How to use volume and trend indicators to make you money

You should never make a trade based only on a trend indicator. The Volume Oscillator (VO) is another indicator that will help you determine whether a trend is breaking support or resistance. In essence, the old saying is true: without volume there is no price movement and without price movement there is no volume. Use that old saying to your advantage.

Several oscillators like the Percentage Volume Oscillator (PVO) and the Market Volume Oscillator (MVO) and are based on the VO.

The VO calculation is based on two Volume Moving Averages (VMAs). The base of calculation is simple:

VO = [Fast VMA] / [Slow VMA]

The Fast VMA is short term moving average, and the Slow VMA is a long term moving average.
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If we use set a VO (5, 20) as an example, the setting would be the Fast VMA to 5 bars and the Slow VMA ito 20 bars. At 5 bars, the Fast VMA is the shorter period and, at 20 bars, the Slow VMA is the longer period.

In essence, the VO calculates the difference between 2 VMAs. This calculation reveals surges in volume and possible abnormal volume activity. The VO tell us where the current volume is in relationship to the average volume over a longer period of time.

If we take a look at the VO setting above, that means that when the VO is over 1 then the Fast VMA is over the Slow MVA and we can conclude that the volume activity in the market is higher than usual. In other words, we can conclude that there is an unusual volume surge based on the parameters we set (5,20).
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By knowing how the basis of calculation works in the VO, the indicator becomes a very effective tool in your trading. You should never solely rely on trend based technical indicators. By doing so, you will only see one half of the total picture and it will lead to more losses than wins. When you combine your trend indicators with an oscillator like the VO, you will be able to distinguish whether the changes in the trend are based on abnormal volume activity and make a better decision as to whether to enter a trade.

A final thought is that you should consider a break in support combined with unusual volume activity as panic selling and the opposite is true with a break of resistance with an unusual volume surge which should be considered as greedy buying.
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What is the best trading method for you to use?

Trading is summarized by 2 methods, the subjective method and the rule-based method. Both methods have their merits, however, if you are not a seasoned and successful trader, you should strictly use the rule-based method.

The subjective trading method combines multiple pieces of information to make a trading decision which can’t be precisely defined in rule form. Subjective traders trade based on guidelines and not rules. With an established set of guidelines an expert trader has the flexibility to change a trade when new information is available. In some instances, where a rule-based system may pass on a trade, a subjective based trader may take a trade based on the “feel” for the market. A rule-based system doesn’t have such flexibility.

Unlike the subjective trading method, the rule trading method is simple and, because the rules are specifically predefined, it is mostly stress-free. The predefined rules account for your entry, stop loss, and take profit values among others. All new traders as well as those traders struggling to become profitable should use a rule-based method to refine their trading before ever considering a subjective method.

A rule-based system is designed to “set and forget.” Once your orders are placed, they continue to progress until one of the following happen: you are either stopped out or your target price hits. As a trader, once a trade is placed, you never interfere with it until one of the actions previously mentioned happen. Since all entries are done following a specific predetermined set of rules, these rules must be followed until you exit the trade.

With a system like 1000 Pips Climber, the highly advanced and rigorously tested Forex trading algorithm is already developed and predefined for you. This system will provide you easy-to-follow signals that are very precise and clear. Since the system is ruled based, whenever a signal is produced you enter a trade. This takes away all the guess work and uncertainties of trading. The system does all the analytics for you and gives you clear entry, stop loss, and take profit values. All you need to do is follow the signals that the system produce. You remain fully in control of your trading account and can have the confidence in knowing you are following professional signals generated by a strictly predefined set of rules.

With a rule-based system, there is not guessing of what a trade will look like. Your entry and exit are precisely defined by the predetermined rule and, for that reason, the system can be easily tested for profitability.

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Should I create my own chart/strategy or use a Forex Expert Advisor?

The big majority of Forex software in the market fall in one of 3 categories: charting system, Expert Advisor (EA), and Fully Automated EA.

A charting system is just what the name inferes, a signal provider that will generate charts with any parameters you set. Many of these providers offer pre-set charts for your convenience, but, ultimately it is your responsibility to set the parameters to fit your trading strategy. I would only recommend this method to advanced traders that know how the market works and have tested several strategies to know which ones will perform best under different market conditions. Most professional traders use charts with custom sets of parameters. Professional traders are not the norm, but rather the exception to the rule and are not your average Forex trader.

Before I get to the next 2 categories, a little personal background is important here. When I first started trading almost 30 years ago, I did it in Nasdaq Level 2. I had 3 screens to track my technical indicators (MACD, Stochastics, Volume, and others) for each of the stocks I followed. On another screen, I had all the indexes – the DJI, NDQ, SPY, and the sector indexes of the stocks I was following). In a third screen, I had my orders ready to go. Before entering a trade, base on what the stock chart said, you had to look at the Nasdaq market conditions, then the Dow, then the S&P 500, the your sector index, check momentum, volume, and enter the trade. All of this to make a trade decision in a split second if you are day trading. Had an Expert Advisor being available those days, my chances of succeeding as a day trader would have grown exponentially.

In that aspect, the Forex market is no different than the stock market, because, instead of the stock indexes, it has at least 11 economic indicators that can affect your trade regardless of what the currency chart is saying. You must be aware of at least 11 economic indicators before entering a trade. Economic indicators like the Gross Domestic Products, Non-farm Payroll, Unemployment rates, Consumer Confidence Index, Consumer Price Index, Industrial Production Index, and more, can greatly affect the value of a currency and their releases should be an integral part of your economic calendar. In addition to those economic, your should be aware of news that may affect your trading. In 2016, the “Brexit” vote caused the most volatile world market reaction we have seen in recent history due to a one single country news. Only then, you are ready to look at your technical indicators to determine whether to enter a trade.

A Forex Expert Advisor (EA) is a ruled-based trading software that has a pre-set time-tested set of rules and indicators to help you with your trading. Every Forex novice trader should start trading using a rule-based strategy and, I must say, most Forex traders should too. Trading based on indicators and “instinct” should be left to the most skilled traders. The difference between using an EA and setting your own charts is that all the testing for whichever strategy the EA is using is already done. An EA will then give you trade entry and exit points. A good EA should also tell you where your stop-losses should be. When used properly, an EA should minimize your losses and reduce your learning curve.

As the name may infer, the main difference between a Forex EA and a fully automated Forex EA is that the fully automated EA will execute your trades as well. By using this “hands-free” approach you take all emotion out of your trading. If the indicator and EA is good you can make great profits with this type of system. The only drawback is that these EAs don’t take into consideration economic news releases and you should still keep an eye for your economic calendar to minimize your losses.

As you can see, there is no real answer as to which system is better than the other. As an experienced trader with many hours, days, or even years using indicators, most probably the best option is to use a good chart provider and to use your own time-tested strategies. For a beginner to intermediate trader, the answer is not as clear. While, in the long run, developing your own trading strategies is best. The fact of the matter remain that most traders at these levels fail to make profits consistently and may be much better served using an establish Forex Expert Advisor while they test their own strategies.

What is the right indicator to achieve success?

Forex technical strategies are based on mathematical theories to create technical indicators, but do these indicators work?

Technical indicators assume that market movement can be predicted if you know the right equation. The one constant the indicators can’t account for is how we react to sudden market moves or news, thus disrupting any theory we are applying to our trading.

Many Forex systems are based on a technical indicator to predict prices in advance. Indicators such as Fibonacci, Gann, and Elliott Wave are commonly used, but you should use them with caution. You should adjust your indicator or automated system to reflect current market conditions because most of those indicators work under the assumption that a set equation works all the time and not just some of the time.

We all know that no theory will ever work all the time. If they did, there would be no market. The reality is that, regardless of the mathematical theory we use, statistically, 90% to 95% of us will fail.
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What do we do next?

Since we already established that Forex markets moves are not solely based on theories and certainties, the logical deduction is that the market moves are based on odds and probabilities. When you trade based on probabilities, you shift the odds to your favor. This shift will lead you to profits.

Although I truly dislike the comparison of a professional trader to a gambler, there is a similarity that can’t be avoided. Gamblers keep things simple by taking small losses while waiting for a high odds setup that translates to a big win. In that aspect, Forex trading is not much different, by keeping things simple and minimizing your losses, your successful trades translate to big profits.

To be a successful trader, you should be aware of the market sentiment and use technical indicators to help you corroborate the price direction thus increasing your odds of a successful trade. Case in point, for many years, we have seen unbelievable advances in mathematics, forecasting, computers, and new investment theories. Still, the ratio of successful traders to those that fail remains the same. To succeed, you must account for market sentiment as it relates to the news and human nature reaction to sharp movements in price.

By following this simple, yet often overlooked principle, you will greatly increase the odds of becoming a successful trader to your favor.
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How to "buy low, sell high" consistently

Buying at support and selling at resistance is the oldest trading strategy in existence. How come the majority of traders lose with this time tested “buy low, sell high” strategy?

The explanation for this paradox is simple, although most traders may correctly identify the support and resistance levels, they fail to use indicators to corroborate that these levels are sustainable.

You need to get the odds in your favor. When prices rush towards the support or resistance levels, they break as often they hold. You must be aware of changes in price momentum by using indicators to assist you. Identifying the right support and resistance levels and corroborating them with some of the indicators that follow will greatly increase your chances for a successful trade.
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Stochastic is the best timing indicator. This momentum indicator shows the high-low range over a number of periods as it relates to the location of the close. Because Stochastic is range bound, you can use it to determine overbought and oversold price levels.

The Relative Strength Index (RSI) is another great timing indicator. The RSI measures the speed and change of price movements. The RSI ranges between zero and 100. When the RSI is above 70 the currency is considered overbought and, when the RSI is below 30, then, it is considered oversold.

Combine these two momentum oscillators and wait for confirmation on both. This combination will greatly increase your odds of success by giving you advance warning of a shift in price momentum at support and resistance levels.

By following this strategy, you are not trying to predict the market, you are acting on confirmation, thus increasing your overall profitability.
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This simple strategy will help you achieve great success

Short-term Forex trading strategies must include some type of technical component. This simple strategy uses moving averages as entry and exit points whether they are for a short or a long position. You can also use this strategy to catch big market moves. Although this is a strictly technical strategy you can combine it with fundamental analysis to greatly increase your rate of success.

Time Frame: Use a 30 minute or hourly chart to increase effectiveness. You can, however, change the time frame to one the fits your trading style and this strategy should still work.

Indicators setup on close: 9 SMA and 100 SMA

To Enter a Trade: When the 9 SMA indicator line crosses over the 100 SMA enter LONG. Conversely, when the 9 SMA indicator line crosses under the 100 SMA go SHORT.

To Exit: Close your trade or you can also reverse your position when the 9 SMA and the 100 SMA cross back.

Although extremely basic, this trading strategy have been effective for a long time. As you can see, trading does not need to be complicated to be highly effective.
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How to make more profits by eliminating over-trading

Many Forex traders are unsuccessful for one reason: they over-trade. If you are not having success trading, you must first determine whether you are over-trading before adjusting your trading strategy.

The 3 questions that follow will help you determine whether you are over-trading.
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Are you using too many strategies?

Many unsuccessful traders use between 5-10 different strategies and, of course, they do not make any money. The main reason for that is that, the more strategies you use, the less you can focus on the market itself. I am not saying that you shouldn’t know the market or master your strategy. Those are essential to become consistently profitable. However, this may be an impossible task if you are trying to master 3, 5, or 10 different strategies at the same time.

Are you risking too much on every trade?

Understanding the amount you risk is of more importance than knowing/setting the amount you are going to make. Money management is the most important step of your trading strategy. Many traders go from being unsuccessful to being extremely successful by simply implementing a sound money-management strategy.

What do you do when you are making money?

Greed is your worst enemy. It is human nature, we often get greedy when profits are running high. I’ve been there, done that, but, at the end, ended up losing it all. Greed leads many traders to reckless acting and committing mistakes.
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After asking yourself these questions you probably know whether you are over-trading. Over-trading is really as harmful as using a strategy that has a low ROI (return on investment).

Now let’s discuss how you can prevent yourself from over-trading.

Establish a trading plan: Before you enter a trade you should always know where you are going to exit. You should also have a set of rules to gradually take profits, where your stop loss will be if the trade goes against you, and, as you gradually take profits, where your trailing losses will be.

Your trading style should fit your personality: this is very important because your money management strategy should emulate your personality. Every trader has a different tolerance for risk and, while higher risk may lead to high rewards, it may also lead to bigger losses. As a scalper you will probably set small percentages for profit in each trade (0.5% to 2%) and, as a swing trader, a bigger percentage like 3% or 4% is the norm.

Your trading style and personality should be the driving force behind the Forex strategy you implement.
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These 5 easy steps will make you higher profits

This simple 5-step strategy will help you simplify your trading while making you consistent profits.

1. Check the trend using your daily chart. The chart should tell you whether the market is in an uptrend or a downtrend.

2. Once you know what the trend is, check for fundamental news releases that may affect your trade. Do not go to any of the following steps if there are any major news releases within 2 hours of your trade. You can get the current economic news from the news feed in our blog: ForexTraders.Blog.
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3. If there are no news within 2 hours of your trade, execute your trading plan. For example, if the main trend is up, look for “buy” signals from your technical indicators and vice versa if the main trend is down.

4. This is the most important step and your decision on whether to enter a trade lies here. A common strategy is to use the crossing of 4 EMA (Exponential Moving Average) and 23 EMA on the 30 minute chart to decide whether to buy or sell. You should use other indicators like the weekly pivot, Stochastic, and MACD (Moving Average Convergence Divergence) to corroborate your trade. These indicators should also follow the trend and not look flat. You can further edge the trade to your favor by trading only during high liquidity sessions and confirming the trend by using a 4 hour chart. If all looks good, you are done!

5. The last step to manage your money by setting the trade with a tight stop loss of around 35 pips while using one of 2 methods of targeting profit. The first method is to use healthy risk to reward ratio of at least 1:2 and the second is to use your daily support and resistance.

As you can see, a good trading strategy does not have to be complicated to be successful. This strategy should help you achieve consistent profits with your trading.

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Adapting to the market cycles will make you a better trader

Understanding the market cycles and how to trade them is critical to succeed as a trader.

What are market cycles?

The market is made up of three major market cycles and your ability to recognize and adapt to the current cycle will significantly increase your probability for profits. Regardless of what market you are trading, the market can only move in one of these three cycles.

The Three Market Cycles Are:

1. Trending Cycle

A trend occurs when the market moves in one direction whether is up or down.

Higher lows combined with higher highs makeup and uptrend. Conversely, lower highs combined with lower lows would make a downtrend.

The bad news is that currency prices move do not move in one direction consistently making identifying up or down trends a form of an art.
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2. Consolidation Cycle

This cycle is also known as a Non-Trending or a Ranging market. The consolidation cycle has several looks with a sideways / horizontal line of bars on a chart being the most common one. A “flag” is also another for of short-term consolidation. Moving averages or other indicators will help you determine whether the market is consolidating or trending.

Tip: If you are using a moving average as your indicator, the line will almost be horizontal when the market is consolidating.

3. Breakout Cycle

A breakout of the consolidation happens when you have at least 7 bars either “supporting” or “resisting” a price and then the price sharply breaks out to make a new high or low.

How to apply the 3 cycles to your forex strategies…?

For starters, many forex traders implement a strategy for one and maybe two of these cycles.

Recent studies show that on average the forex market trends about 30% of the time, breaks about 10% of the time and consolidates for 60% of the time.

Ironically, the two most used strategies are for trending and breaks of the consolidation cycle. That approach potentially leaves you out of a trade about 60% of the time. Every trader should have a proven strategy for the consolidation cycle to take advantage of this cycle.

You should have a strategy to cover each of these 3 cycles to become a successful trader.
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How to use crossovers to make you profits

Indicator crossovers are the most common and effective strategy to spot developing trends. The more used indicators when applying the crossover method are MACD and moving averages. A good signal provider will help you pinpoint the entry and exit points using this method.

How to find the signals

A perfect example would be using the EMA (Exponential Moving Average) and the MACD. When you have an EMA 6 crossing the EMA 23 that would be an indication of a long term trend crossing a short term trend. Under this setup, you buy when the EMA 6 crosses EMA 23 and sell when the EMA 6 crosses the EMA 23. If using the MACD, the most used value is (12, 26, 9). These two indicators will help you identify new trends early and thus maximize the possibility of profits.
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Another indicator that is commonly used is the ADX. When using the ADX, look for crosses at the 17 to 23 level. Either of this crosses most likely indicate that a trend is starting. Before making a trade on the ADX cross, look for the DI+ and DI- lines. The DI+ and DI- lines will indicate which way the trend is moving and you can profit by entering the right side of the trend.

Don’t rely on just one indicator

Many forex indicators are based on identifying trends. Any of these indicators when used by itself could be wrong. If you combine at least a couple of these indicators and they show that a trend is developing, your chances for profits grow exponentially.
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