is being traded.
Whether it be silver, gold, petroleum, corn, live cattle, lumber, sugar or currencies, these are the people
who make the goods available either by mining them, harvesting them, raising them, growing them or
lending them.
They need to lock in costs. In other words, they have a product they want to sell at a determined price.
They may do this in order to guarantee a profit on an actual commodity they have on hand or have
produced, or they may want to lock in a price on an item in order to avoid losing more money on it if
it is already declining.
Finally, they may not have the goods at all. Rather they may be protecting themselves from a possible
side effect of declining or rising prices.
For example, a jewelry store with considerable gold and silver jewelry on hand may fear a decline in
the price of precious metals. They stand to lose money on their inventory as prices decline. Therefore,
they may choose to sell futures contracts of silver and/or gold in expectation of the decline. Thus, they
have profited from the futures sale.
End-Users
These are the people who will use the stuff that’s sold by producers. They need to lock in the cost of
their production by advance purchase of raw goods.
Therefore, they will buy either on the futures market or they may make a forward contract (previously
defined). At times, the end-user may become a seller as opposed to a buyer.
Assume, for example, that too much has been purchased or that the final product is not selling well. In
such an event, the end-user may switch to the sell side.
The producer may, at times, switch sides as well.
Assume the producer does not have enough production to meet obligations to others. The producer
may then become a buyer as opposed to a seller. As you can see, roles in futures trading can change.
Speculators
This is the largest group of futures traders. These people are sandwiched between the end-user and the
producer, providing a market buffer.
Perhaps no more than one to three percent of all futures contracts is actually completed by delivery.
The balance is closed out before any actual exchange of goods occurs.
Suffice it to say that speculators are often willing to take risks in markets at times and at prices that
may not be attractive to the other two groups.
Speculators do this in expectation of large percentage profit returns on price fluctuations.
The chart below shows the general relationship between the three basic groups of market participants.
More details will be given as your understanding of basic concepts increases.



For now, I’ll spare you specifics of how futures contracts work. These mechanical things will be
learned later. What I want you to learn now are the concepts of futures trading.
The basic issue is, of course, why trade?
Summary
The futures markets operate on very specific factors which, when, understood, can allow you to trade
profitably. To understand the markets, you must learn the underlying structure and functions of
commodity trading.
Why Traders Trade
At first glance, the answer to this question is obvious. The simple fact of the matter is that traders
trade, or participate in markets, in order to make profits. But there are many aspects to this simple
answer.
Let’s look at a few of the most significant reasons for trading futures:
1. Futures Trading Requires Relatively Small Start-Up Capital
Typically, one can get started in futures trading for as little as $10,000. In some cases
less capital is required. Many professionally managed trading pools require from $2,500
to $5,000 for participation. While most traders are not successful when starting with
limited capital, this is one way to get your foot in the door.
Futures options trading requires even less capital. Therefore, it is possible for
the individual to begin with an even smaller amount of capital. In. most other areas,
considerably greater capital is required.
The small amount of capital can work for or against you -- most often against you.
2. Leverage is Immense
The typical futures contract can be bought or sold for one to three percent of its total
value. For example, a 100-troy-ounce gold contract at $400 per ounce ($40,000 cash
value) can be bought for about $1,500-$2,000.
The balance of the money will, of course, be due if and when the contract is completed
(i.e., when you take delivery).
In the meantime, about $2,000 is controlling $40,000. In Treasury Bill futures, the
contract size is $1 million and the margin is about $2,500. In other words, you have
immense potential using small amounts of money.
This can work for or against you. It is the goal of the futures trader to make leverage
work in his or her favor.
3. Futures Markets Make Big Moves
Prices fluctuate dramatically almost every day. There is considerable opportunity to
win or lose daily in futures trading. Many markets will permit potential returns of
100% or more per day on the required margin money (i.e., money required to buy or
sell a contract).
This, too, can work for or against you. Where there is great opportunity, there is often
great risk as well.
4. Futures Markets are Very Liquid
By this I mean that it is possible to get into or out of a market very quickly. This is not
so with many stock and real estate investments. Some speculative stocks rarely trade,
and real estate is often hard to dispose of quickly.
With futures transactions, as with active stock transactions, one can enter and exit within
minutes, or even seconds. This makes the market ‘ideal’ for the speculator with limited
capital.
It is possible for the individual to begin with an even smaller amount of capital. In most
other areas considerably greater capital is required. The small amount of capital can
work for or against you -- most often against you.
5. There are not Many Secrets to Successful Trading
In some areas of investment, you need to know either the right people or the right inside
information. While correct inside information can be very helpful in trading futures,
success does not depend on such information. There are few secrets to successful
trading.
Good trading is a skill that can be learned and, in fact, be taught very specifically, objec-
tively and successfully to those willing and able to learn. Virtually any individual with
speculative capital, self-discipline and the motivation to succeed has an opportunity to
do so in the futures markets -- but it’s not easy.
6. There are Many Futures Vehicles
In addition to the traditional buy and sell short positions, there are many vehicles in
futures trading. These include options, spreads, option spreads, futures versus options
positions and combinations of the above.
Summary
The bottom line of all futures trading is to either make money or to keep from losing it. The futures
markets provide an excellent vehicle for doing this
Part 3 End

Forex for Beginners courses : Basic Training2

Forex for Beginners courses : Basic Training2

Part 2

Evolution of the Futures Markets
Trading in futures had its origin in the development of grain trading in the United States in the
mid-1800s.
The Japanese futures exchange began over a hundred years earlier than it did in the U.S. Their methods
of trading in the silk and rice markets, as well as the English methods of trading iron warrants, were
precedents to the United States futures markets.
The practice of futures trading in the United States evolved naturally from the need to protect against
volatile price moves in physical grain products. Chicago took the leading role as the center of grain
futures trading.
The Midwest is the heart of a rich and vast agricultural region and, since Chicago is strategically
situated as a shipping center, it was a natural site for grain trading. The Mississippi River and its
tributaries were available to move grain and later, in conjunction with the railroads, commerce in the
grain markets flourished.
The Chicago Board of Trade was organized in 1848 and actually began trading about 1859. It was
formed to meet the needs of producers (farmers) and exporters in order to systematically manage their
risk and exposure to unknown elements such as weather, political events and economic uncertainty.
The concept of hedging, upon which the futures markets are based, became widely used and continues
today to serve as a valuable tool for risk management.
What Is Hedging?
The concept of hedging is based upon the assumption that movement in cash and futures prices will
parallel each other in movement after due allowance has been made for any seasonal or other trend in
the cash market.
In essence, the goal of the hedger is to lock in an approximate future price in order to eliminate his risk
of exposure to interim price fluctuations. The best way to understand hedging and the futures market
is by example. I will assume that you have no understanding of the futures market.
Suppose You are a Grain Farmer
It becomes hot and dry. Rain is scarce in most parts of the country, and some of the large
grain-processing firms become concerned about what will happen to corn prices several months in the
future as the heat and drought damage take their toll on the crop.
In your area however, weather is fine. You grow corn. Your crop has been planted and the summer has
not been too bad and moisture has been sufficient. Your crops are quite good, in fact.
The grain-processing concerns such as large baking companies, animal feed manufacturers, food
processors, vegetable oil producers and other related concerns begin to buy corn from farmers and
grain firms who have it in storage from previous years. Their buying is considerable due to their
immense needs. Simple economics tells us that the price of corn will rise as the supply falls.
Prices begin to rise dramatically in what is called the ‘cash market.’ This is the immediate or day-to-
day market. Another term for the cash market is the ‘spot market.’ It is so termed because it refers to
transactions made on the spot, that is, for immediate delivery, not for delivery at some point in the
future.
Assume that you know the cost of production for your corn. In other words, you’ve taken into
consideration your fertilizer, fuel, land, labor and additional costs. You conclude that it costs you
$1.85 to produce each bushel of corn.
Your call to the local grain terminal -- where cash corn is bought and sold -- tells you that today cash
corn is selling for $3.25 per bushel. You know that only two weeks ago it was at $3.00 per bushel and
three months ago it was going for $2.75.
You know you will be producing over 50,000 bushels of corn this year and, as a consequence, the price
difference between what the market was several months ago and today’s price is considerable. In fact,
it runs into thousands of dollars.
What are Your Options?
You know that by the time your crop has been harvested, prices may be back down again.
What could force prices back down?
Many things could happen. The government could release grain from its reserves to drive prices down;
foreign production could be larger than expected making the U.S. crop reduction less important or
weather could improve significantly, lessening the impact of the problem. Demand could decline and
the grain companies might sell from some of the supplies they’ve accumulated.
Regardless of what actually happens, you’ve decided that you want to sell your crop at the current
price.
You Can Do Either of Two Things
You can enter into a forward contract with a grain firm.
This contract is made between you and a grain processor or elevator. (These firms are
known as ‘commercials’.)
They will quote you a price for your crop to be delivered to them at some point in the
future, usually shortly after harvest. Often, their price is not as high as the market’s
current trading level. Or,
As an alternative, you could sell your crop on the futures market.
The futures markets are organized exchanges or marketplaces where many individuals
congregate for the purpose of buying and selling contracts in given markets for future
delivery and/or for speculation.
Prices there will be relatively free of manipulation by large commercial interests, which
may have almost complete control over what you will be paid in your hometown area for
your crop. Provided your corn meets the proper exchange specifications, you can sell it
in advance on the futures exchange.
You will not get your money until the crop is delivered to the buyer, but the price you get
will be locked in. Regardless of where the price goes thereafter you will be guaranteed
the price at which you sold your crop
You Could Win or Lose
If the cash market is higher by the time the crop is ready, you will not make as much as you might have.
If the price is lower, then you are fortunate to have sold prior to the decline.
Of course, you have the option of doing nothing, hoping that corn will be much higher at some point in
the future.
The essence of the futures market vehicle is, its use as a tool by which the producer and end-user can
hedge or protect profits.
Futures are ideal hedges against rising or falling prices.
What’s in it for the Players?
Who takes the other side of the futures transaction and why? In other words :
• Who will buy the grain from you?
• Why will they buy it?
• What will they do with it?
• How will they sell it if they change their mind?
Part 2 End

Forex for Beginners courses : Basic Training

Forex for Beginners courses : Basic Training

Part 1

1 - Background of Futures Trading
Introductory Comments :
For many years futures trading has been considered either too risky or too sophisticated for the average
investor.
Most myths are born of ignorance, and the futures myth is no exception. For all too long, futures
trading was either ignored or shunned in economics texts and, as a consequence, the general public
was not educated in the basics of futures. No informed choice could, therefore, be made.
Investments in securities, stocks, bonds and even stock options, however, received considerable
attention. It is generally believed that trading in stocks has more historical justification and, therefore,
more value in an economic education.
There are, in addition, a number of other reasons for the historically diminutive role of futures trading,
few of which are valid.
Generally, objections to futures trading are based on either partial or distorted facts. So, before launching
into an explanation of precisely what futures trading is, it may be necessary to clear the decks of any
misconceptions you may hold.
First, let’s examine some of the standard objections to futures trading, so that we may have a relatively
clean slate upon which to write the new learning.
Let’s take a look at a few of these misconceptions.
1. “You Can Lose All You’ve Invested, or More, if You Trade in Futures.”
This is true. However, the key word is invested. Trading futures should in no way, shape
or form be considered an investment. As a speculation, however, the rules of the game
become distinctly different -- high risk is necessary for high reward.
Nevertheless, even ‘high risk’ does not mean that the common sense rules of good
trading and money management (to be taught in this course) should be ignored.
It has been demonstrated clearly that a balanced investment portfolio consisting both of
stocks and futures performs better, on average, than a portfolio consisting exclusively of
stocks.
2. “Trading in Futures is a Gamble.”
This is another misconception. In fact, trading in futures is, technically and
fundamentally, no different from trading in stocks.
The odds of being right or wrong are essentially similar. However, due to lower
margins, the odds of making money in futures are probably lower than those of making
money in stocks.
Ultimately, though, the possible percentage return in futures trading is considerably
greater than the potential return in stocks. Futures trading is, therefore, no more of a
gamble than trading in stocks.
Carefully and closely following the rules of successful futures trading will help reduce
the risk and gamble.
3. “Futures Trading is for Insiders. It’s a Rigged Game.”
(Markets are Manipulated.)
These two misconceptions go hand in hand
There is probably less inside information available in futures than there is in the stock
market. The United States Department of Agriculture, the Commodity Futures Trading
Commission and the National Futures Association have all imposed very stringent
limits on the total number of positions a trader may hold.
They monitor the brokerage industry and large trader transactions very closely. Impor-
tant government information is guarded and kept strictly secret until the scheduled release
date and time.
In this way, the markets can function freely and with minimal effects of insider informa-
tion. In fact, most markets cannot be manipulated for other than perhaps very brief
periods of time. This is because they are too complex and diverse for any one individual
or group to affect prices over the long run.
Unavoidably, some traders will always have an edge based on inside information, but
success in the futures market is very possible without access to such information.
4. “Trading in Futures Serves No Economic Purpose.
It’s a Gamble, Pure Speculation.”
This popular misconception couldn’t be farther from the truth. The futures markets
serve to stabilize prices. In fact, we often forget that futures markets in the U.S. were
originally created to protect the farmer from volatile price moves.
In today’s markets this same price protection is needed by farmers, food companies,
banks and many other large institutions, often referred to as ‘hedgers.’ The speculators
provide liquidity and are often willing to take market positions when prices are fluctuat-
ing significantly due to news, weather, crop conditions, etc. This stabilizes prices by
providing additional buyers and sellers to buffer extreme moves.
Were it not for the speculator, prices would move more viciously, and the hedgers could
not enter and exit the market as efficiently. And, were it not for speculators buying and
selling regardless of price levels, the markets would be subject to great volatility.
Supplies would stand a good chance of being disrupted and unstable. One probable
reason for the Soviet Union’s demise was its lack of a delivery and exchange system for
its commodities. A functional futures market would have contributed considerable
stability to its economic system while also reducing producer and consumer dissatisfac-
tion.
5. “Futures Trading is Only for the Short Term.”
This is also incorrect. Futures trading can be either long term, intermediate term, and/or
short term depending upon the orientation of the trader.
In fact, some of the most successful futures traders -- referred to as ‘position traders’
hold their positions for an intermediate- to long-term period of time. The particular time
horizon or time frame that a trader adopts is an individual choice, which does not
necessarily have to be short term to be prosperous.
Many other misconceptions and misunderstandings plague futures trading -- all bred out
of either partial information or ignorance.
One-by-one, these myths will be unveiled and corrected as your understanding of
futures markets and futures trading increases. Now that a few of the major myths have
been revealed, we can move on to the basics of futures trading.
Part 1 End

Forex for Beginners Candlesticks For Support And Resistance

Forex for Beginners Candlesticks For Support And Resistance

Observation is the best friend of the technical analyst. By watching the markets, I noticed something interesting
about candlestick charts, which I use extensively. I realized the real bodies used in candlestick charting can be used
to determine significant support and resistance points, a strategy I had never seen before. Take a look at how it can
be done.
Although they have only recently become popular in the Western Hemisphere, Japanese traders have been using the
candlestick charting technique for hundreds of years. Candlestick charts, much like the bar chart equivalent, utilize
the open, high, low and close activity to plot a period (usually a day). In candlestick charting, unlike bar charting
where the highs and lows tend to be the focus, the opens and closes are the most significant.
A candlestick is composed of two features, as shown in Figure 1. The real body is a rectangle encompassing the area
between the open and close and is what gives candlestick graphs their distinctive appearance. The real bodies are
blacked in if the open is above the close and white if the close is above the open. A session in which the open and
close are the same is commonly referred to as a doji session and is represented by a single horizontal line at that
price.

FIGURE 1: CANDLESTICKS. A candlestick is composed of two features. The first is the real body, which is
the rectangle between the open and close and is what gives candlestick graphs their distinctive appearance; this area is
blacked in if the open is above the close and white if the close is above the open. A session in which the open and
close are the same is commonly referred to as a doji session and is represented by a single horizontal line at that
price. The second distinctive feature is the shadows of a candle, which are drawn in the area above and below the real
body and the extremes. It is possible to have one, two or no shadows. When a shadow is absent, the result is referred
to as a shaved candle.
The shadows of a candle - which give the appearance of being wicks - are drawn in the area above and below the real
body. The upper shadow is the area between the high and the top of the real body, while the lower shadow is the
area between the bottom of the real body and the low. It is possible to have one, two or no shadows. When a
shadow is absent, the result is often referred to as a shaved candle.
Much of candlestick analysis revolves around the search for, and identifying, reversal patterns. Many of the
distinctive terms associated with candlestick charting come into use with reversal patterns. This is where the real
difference between candlestick charting and bar charting comes into play. However, candlestick analysis can offer
more than you think. Most technicians use highs and lows for support and resistance points as part of their basic
charting techniques. But in keeping with the candlestick emphasis on opens and closes, let's change the way we look
at the market. Instead of the usual highs and lows, let's use real-body highs and lows.
DETERMINING SUPPORT AND RESISTANCE
When a chartist looks at a bar graph, accumulations of highs and lows are often seen as key market levels. Breaking
Stocks & Commodities V13:15: (243-246): Candlesticks For Support And Resistance by John H. Forman
Copyright (c) Technical Analysis Inc.
Stocks & Commodities V13:6: (243-246): Candlesticks For Support And Resistance by John H. Forman
Copyright (c) Technical Analysis Inc.through these points signals important changes in the expected direction of prices. Candlestick real bodies, however,
may turn out to be better for this task. Much like highs and lows are on bar charts, an accumulation of real-body
highs or lows at a given level is significant.
An example of real-body resistance levels can be seen in Figure 2. The real-body high from the first day provides the
initial resistance point. Note how the second day's action takes prices above that resistance, even to a new high, but
the market ends lower on the day. The situation is similar after the fourth day. Twice the market rallies above
real-body resistance, only to fall back. Real-body support levels would work in a similar, but opposite, manner.

FIGURE 2: CANDLESTICK REAL-BODY RESISTANCE. Here's an example of real-body
resistance
levels. The real-body high from the first day provides the initial resistance point. Note how the second day's action
takes prices above that resistance, even to a new high, but the market ends lower on the day. The situation is similar
after the fourth day. Twice the market rallies above real-body resistance, only to fall back. Real-body support levels
would work in a similar, but opposite, manner. The last candlestick is what would be considered a breakout. In
effect, there must be a real-body penetration of the support or resistance point before we can consider the action to be
significant.
The last candlestick on the chart is what would be considered a breakout. For the sake of our definition, a breakout
of real-body support or resistance is official only if it is on a closing basis. In effect, there must be a real-body
penetration of the support or resistance point before we can consider the action to be significant.
TRADING APPLICATIONS
One of the first uses that many technicians see for this technique is in terms of breakouts, much like in using bars.
The advantage in using real-body highs and lows for support and resistance is that ranges are tighter, allowing entry
into a trading position earlier than might otherwise have been the case.
Perhaps the most intriguing part of this new methodology, however, is its usefulness for day trading. Most
technicians use candlesticks as a day-end indicator, but this technique gives us a greater degree of depth than is
necessary for day trading. Real-body support and resistance allow us to take our analysis into the shorter time
frames, which in turn allows us to get better entry points for our longer-term trades.
In my own analysis, I favor trading counter to the prevailing market action when a nearby real-body support or
resistance level has been crossed intraday. This means that I recommend selling when the market has broken through
very recent real-body resistance, and buying when recent real-body support has been breached. This is my strategy
for trading against levels that are only a few days old, and one I recommend mostly for a very short-term position
(say, day trading).
Longer-term levels require trading against the approach of a level. Often, in such cases, prices have come from a
relatively long way off, and just reaching those key levels is a major achievement. Waiting for a break of support or
resistance may mean missing a trade. Positions set under these circumstances can be held for longer time frames,
Stocks & Commodities V13:15: (243-246): Candlesticks For Support And Resistance by John H. Forman
Copyright (c) Technical Analysis Inc.
Stocks & Commodities V13:6: (243-246): Candlesticks For Support And Resistance by John H. Forman
Copyright (c) Technical Analysis Inc.perhaps as long as a week.
In candlestick charting, as in bar charting, the more times a level is touched, the more significant the level becomes.
This is, however, a double-edged sword; if a resistance point is touched or penetrated slightly several times, it
becomes more likely that a real breakout is in the offing. The wrong side of a breakout is not where we want to be.
At the same time, however, the more times that a resistance point is touched, the larger the eventual decline is likely
to be if the market falls instead of rallying.
MINIMIZING THE RISKS
There is no way around the risks inherent in trading counter to the prevailing market action. All we can do is reduce
the risks as much as possible by using the tools available. Happily, there are ways to do this.
First, always be aware of the longer-term picture. If the market you are planning to trade is in the middle of a strong
trend, going against that action is probably one of the quickest ways to lose money. Wait until the momentum starts
to ease; this will reduce your chances of getting caught on the wrong side of a breakout.
Further, this is a good time to mention a candlestick caveat: Beware of reversal patterns signaled by candlesticks in a
trending market. The bond market is especially notorious for throwing out countertrend candlestick signals during
major trends, and I've seen the same in other markets as well. Never look at candles in a vacuum.
So what should we look at in conjunction with candlesticks to lower our risk in the countertrend trades I am
suggesting? For one, there's John Bollinger's band width indicator (BWI) as a trend indicator, which can be used by
monitoring the area between the upper and lower bands. (I outlined this technique in the November 1994 STOCKS
& COMMODITIES.) I like to use the BWI as an indicator of a weakening trend; I want to jump in when the slope of
the BWI line starts to decrease. This is the first signal that the trend is petering out, and that at this point countertrend
trades are reasonably safe.
There are, of course, other technicals that you can use. Bollinger bands themselves can be helpful, among others.
Select the tool or tools that make you most comfortable.
More important than any additional indicator you could use, however, is your money management strategy. There
are many ways you could trade using this methodology, and each has its own advantages and limitations. Cash or
futures trading exposes you to the potential for theoretically unlimited risk, requiring tight stops and quick
executions. Options could limit your risk, but probably at the cost of requiring larger moves to make them
worthwhile. Of course, you may be able to tailor a combination of instruments to suit your needs.
An important factor in determining your risk exposure, and as a result how you trade, is the point at which you cut
your losses. Often, there is no second support or resistance level nearby to provide a good stop-loss point, which
means you'll have to use your own instinct as a guide. I find it useful to use whatever candlestick shadows there are
as a rough guide to how far the market might go against me, thus letting me set reasonably good stops.
One last thing to consider: Where you're going to get out. I use a combination of techniques. Fibonacci retracement
levels work fairly well, as do moving averages. I prefer to determine another support or resistance point using real
bodies. Unfortunately, there are times when a significant level is not available nearby, forcing me to use other
techniques.
A REAL-LIFE EXAMPLE
Figure 3, which shows the sterling/Deutschemark cross-rate, contains several excellent examples. You can see how
many times prices either approached or penetrated real-body support and resistance points but were unable to sustain
those levels. Time after time, an attentive trader could have entered positions counter to the prevailing market action
and would have done well. There are two noticeable exceptions, however.

FIGURE 3: STERLING/DEUTSCHEMARK CROSS-RATE. The sterling/Deutschemark cross-rate
contains several excellent examples. You can see how many times prices either approached or penetrated real-body
support and resistance points but were unable to sustain those levels. Time after time, an attentive trader could have
entered positions counter to the prevailing market action and would have done well.
The first came in late December 1994, when the market finally broke down out of its range. Two things should have
been noted that might have kept you out of a trade. One is the double top, or tweezers pattern in the candlestick
vernacular, which took place about 10 days prior to the breakdown. That would have been your first indication that
the trend was probably toward lower prices. The second indication came two days before the breakdown in the form
of a shooting-star pattern, followed by a large negative real-body candlestick. This was another signal of lower
prices.
The second exception was in January 1995, when the market again broke down after a consolidation. This, too,
probably could have been avoided. All indications were signaling a bearish trend. That should have kept the careful
trader from trading the doji day just prior to the breakdown. The doji, however, might have caused some confusion.
In addition, look at how taking those positions against the prevailing action is a great way to enter a new longer-term
position. One glaring example of this took place early in January 1995, just before the second breakdown. After
rallying for three days, the market approached, but never broke, real-body resistance. Prices did not stop falling until
they were about 600 points lower, less than a week later.
CONCLUSION
By using real-body support and resistance levels, we can try to improve our trading and analysis on several levels. In
the short term, we can derive important counteraction trading points and improved longer-term entry levels. In the
longer term, we can use real-body support and resistance to get a jump on market breakouts in a trend-trading
strategy.
Let me reiterate: Candlestick charting should not be used in a vacuum. That applies to the real-body support and
resistance levels as well. You should, however, take the time to try out this methodology. I'm sure you'll find it
worthwhile, and a beneficial addition to your technical toolbox. It just goes to show that by keeping our eyes open,
we just might be able to discover new techniques.
John Forman is a currency analyst for Technical Data, a provider of real-time and day-end market commentary and
trading advice over the Telerate system. He writes mostly from a technical perspective and also has experience in
trading US and Canadian government cash and futures issues, equities and the energy markets.

Forex for BeginnersCandlesticks For Support And Resistance