The Opening Gap Strategy – Why it Makes a Good Automated Trading System

The opening gap trading strategy is a high probability trading method than can bring good returns to the active day trader.

This article will show that this method makes an ideal automated day trading system.

Let's start off by briefly explaining what an opening gap is. It is created when after hours trading activity drives the price significantly far from the closing price. When the market opens the next day, there is a large difference between the price at the start of the new session, and the prior days closing price.

This creates a gap and a trading opportunity with a high probability of success as research has shown that gaps are filled around 70% of the time during that trading session.

Fading the opening gap

To fill a gap down, buyers must enter the market in strength and drive the price upwards so that it travels to, or beyond, the prior closing price. This is called fading the gap and leads to a term called gap fill. The same applies to filling a gap down, although it is sellers who determine this price action.

An ideal day trading strategy

Fading the opening gap makes an ideal day trading strategy. With a high probability that a large gap will be filled during that session, traders can place either long or short trades, depending on the direction of the gap, at the opening price and have a good expectation that price will move favourably for them.

The price action occurs during that session and will either result in the trade being…


Popular Forex Charts

Line Charts are the most basic chart showing the movement of price with a single line. The line is drawn from one closing price to the next. There are more advanced line charts that will plot the high, low, and close.

Bar charts are slightly more complex. A bar chart will show the opening and closing prices, as well as the high and low of the bar. The vertical part of the bar shows the range for your time period, then there is small horizontal bars sticking out of the main vertical bar. These small horizontal bars display the open and close for that bar.

Candlestick charts show the same things as a bar chart but they just look a lot more appealing. Candlestick bars show you the high, low, open, and close for your time period. Your high and low range is displayed in the vertical line and the open and close are represented by a block (the body) on the candle. These blocks can be changed to whatever color you like to indicate a higher or lower closing price. An example would be a price opened high then closed lower so the body of that candle would be painted red, and maybe green if it closed higher. If you have to look at charts a lot they might as well look pretty right!

These are the three main types of charts and I personally prefer to use candlesticks in my trading. They look nice and the charts are visually stimulating. There is also many Candlestick Patterns that are easy to spot when trading with this type of chart, and most of them have cool names!


Forex Robots – A Great Way to Lose Money

Forex Robots are chosen by a huge amount of new Forex traders, they believe they can make money with them, make huge returns and make no effort but this is simply not true and These robots son destroy the users accounts. Let's take a look at why you will not make any long term gains with a Forex robot.

The Forex robots never present an independent track record of gains that is verified over the long term.

All you get are back tests or figures from the vendors themselves. So they have no proof of making money but tell you that you can make more money than the worlds best traders (who earn millions) by following their robots which cost just a few hundred dollars.

Anyone who believes the Forex robots make money will be disappointed.

A track record based on back testing where the vendor knows the closing prices and simply buys and sells at highs and lows, is far easier than trading when you do not have the luxury of knowing the closing price in advance! Of course if we all knew the closing price in advance, we could all be trading millionaires but that of course is not the reality of Forex trading.

Traders are always looking for easy ways to make money but in Forex trading to make money, you have to work and learn skills. Forget the ridiculous claims the Forex Robots make and concentrate on getting yourself a decent Forex education and if you do, you can then trade with confidence and win.

If you make an effort, no other venture can make you as much money…


What is a Stochastic Indicator and How Can I Use it?

A Stochastic Indicator is a evaluate of price tag momentum. If not recognised as Stochastic Oscillator, it was produced by George C Lane in the late 1950’s. Primarily based upon a predetermined higher and very low variety, it will indicate a closing price tag following a steady degree of both higher or very low closing selling prices calculated about a set amount of periods. A steady higher degree in close proximity to the leading of the variety generates an accumulation or momentum recognised as ‘buying pressure’ and a continuously very low degree in close proximity to the base of the variety generates a distribution or momentum recognised as ‘selling pressure’ The Stochastic Oscillator will indicate when a craze is about to transform and flags up a obtain or sell signal to the trader.

This write-up tells you how a Stochastic Indicator is calculated and how it is made use of to help make successful trades.

The calculation is as follows:

one hundred X ratio (the latest close – lowest very low)/(optimum higher – lowest very low) = %K, wherever the lowest very low and optimum higher is taken about a specified period. The most common period is 14days with the highs and lows recorded for each and every of the fourteen days and the the latest close is the closing price tag on the 14th working day. This in result mathematically compares the hottest closing price tag to prior selling prices about the amount of periods getting thought of. Clearly, since this ration is a proportion figure, it will fluctuate or ‘oscillate’ between and one hundred about a period of time and is represented by a %K line on your chart.

The signal line or %D line is concurrently plotted alongside the %K line…


Currency Trading Tips

Forex is the largest and the most liquid financial market in the world, and the very size of the market tends to reduce the possibility of manipulation by a select group of people. Hence, the foreign exchange market is loosely regulated by the Commodity Futures Trading Commission (CFTC). Currency pairs are not traded in a centralized exchange, but are traded between agreeable buyers and sellers in the over-the-counter market (OTC).

Tips for Currency Trading

Using Leverage Wisely: Use of leverage is encouraged in the foreign exchange market since fluctuations in the price of a currency pair are typically fractions of a cent. The maximum leverage that can be employed by a trader is calculated using the following formula:

Maximum Leverage (Margin-Based Leverage) = Value of Transaction / Margin Requirement

For instance, if a person wants to control $100,000 worth of trade, he/she can borrow the sum from the broker by depositing a small initial margin. Say, the margin requirement is 2 percent of the total transaction value, the trader is expected to deposit $2000. Thus, the trader’s margin based leverage is 50:1. Using excessive leverage, especially when one is unsure about the direction of the market, can land one in deep trouble. Trading on margin is only advisable for people who have the capability of interpreting Forex signals or have reliable automatic trading robots.

Placing Stop and Limit Orders: Placing stop orders is useful from the perspective of limiting losses and taking advantage of the potential upside breakout. Placing a limit order allows people to enter a new position or to exit a current position at the specified or better price. A limit order may never be executed because the market price may quickly surpass the limit before the order can be executed. The term better is relative to the nature of the limit order that is placed. A trader, who would like to sell a currency pair, places a limit sell order at a price above the current market price to book profits; while a trader, who would like to buy, sets a limit price below the current price. In the first case, the sell-stop order should be placed below the current market price to attempt to cap the loss on the position while in the second case a buy-stop order should be placed at a level above the current price. These are useful currency trading strategies.

Using Fundamental and Technical Analysis: Fundamental and Technical analysis are different, although both are necessary from the perspective of gauging currency movements. The former tries to determine fluctuations in the price of the currency by assessing factors that have a direct bearing on the value of the currency; while the latter relies on charts and graphs to effectively compare past trends and repetitive patterns to predict fluctuations in value. The charts, that are used in technical analysis, are Line Charts, Bar Charts and Candlestick Charts.

Line charts connect the opening and the closing price with a line while bar charts use vertical bars to indicate the range of the currency for a given time period. Candlestick charts give the opening price, the closing price, the highest price and the lowest price with the help of a vertical bar. If the closing price is less than the opening price, the vertical bar is colored.

Understanding Chart Indicators: Understanding leading and lagging indicators is critical from the perspective of being able to spot changes that may occur in the movement of currency pairs.

Leading indicators help a trader spot a change where the previous trend has run its course and the price is ready to change direction again. Lagging indicators provide an indication of the possible changes in trend once the change is clearly visible. The latter is meant to encourage people to move with the herd while the former is useful for a trader who is adept at spotting reversals before they occur.

Although, leading indicators seem like a potential gold mine, they have the tendency of misleading or giving wrong signals. Lagging indicators, on the other hand, rarely mislead. However, the downside is that a person may lose the opportunity to make a huge kill and may end up with a smaller chunk. The most common leading and lagging indicators are Oscillators and Momentum indicators respectively.

Stochastic, Parabolic Stop and Reversal (SAR) and Relative Strength Index (RSI) are examples of oscillators that used to determine overbought and oversold market conditions. For instance, in the case of Relative Strength Index (RSI), on a scale of 0 to 100, a value below 20 indicates an oversold market while a value above 80 indicates an overbought market. If a chart has been indicating oversold (or overbought) conditions, for a certain length of time, one can expect an increase (or decrease) in the price of the currency pair in future. The problem with the aforementioned leading indicators, is that they may provide conflicting signals. In such a situation it would be best to ignore the signal.

Momentum indicators are lagging indicators that generally give the right signal at the expense of delayed entry. People have to choose between leading and lagging indicators since the signals are generally conflicting.

Forex Robots: Forex trading requires the ability to interpret a number of chart indicators needed for ensuring profitable trade. There are numerous signal systems that have been designed by professional money managers. These systems have been designed using past performance and trends to simulate results that may reflect the actual trading environment. Both mechanical and automated Forex currency trading systems are available in the market. The latter does not require the presence of a trader in order to execute trades while the former provides tips that are useful for executing trades. Automatic trading robots ensure round the clock trades without any supervision and are thus effective in removing the human element from trading. Fully automatic trading robots can help one dispense with brokers who were previously required to manage accounts. However, one must remember that past performance is not indicative of future results. So, a robot that works well during back testing may not always yield the best results.

A good system should be constantly monitored in order to ensure improved and optimized trade. The trading account should require less investment and initially, one should be able to trade with a demo account. Forex robot systems should also have an inbuilt loss protection mechanism since these systems are not foolproof. These robots can be used by traders, brokers and institutional investors.

Advantages of Currency Trading

Increased Liquidity: As mentioned earlier, Forex is the most liquid market in the world. Increased liquidity ensures that the trades gets executed at the desired price.

Ability to Use Leverage: Increased use of leverage is permitted, since price fluctuations are typically fractions of a cent. People are allowed to start trading with very little money in their account and are encouraged to control an extensive sum of money in lieu of an initial margin requirement.

Increased Profitability: The ability to employ leverage results in increased return on investment (ROI). Huge profits with a small up-front investment is one of the benefits of Forex trading. Moreover, traders are allowed to split their capital gains to their advantage since regardless of the time of executing the trade, 40 percent of the profits that accrue to the trader get taxed at the short term capital gains rate while the remaining 60 percent is taxed at the lower long-term capital gains rates.

Guaranteed Stops: People are allowed to place both buy-stop orders and sell-stop orders. The former allows the trader to buy the currency pair at a price that is set above the current market price. The buy-stop order is triggered when the market price touches or exceeds the buy-stop price. People place stop-orders when they would like to trade the potential upside breakout.

Similarly, sell-stop orders can be placed to sell the currency pair at a price that is set lower than the current price. The sell-stop order is triggered when the market price touches or falls below the sell-stop price. These sell-stop orders are placed by traders in order to limit their losses. These are also known as stop-loss orders.

Low/No Processing Fee: Many brokers do not charge extra fees for opening or closing a trading account, for phone trading, for inactive accounts or for changing stop or limit orders.

No Commissions: The absence of commission on Forex trades is another benefit. This is because the spread between the bid/ask price is the compensation for market makers.

Most businesses undertake currency hedging to prevent losses that accrue on account of unfavorable exchange rate movements. One must remember that, although an experienced Forex trader has the opportunity of reaping rich rewards, the chances of losing money, especially when one is overly leveraged, cannot be ruled out.

Currency Trading Strategies

This write-up forms a part of a comprehensive series on forex that aims to gradually broaden the vision of the reader. It would behoove the readers to refer to the following article that provides an introduction to Forex trading. The aforementioned article is a synoptic overview of forex trading without going into the specifics. Understanding the strategies of currency trading hereafter would not pose to be a challenge for comprehension.

Currency Trading Strategies

Fundamental or Technical Analysis

Fundamental and technical analysis are indispensable for making profitable forex trades. Although currency trading hinges on the ability of the trader to determine the price of the currency by evaluating factors that have a direct bearing on its value, this alone will not suffice. It’s imperative for the trader to be conversant with charts and graphs since actual price may be a reflection of market information being impounded into the price of the currency pair. Identifying patterns is also important since there is a high probability of patterns repeating on a consistent basis. In other words, one cannot ignore forex chart patterns and rely solely on fundamental analysis.

Technical Analysis: Understanding Chart Indicators

Charts form the basis for currency trading strategies. Candlestick charts give the opening, closing, highest, and lowest price with the help of a vertical bar positioned on a shaft. They depict the range of values for a currency pair for a given time period. One needs to be able to interpret charts to decide on the appropriate strategy, viz. buying or selling.

If the candlestick chart is colored it means that the closing price is below the opening market price. If the opening price is less than the closing price, the candlestick is hollow (not colored). The colored/hollow portion of the forex candlestick is called the body of the chart while the lines above and below the body are known as shadows.

A candlestick with a long body indicates strong activity while one with a short body indicates less activity. The upper and the lower shadows signify that forex trading pushed prices well beyond the opening and the closing price. A long upper shadow means that buying activity pushed the prices up, but selling outweighed buying and resulted in the price settling at a level pretty much near its opening price.

If the upper and the lower shadows are long, it indicates a market wherein buyers and sellers are uncertain. If the opening and the closing price are the same, the body of the candlestick becomes extremely short and the candlestick starts looking like a cross, an inverted cross, or a plus. This pattern is known as a doji. A doji signifies a change or a reversal, especially if it occurs after a series of candlesticks with colored or hollow bodies, since it indicates the resumption of buying or selling activity respectively. Hammer (hanging man) indicates that the prices are beginning to bottom out (or have peaked).

When prices start increasing, the lowest point that is reached by the market before it moves up, is known as support level. When prices start falling, the highest price that is attained before the market pulls back, is known as the resistance level. A support is like the bottom of the valley while resistance is like the peak of the mountain. A line that joins the bottom of the valleys is known as the uptrend line while one that joins the peaks is known as the downtrend line. A pair of downtrend and uptrend lines create a channel that is basically a technical range between support and resistance levels.

Moving averages are used to smoothen out fluctuations in price or volume. They may be simple or exponential, and are used to measure momentum and identify support and resistance. A downward momentum is identified when the short-term moving average crosses below a long-term average, and vice-versa for an upward trend.

Using Forex Trading Robots

It’s evident from the above discussion that technical analysis is not easy. In fact, forex training is far from over since one needs to understand measures of volatility, Fibonacci extension and retraction levels, oscillators and momentum indicators. Moreover, one should know how to calculate pivot points and be proficient with a number of chart patterns before commencing trading.

Considering that manual trading is not everybody’s cup of tea, a number of people have started relying heavily on automated trading robots. Hopefully, the above article would have provided pointers on choosing appropriate currency trading strategies. Since a forex trader is highly leveraged, making a small mistake in interpreting the direction of the market can have disastrous consequences.