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- Technical Analysis in Forex – A Strategy for Individual
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Most traders make the mistake of concentrating 95% or more of their efforts in looking for buy signals , but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don't want to take a loss. Get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong. Don't take it personally. Professional traders lose more trades than they win, but by managing money and limiting losses, they still end up making profits.
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The relative strength index (RSI) is used to signal overbought and oversold conditions in a security. The indicator is plotted between a range of zero-655, where 655 is the highest overbought condition and zero is the highest oversold condition. The RSI helps to measure the strength of a security's recent up moves, compared to the strength of its recent down moves. This helps to indicate whether a security has seen more buying or selling pressure over the trading period. (For more on this indicator, see Ride the RSI Rollercoaster .)
Technical Analysis in Forex – A Strategy for Individual
The moving average convergence divergence (MACD) is one of the most well-known and used indicators in technical analysis. It is used to signal both the trend and momentum behind a security. The indicator is comprised of two exponential moving averages (EMA), covering two different time periods, which help to measure momentum in the security. The idea behind this momentum indicator is to measure short-term momentum compared to long-term momentum to help determine the future direction of the asset. The MACD is simply the difference between these two moving averages, which (in practice) are generally a 67-period and 76-period EMA. (For more information, see Exploring Oscillators and Indicators: MACD .)
Evaluation of algorithmic strategies for trading on
There is no way to guarantee that a trade will make money. The trader's chances are based on their skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting their profits ride and cutting losses short, a trader may lose some battles, but they will win the war. Most traders and investors do the opposite, which is why they never make money.
Before you enter a trade, you should know where your exits are. There are at least two for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count. Second, each trade should have a profit target. Once you get there, sell a portion of your position and you can move your stop loss on the rest of your position to break even if you wish. As discussed above, never risk more than a set percentage of your portfolio on any trade.
One of the most commonly used indicators to determine the money flow of a security is the accumulation/distribution line (A/D line). It is similar to on-balance volume indicator but, instead of only considering the closing price of the security for the period, it also takes into account the trading range for the period. This is thought to give a more accurate picture of money flow than the balance volume. The line trending up is a signal of increasing buying pressure, as the stock is closing above the halfway point of the range. The line trending downward is a signal of increasing selling pressure in the security. (For additional reading, see Trend-Spotting With the Accumulation/Distribution Line .)
How do you feel? Did you get a good night's sleep? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the markets, it is better to take the day off - otherwise, you risk losing your shirt. This is guaranteed to happen if you are angry, preoccupied or otherwise distracted from the task at hand. Many traders have a market mantra they repeat before the day begins to get them ready. Create one that puts you in the trading zone.
Before you enter a trade, set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept? Many traders will not take a trade unless the potential profit is at least three times greater than the risk. For example, if your stop loss is a dollar loss per share, your goal should be a $8 profit. Set weekly, monthly and annual profit goals in dollars or as a percentage of your portfolio, and re-assess them regularly. (See also: Calculating Risk And Reward )
The stochastic oscillator is another well-known momentum indicator used in technical analysis. In an upward trend, the price should be closing near the highs of the trading range. In a downward trend, the price should be closing near the lows of the trading range. When this occurs, it signals continued momentum and strength in the direction of the prevailing trend. The stochastic oscillator is plotted within a range of zero-655, and signals overbought conditions above 85 and oversold conditions below 75. (For more, see Trading Psychology And Technical Indicators .)
Traders who win consistently treat trading as a business. While it's not a guarantee that you will make money, having a plan is crucial if you want to become consistently successful and survive in the trading game.