Much like the first dynamite compound invented by Swedish chemist and engineer Alfred Nobel, consolidation periods and patterns in the currency markets can explode, leading to great profit opportunities for the FX trader. Sometimes suggestive of indecision, consolidation periods are great for capturing potential because the burst of directional action that follows can last for an extended period.

Understanding and trading on consolidation patterns will give the currency trader in the know two "edges". First, the trader can hold his or her initial position for a shorter amount of time, thus minimizing the risk of holding positions in the case of higher rollover interest. Second, the profit potential from such a position can be big, as long as the trader follows strict, disciplined money management rules. Without money management, the trader might as well be playing with fire. Here we look at two different consolidation patterns and give you a step-by-step explanation of how to trade them.

The Flag - Continuation of the Trend
The flag formation is one of two consolidation patterns that can lead to great profit opportunities. Common in the currency markets, the flag formation serves as an indication of continuation (i.e. a continuation pattern). This type of consolidation occurs after a significant uptrend and is usually referenced as a stopping point before further strengthening momentum ensues. With this type of formation, the duration of the consolidation period is rather short and tends to go against the previous uptrend direction.

Figure 1 presents an example of a flag formation in the GBP/JPY currency cross pair.

Figure 1 - A great continuation suggestion following the flag formation

Let's take a step-by-step approach to identifying and trading the flag formation seen in this chart:

Apply trendlines to accurately identify the flag formation: First, we establish the lower support trendline by connecting the lower wicks of the candles at point A. Then we establish the upper trendline at point B by connecting the topside wicks. Note that both lines should be relatively parallel - any deviation may be indicative of a different pattern. Zoom into the exact points where the price action approaches either the upper or lower trendline: In Figure 2, we zoom in on an approach of the upper resistance ceiling. Once we have a close of the session above the trendline, the entry should be placed 5 pips above the high. This would place the entry at 210.10 (point X). Always place a corresponding stop loss: Sound money management should always be applied to any trading position. In this situation, the stop-loss order will be placed two-thirds below the previous session's high. The underlying theory is simply that if the price breaks back below the upper trendline, the close above was simply a fakeout and the trend is being contained. In this trade, the stop would be placed at 209.77 (see Figure 2). Taking a short-term stance: Here, a trader can hold for the day and close the trade before the New York markets close in order to avoid the rollover on the position. If the trader takes advantage of the short-term explosion, he or she has the potential to capture 95 pips (profiting from the high at 211.05) while maintaining a 2:1 risk-reward ratio. But the trader can also opt to hold on for longer-term gains. If the trader holds on longer, he or she could realize a much larger profit - in this example, the move topped out at 213.

Figure 2 - X marks the perfect entry.

The Broadening Formation - Consolidation before the Reverse
Like the flag formation, the broadening formation - our second consolidation pattern of choice - is also found in an uptrend, but it indicates a reversal of the trend, rather than a continuation. Similar to a staid rectangular consolidation pattern, the broadening formation is great for establishing a top in an uptrend or a bottom in a downtrend, and it is thus suggestive of a near-term reversal in the price action. Here, traders are consolidating their positions by establishing an upper and lower trendline. However, the swings become longer and larger as compared to earlier fluctuations. The strong battle between buyers and sellers ultimately ends when the price action breaks the lower (or upper) boundary and bearish (or bullish) momentum is established.

Figure 3 presents an example of a broadening formation in the AUD/USD major pair.

Figure 3 - Textbook broadening formation leads to explosive gains.

Let's take a step-by-step approach to a shorter time frame application of the broadening formation in this chart:

Identify the broadening formation through diverging trendlines: Before trading the formation, it's important to clearly establish the pattern. Here in Figure 3, we apply the lower trendline by connecting the lower wicks at point A. Then we connect the topside wicks at point B. Rather than run parallel as they do in the flag formation, the trendlines in this formation will diverge. It's important to see that divergence - otherwise, another formation or pattern may be in the works, misleading the trader. Apply the entry at the exact break: In Figure 4, we zoom in and see the close below the bottom trendline. This is suggestive of a break, so a currency trader would place the entry 5 pips below the low of the session. In this example, this would put the entry at 0.7493 (point X). Use proper money management: We can't forget to apply disciplined money management here, so a stop loss will be added 30 pips above where the lower trendline crosses through the closed session. In this case, the trendline would be placed at 0.7511 and our subsequent stop at 0.7541. With 48 pips of room, due to the stop-loss order, we are now looking for a minimum of 96 pips in maintaining a 2:1 risk-reward ratio. Taking a longer term stance: Although offering a short-term direction in price, the broadening formation tends to spark longer-term trends. As a result, in this case a trader may decide to take profits at 0.7445 (a 1:1 risk reward) or hold on to the longer-term position. In the case of the longer term, the spot price declines before establishing a bottom at 0.7266 - nearly 230 pips from the entry, and a more than adequate 2:1 risk-reward ratio.

Figure 4 - X marks a great entry for profit potential.

Conclusion
Both of these consolidation patterns and their corresponding strategies can be executed by both the novice and the expert trader, allowing the individual to isolate great potential profit opportunities in a short amount of time. The flag formation offers opportunities to trade on a continuation basis, while the broadening formation offers opportunities in reversal situations. Either way, the trader will be taking advantage of the powerful directional bias that occurs following consolidative neutrality.

Learn Forex Trading Online The Basics

Many people are steppng in the Forex trading market. As opposed to the local stock market, the forex floor is open open 24 hours a day. You will just have to check on time zones. Through the foreign exchange or forex market, currencies of countries around the world are traded. In short, it is the buying and selling of monies. Learn forex trading online and you have the opportunity to turn a small investment into a much bigger amount.

A little insight to investors is that they use their money to purchase currencies from other countires. When you look at company profiles keep in mind the affects it can have on the exchanhe rate.

Trading the forex way gives you the chance to make a big amount of money out of a fairly small investment. Note that there is no regulatory board that puts a cap on how much is traded. Also, leverage allows you to trade more than what you actually have.

Using leverage, one can have an investment of a thousand dollars and use it to trade a total value of three hundred thousand. The ratio can reach four times the investment or even more with the help of your broker. Forex trading does seem fairly simple; but many factors affect foreign exchange and it is still best to have the expertise of a registered broker to support you.

Do you think that trading on the Foreign exchange seems very simple? But it is not a practice that one can master overnight. Get help from someone with much more experience. Have a broker registered with CFTC or Commodity Futures Trading Commission. His know how about the ins and outs of forex trading will surely make things less difficult experience for you.

Market players include people just like us, commercial banks and corporations. In other words, anyone under the sun can be a part of the fast growing two trillion dollar market of foreign exchange. Before you decide to invest all your savings into foreign exchange trading, first, get a feel of the market. Educate yourself and learn from experience.

Start small and you will increase your chances of earning big. Just like the local stock market, external factors affect exchange rates. Therefore, it is best to be well informed before deciding to become the biggest player in the market.

Currency Option Trading - The Low Down

Currency trading is a huge market around the world due to globalization. As the trading in this market has increased it has caused the interest in currency option trading to grow as well. Options on currencies give the holder the right to buy(call) the currency at a set price called the strike price. The option has a set expiration date. If the currency price moves higher before expiration the option can be exercised. The currency is purchased to be resold in the market at a higer price. Put options are purchased if the currency price is expected to fall. If it does, the holder can purchase the currency in the market and put(sell) it at the higher strike price.

One type of option contract used by speculators and hedgers is the traditional option. This contract requires the trader to set a strike price and an expiration date. These two factors along with the currency volatility level are used to determine the premium the broker charges for the option. If the premium is agreed upon the transaction is completed. If the currency pair being traded is the USD/CHF and the trader thinks the Swiss franc will move up against the dollar he/she will purchase a put on the dollar. If the prediction is correct in the set time frame, the trader will purchase the dollar and put(sell) it at the strike price realizing a profit.

SPOT contracts are used to make trading a bit easier. The actual purchase of the currency is not required in this type of contract. If the currency you purchased a call on moves up the profits from the trade are credited to your account automatically. The same thing happens with the put. The profit is simply determined and the amount deposited into your trading account. If your trade does not work, the only amount you lose is the premium.

The amount the broker charges for the option is the premium level. Several things will affect the premium level. The strike price is one of them. The closer it is to the market price the higher the premium will be. The more time until expiration the higher the premium. Highly volatile currencies will likely have higher option premiums.

People get involved in currency option trading for various reasons. Most trading is done purely in an attempt to profit from the fluctuations in currency prices. Most transactions in the market are done for this purpose.

Many corporations use hedging as a means to temper the affects of price volatility between their currency and the currency used by foreign trading partners. This is done in an attempt to protect the profits they make from their own businesses.

Selling options short is another strategy that some traders engage in. It is a higher risk than simply buying calls and puts. Because of the level of added risk, loses are not limited, large security deposits are usually required.

As we have discussed, currency option trading can be a very profitable venture if you trade correctly. Premiums on options are typically smaller than deposits for the actual currency so profits can be large. One of the primary benefits is that with options you can limit your loses.

What Is FOREX Trading Platform And How Does It Work?

What is the Foreign Exchange Market? FOREX trading platform allows traders to buy and sell currencies at the same time. Currencies must be traded in pairs (e. G. US Dollar / Euro). In other words, FOREX is the market addressed to those who want to perform conversion exchange operations according to an agreed rate for a given date.

There are two reasons to buy and sell currencies. About 5% of the daily turnover is generated by companies and governments that buy or sell products and services in a foreign country, or have to convert profits from foreign sales into domestic currency. The remaining 95% is represented by profit or speculative transactions.

What are the concepts that make FOREX work? First of all, you must know that 85% of daily FOREX trading uses major currencies like British Pound, US Dollar, Australian Dollar, Canadian Dollar, Euro and Japanese Yen. FOREX trading platform is open 24 hours a day; because of this great feature, traders can respond anytime to currency fluctuations.

FOREX is different from any other financial market because it has no central trading location. In general, transactions are conducted through electronic trading networks or by phone.

It's not difficult to read a foreign exchange quote if you keep in mind two things: the first currency listed is the base currency and the value of the base currency is always 1. U. S. Dollar (USD) is normally the essence of the FOREX market and currently it represents the base currency for quotes. For example, a quote of USD / JPY 120. 01 means that 1USD = 120. 01 JPY.

FOREX trading platform uses a quote of 2 sides- the BID and the ASK. The BID represents the price at which traders can sell base currency, while the ASK refers to the price of buying base currency.

What matters the most is to be aware that every investment is risky. You can never be 100% sure about how exchange rates will move. Therefore, it's recommended to use stop-loss orders, which are specific instructions on how to exit your position if the price reaches a certain point.

Managed Forex Trading Figure It Out

Managed forex trading is not the way I started out in forex. It was a short time until I figured out that I had to manage it properly. Going into a trade with more than 50% of your account is a sure way to getting it flushed out. A common mistake amongst traders is this and it is sad when it happens. Once I added this one method to my trading, it taught me how to properly manage my trading and make money!

Well managed forex trading is not something that the beginner trader is thinking about, and If you never thought about it, it is about time. Once I found out how to properly manage my trades, the profits became more regular. The profits were good, but not good enough. I needed something that would give me an edge over the average trader. This one method was the key to that, and I have made money hand over fist since!

Learning a well managed forex trading system doesn't cross the average traders mind. Once I incorporated a system that could be strategically followed, forex became much easier to advance at. If you don't have a structure to follow, how will you advance and get better? A lot of traders fall from poor structures. The structure in this method is bulletproof and has made pure money!

After seeing managed forex trading systems and non-managed systems, it was obvious that any trader could benefit from a managed system. Incorporating this simple yet effective method that the big traders use, has led me to dominating trades one after another. Daily profits are becoming a regular, and the market is easier to predict than ever before.

The non-managed forex trading is definitely not a way to success, and as soon as this is realized there is a need for the solid truth. The big traders offer training but never put in their money printing secrets. They only share it with their few buddies. Stop wasting time on methods that just don't work, do your self a favor and discover the method that they have kept hidden for years!

Stop Loss Rules

You need to lean how to position your stop loss in relation to the market activity. Placing arbitrary stops is not a good idea. Many traders incorrectly choose a stop so their loss is the same amount each time they are stopped out. Don't pick an arbitrary place to put your stop loss.

You are completely disregarding the meaningful market support and resistance levels where the stops should be placed if you use an arbitrary place for your stops. You need to place the stops in accordance with the market conditions.

Is there any rule that can tell you where to put your initial stop loss? Where to place your initial stop loss? Try to set your initial stop 3% below the support level. The important thing in this method is to correctly identify the support area. Test this method and see if it works for you.

Identifying correct support and resistance is very important for a trader. For example, you have a trading system that can determine an entry point. However, your trading system does not provide an exit based on the market dynamics. First you need to identify the support area. Set your stop loss 3% below the support area.

The formula that you will use is (Support Price)*0.97(3% less) = Initial Stop Loss. For example, suppose that the support level in a bullish trend is $30. You should set the stop loss at 3% below the support level in a bullish trend if you have an area of support at $30. The formula that you will use is $30 (support price)*0.97 (3 percent less) = $29.1 (Initial Stop Loss Level).

Do not use arbitrary stops based on flat dollar amounts that you are willing to lose. For example, to say that you are willing to lose $200 in a trade is to disregard the current market conditions.

If you do not use stops at all, you are inviting failure. Another approach can be to set your stop loss one tick below the support in a bullish trend or one tick above the support in a bearish trend.

For example, in trading stocks, you are in trouble if you do not use stops and hang on to a losing trade to the point that you emotionally feel that the loss is so large that you cannot exit the trade.

In the currency market it is better not to put the stop actually in the market when you have the position on. Some professional traders use mental stops only. Your broker will see your stop and if there are enough similar stops, the broker may try and hit your stop. This way the broker makes money and you do not.

You need to become a disciplined trader. Using a mental stop will need psychological toughness and discipline to get out when you are supposed to get out. You can set a mental stop and get out quickly if you are hit in such a market like the currency market.

You can move your stops to lock in profits as new trailing stops are determined. You must adjust your stops to keep your risk in relation to your trade size in case you add on to your winning trade by increasing your trade size. Never move your stop for emotional reasons especially when it is your initial stop.

When adjusting your stop due to an increase in trade size, always move the stop closer to the current position to lower the risk in relation to your larger trade size.

Benefits Of Floor Traders - And Tips On How To Get Them

Traders who make their living on the ground of an trade have some issues that I believe are advantages. You see ground merchants can draw from their senses. What I mean by this is they'll use sight, sound, and speech. These are advantages that they add to their arsenal when trading. The pit on a trading flooring seems to be very chaotic however there's a simplistic ebb and stream to what is going on there. I'll clarify how this is an advantage.

Whenever you trade on a pc you are only watching the value actions on a chart and also you base your buying and selling selections accordingly. On the floor the motion of people shifting around can usually tip merchants to which markets are about to go higher. Just like all individuals, merchants will gravitate to where the action is happening.

Buying and selling on a pc doesn't allow for the noise of the motion to influence you. Traders who're on the floor can hear the gang noise rise and fall. That is very similar to a football game. Should you have been busy and never watching the sport you may still have an idea of how it's going by listening to others within the crowd who are cheering or not in keeping with the motion on the field. That is notably a bonus if you're ready and on the lookout for a superb place to exit. You possibly can judge momentum of the present market route and get a feel for when to exit.

The benefit of speech is obvious. You might be spending your day surrounded by others that make a living in the same business. Data and strategy will be mentioned with friends and higher understood. When breaking news hits you will hear first hand what other market movers think about it.

These are a few of the benefits that I feel the floor trader has on his side. a few of these may be replicated and brought advantage of by merchants primarily based at home.