We’re back again with candlestick patterns. In this candlestick chart pattern, the market must be in clearly defined uptrend.

Take a look at the picture, can you identify which one the bullish candle is? It’s the first candle. The second one is a bearish candle.

Photo credit: Sirifin

Here you can clearly see the bearish candle engulfing the other candle’s body.

Here, it doesn’t matter what candle size the other one engulfed. Also, you can safely ignore the wicks.

Keep in mind that whenever you see a bearish candle swallowing the bodies of two or three other candles, then that’s a very strong bearish signal. This means that this could be a start of a new bearish trend.

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In one sweep, the US dollar under the administration of President George Bush has lost 33.8 percent of its value. This is the dollar’s worst performance ever under one administration.

The escalating twin deficits, lackluster economic performance, including the environment of stagflation at present have all contributed to a drastic and unprecedented loss of confidence in the US currency.

Investors in general are pretty optimistic about the thought of a new President taking over administration, come January. They couldn’t care less whether it is Barack Obama or John McCain that will win in the end. They argue that since the dollar seems has touched bottom anyway, the new President stands to preside over a recovery of the dollar.

“We look at the dollar as a brand and any change from Bush will help benefit the dollar,” according to Reuter.

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If you intend to succeed as a currency trader, then this is a very important lesson, so read on. Aren’t you in business because you want to make money? Well, the first thing you need to learn about money is how to manage it. In trading, this is one aspect that is often overlooked. A lot of traders just couldn’t wait to get right into trading without any regard with respect to the size of their account. The only thing they do is try to assess how much they can afford to lose in a single trade and then go ahead and click the “trade” button. In other words, these people are not traders — they’re gamblers!

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Without money management rules, trading becomes gambling as you leave almost everything to chance. In this case you are not looking at the long term return in your investment. What you are doing in this case is simply looking for a jackpot. By managing your money well, you not only get protected from huge losses, but you will also end up reaping large gains in the long run!

If you believe that gambling is the only way to succeed in trading, then you are very wrong. Take for example a casino, surely there are a lot of people already who have won jackpots, but how come the casino is still alive and well? The answer is quite simple: While there were many people who won jackpots, there were even more who didn’t. It is from these people who didn’t win that casinos reap huge profits. They know that, using the principles of statistics, in the long run, they will always emerge as the winner — not the gamblers.

So the lesson is clear: be a statistician, not a gambler. This way, you will always be assured of winning.

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A price surge is an indicator of surprise of panic. When these events occur, professional traders take cover and observe. The retail trader also should allow the market digest such shocks. Trading during an announcement or right before, or in the midst of turmoil, will lessen the chance of effectively predicting the probable direction. Technical indicators will be distorted during surge periods.

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You should wait for a confirmation of the new direction and bear in mind that price action will have the tendency of reverting to pre-surge ranges granting that there are no fundamental occurrences.

An example is when the airplane in Queens NY crashed on Nov. 12, all currencies reacted instantly. However, within a short time the surged retraced when the panic died down.

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To be a successful forex trader, you should not just read the news, you have to analyze the news. A lot of times, some pretty straightforward news releases from government agencies are really public relation tools intended to make a particular point of view or policy popular. Such “news,” if it can in fact be called that, utilizes the forex markets more than any other as a tool to affect the crowd’s investment psychology.

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This type of media manipulation is not inherently bad. Governments and traders do that all the time. The new forex trader must realize that it is important to read the news in order to assess the underlying meaning of the news.

An example would be when the prime minister of Japan Masajuro Shiokowa was quoted in a news report saying that “an excessive depreciation of the yen should be avoided. But we should make efforts and give consideration to guide the yen lower if it is relatively overvalued.”

So when the government asks in effect, if traders would please slow down the currency’s decline, then this should make you wonder if there is fear instead that the exact opposite will happen. Forex traders should always be on guard. You must not only read the news but also study it with the perspective that, in forex, how the event is reported is just as important as the reported event itself.

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If you’re new to forex, then you should know that there is an ideal mindset, character as well as mental attitude that every forex trader needs to have.

Very few people have this innate personality, and so, if you’re not one of them, then you will have to acquire and nurture this trait so that it becomes like second nature to you.

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As regards your trading, this entails being free of anxiety, fear, despair or regret. At the same time this also involves the ability to stay calm, confident, focused and disciplined despite adverse trading outcomes.

Here are the five keys to developing this ideal forex trading mindset:

1. Trade with a Disciplined Plan - trading entails serious planning, so don’t take it for granted.
2. Good Execution and Good Anticipation - Although anticipation and execution are related, between the two, you are most likely to lose money because of bad execution.
3. Cut Your Losses Early and Let Your Profits Run - this is a fundamental forex trading principle and cannot be violated without dire consequences.
4. Do Not Over Trade - leveraging your trade too much can lead to financial disaster.
5. Do Not Marry Your Trades - stick to your plan as in tip number one. Don’t ever compromise your position.

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Generally, there are three types of forex trading timeframes:

• Long-term;
• short-term or swing; and
• intraday or day-trading.

So which one is the best? There is no best timeframe. It really depends on you and the type of personality that you have.

The long-term timeframe

Long-term traders usually would prefer daily and weekly charts, since these charts establish longer term, allowing them ample time to “catch their breath.”
In this type of trading, we are usually talking about Trades usually talk about timeframes that span from a few weeks to several months or even years!

Advantages of long-term timeframe: the main advantage of this timeframe is you need not watch markets intraday. The fewer number of transactions means that there are less paying of spreads.

Disadvantages:

On the downside, this timeframe is characterized by large swings, requiring large stops. Generally there are only one to a couple of good trades in a year. This timeframe requires a lot of patience. Also, a larger account is required to get on longer term swings plus frequent losing months.

The short-term timeframe

In this type of trading traders usually utilize hourly timeframes, with trades held from many hours to about a week.

Advantages:
A notable advantage of this type of trading is that there are more opportunities for trades, with a less likelihood of losing months. This trading method is also characterized by less reliance on one or a couple of yearly trades.
Disadvantages:

The disadvantage of this type of trading is that there will be higher transaction costs, meaning more spreads to pay, plus the added factor of overnight risk.

Intraday timeframe

This timeframe is characterized by the use of minute charts such as one of five-minute charts. These trades as the name implies are made intraday and exited by market close.

Advantages:
For those who prefer this trading timeframe, there are plenty of trading opportunities coupled with less chance of losing months. Here, overnight risks are virtually non-existent.

Disadvantages:
Just like all other trading systems, this too has its disadvantages. Usually the costs for transactions will be much higher, since you need to pay more spreads. This is also pretty taxing mentally, since the frequency of trading makes it more difficult. Profits are limited by the need to exit at the trading day’s end.

Remember, there is no right or wrong timeframe. It all depends on you.

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A lot of traders aren’t doing too well simply because they have chosen the wrong trading timeframe. So what then is the right timeframe? Well it depends on your personality. If you’re new to currency or forex trading, your tendency would be to make big bucks quick and so you start trading small timeframes, say the one or five minute charts. However, this isn’t always the best approach, since you may have traded the wrong timeframe for your personality.

So, the best way for you to find out which timeframe suits you best is to take it easy at first. Experiment a bit without taking a lot of risk. Try and see if you’re comfortable trading the one hour charts. You will notice that this timeframe is longer, and might suit you just fine and without the feeling that you’re being rushed.

There are people, on the other hand, who find the one hour timeframe too long and too slow. They could never trade that way since they would become very impatient. Traders of this type would be better off trading a ten minute chart, which, because of their personality, allow them mple time to make correct decisions based on their trading plan.

On the other extreme, a world renowned buisnessman and philantrophist by the name of Warren Buffet, wouldn’t understand at all how he can trade a one hour chart. For him this timeframe is too fast. He prefers to trade only daily, weekly, and monthly charts.

To come right to the point, the right timeframe for you depends entirely on your personality. If you’re comfortable with the timeframe you’re trading, then that’s the right timeframe for you.

Don’t think just because you’re nervous, feeling somewhat pressured rfrustrated that you’re trading the wrong timeframe. The reason you’re feeling pressured could be because you are trading real money, and so it’s normal for anyone to feel that way. However, if the reason you feel pressured shouldn’t be because you think things are happening too fast, then you’re trading the wrong timeframe, which will make it difficult for you to make the right decisions.

In the end it’s you alone who can determine what the correct timeframe should be.

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What is every currency trader’s purpose in devising a forex trading system? You might be thinking of an answer that’s very obvious: to make billions of dollars. While no one will argue against having that kind of goal, it’s not going to help you become a successful forex of currency trader.

The reason why you’re creating a trading system is because you want to achieve a couple of very important goals:

• To detect trends as early as possible; and
• to protect you from whipsaws.

If with the aid of your trading system you were able to accomplish both things mentioned above, you will become a successful trader.

 
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What’s difficult about those above-mentioned goals is that they tend to contradict each other. If the main purpose of your trading system is to detect trends early, then you will most likely get a lot of false alarms.

On the other hand, if your system’s main purpose is to avoid whipsaws, then you will most certainly miss a lot of trading opportunities, since your system will be slow to react to trends.

When developing your system, what you need to is balance both of your goals – find a compromise. This way, you will be able to detect trends early, and at the same time you will be able to distinguish the fake from the real signals.

If your system is well balanced and configured as regards your trading goals, then your trading system will help you make a lot of money.

Happy trading!

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Should you buy a ready-made trading system, or should you just make your own? A lot of people claim to know all there is about forex trading systems. And for only a few thousand dollars they offer you the ultimate trading system.

These systems, so they claim, can in a week’s time supposedly generate thousands of pips and never lose. They will even show you the “results” of their perfect system. However, before you go ahead and give him your money in exchange for that “perfect” trading system, slow down; think. While a lot of trading systems like these do in fact work, the problem is that a lot of traders do not have the discipline to follow the rules necessary to make the system work.

Another thing is that instead of acquiring a ready-made system for thousands of dollars, you can create your own system and save the money you were going to use to buy a trading system as capital for your trading account.

Lastly, creating your own system isn’t difficult. What is difficult is following the rules that you’ve created with your system.

There are countless articles that sell systems, but there are hardly any that teaches you how to make your own.

So, when faced with a dilemma whether or not to purchase a ready-made trading system, stop and ask yourself: Will this system work for me? Can I religiously follow the rules set up by the system? If your answer is no, you are much better off devising your own trading system - one that is tailored to your trading style and needs.