Success Formula

"I've learned (the hard way) that...
the success formula looks something like:
Quality Input + Hard Work + Discipline + Some Originality = Success in trading

if you're just starting out, be aware that no matter how much you learn from other people, no one will be able to do the hard work for you, especially in the key areas of trading psychology and discipline."
(bluemeasure, 16 years experienced Trader)

Are stops as effective as we think?

This is a controversial topic but what I want to do in this video is present another point of view behind the real value of a stop loss. Although it is conventional wisdom to use stop losses as essentially an exit order, it can add significant disadvantages to your trading. These include smaller winners, larger trading volume and transaction costs and disadvantageous exits. Risk control is critical but every trader should understand the costs and benefits of all the tools available to them not just one suboptimal option.

To see the video, click here: http://www.pfxglobal.com/index.php?o...297&Itemid=117

Article Source:
http://www.forexfactory.com/news.php?do=news&id=57269#post1727335
(Analysis by Profiting With Forex (PFX))

Pivot Points 14/11/07

Currency Pairs:

1) eurusd :

• R3 = 1.4704
• R2 = 1.4660
• R1 = 1.4633
• P.P = 1.4589
• S1 = 1.4545
• S2 = 1.4518
• S3 = 1.4474

2) gbpusd

• R3 = 2.0919
• R2 = 2.0825
• R1 = 2.0767
• P.P = 2.0674
• S1 = 2.0580
• S2 = 2.0522
• S3 = 2.0429

3) gbpjpy

• R3 = 233.71
• R2 = 231.66
• R1 = 230.40
• P.P = 228.36
• S1 = 226.31
• S2 = 225.05
• S3 = 223.01

How to Trade with Pivot Points

Breakout Trades

The pivot point should be the first place you look at to enter a trade, since it is the primary support/resistance level. The biggest price movements usually occur at the price of the pivot point.

Only when price reaches the pivot point will you be able to determine whether to go long or short, and set your profit targets and stops. Generally, if prices are above the pivot it’s considered bullish, and if they are below it’s considered bearish.

Let’s say the price is hovering around the pivot point and closes below it so you decide to go short. Your stop loss would be above PP and your initial profit target would be at S1.

However, if you see prices continue to fall below S1, instead of cashing out at S1, you can move your existing stop-loss order just above S1 and watch carefully. Typically, S2 will be the expected lowest point of the trading day and should be your ultimate profit objective.

The converse applies during an uptrend. If price closed above PP, you would enter a long position, set a stop loss below PP and use the R1 and R2 levels as your profit objectives.

Range-bound Trades

The strength of support and resistance at the different pivot levels is determined by the number of times the price bounces off the pivot level.

The more times a currency pair touches a pivot level then reverses, the stronger the level is. Pivoting simply means reaching a support or resistance level and then reversing. Hence, the word “pivot”.

If the pair is nearing an upper resistance level, you could sell the pair and place a tight protective stop just above the resistance level.

If the pair keeps moving higher and breaks out above the resistance level, this would be considered an upside “breakout”. You would also get stopped out of your short order but if you believe that the breakout has good follow-through buying strength, you can reenter with a long position. You would then place your protective stop just below the former resistance level that was just penetrated and is now acting as support.

If the pair is nearing a lower support level, you could buy the pair and place a stop below the support level.

article source:www.babypips.com

Pivot Points, Support & Resistance 09/11/07

Currency Pairs:

1) EudUsd 2) GbpUsd 3) GbpJpy 4) UsdJpy

R3:1.4748 R3:2.1187 R3:240.35 R3:113.88
R2:1.4717 R2:2.1137 R2:239.20 R2:113.44
R1:1.4698 R1:2.1105 R1:238.49 R1:113.16
PP:1.4666 PP:2.1055 PP:237.35 PP:112.72
S1:1.4635 S1:2.1005 S1:236.20 S1:112.28
S2:1.4616 S2:2.0973 S2:235.49 S2:112.00
S3:1.4584 S3:2.0923 S3:234.35 S3:111.56

How to Calculate Pivot Points

The pivot point and associated support and resistance levels are calculated by using the last trading session’s open, high, low, and close. Since Forex is a 24-hour market, most traders use the New York closing time of 4:00pm EST as the previous day’s close.

The calculation for a pivot point is shown below:

Pivot point (PP) = (High + Low + Close) / 3

Support and resistance levels are then calculated off the pivot point like so:

First level support and resistance:

First support (S1) = (2*PP) – High

First resistance (R1) = (2*PP) – Low

Second level of support and resistance:

Second support (S2) = PP – (High – Low)

Second resistance (R2) = PP + (High - Low)

Don’t worry you don’t have to perform these calculations yourself. Your charting software will automatically do it for you and plot it on the chart.

Also keep in mind that some charting software also provides additional pivot point features such as a third support and resistance level and intermediate levels or mid-point levels (levels in between the main pivot point and support and resistance level).

These “extra levels” aren’t as significant as the main five but it doesn’t hurt to pay attention to them. Here’s an example:

(source:babypips.com)

Pivot Points 08/11/07

Currency Pairs:

1) eurusd :

• R3 = 1.4814
• R2 = 1.4745
• R1 = 1.4703
• P.P = 1.4635
• S1 = 1.4566
• S2 = 1.4524
• S3 = 1.4456

2) gbpusd

• R3 = 2.1192
• R2 = 2.1110
• R1 = 2.1059
• P.P = 2.0976
• S1 = 2.0894
• S2 = 2.0843
• S3 = 2.0760

3) gbpjpy

• R3 = 241.43
• R2 = 239.71
• R1 = 238.64
• P.P = 236.91
• S1 = 235.19
• S2 = 234.12
• S3 = 232.39

Use Pivot Points??

Professional traders and market makers use pivot points to identify important support and resistance levels. Simply put, a pivot point and its support/resistance levels are areas at which the direction of price movement can possibly change.

Pivot points are especially useful to short-term traders who are looking to take advantage of small price movements.

Pivot points can be used by both range-bound traders and breakout traders. Range-bound traders use pivot points to identify reversal points. Breakout traders use pivot points to recognize key levels that need to be broken for a move to be classified as a real deal breakout.

Here is an example of pivot points plotted on a 1-hour EUR/USD chart:

Source:http://www.babypips.com

Support and Resistance

Support and resistance is one of the most widely used concepts in trading. Strangely enough, everyone seems to have their own idea on how you should measure support and resistance.

Let’s just take a look at the basics first.

Look at the diagram above. As you can see, this zigzag pattern is making its way up (bull market). When the market moves up and then pulls back, the highest point reached before it pulled back is now resistance.

As the market continues up again, the lowest point reached before it started back is now support. In this way resistance and support are continually formed as the market oscillates over time. The reverse of course is true of the downtrend.

Plotting Support and Resistance

One thing to remember is that support and resistance levels are not exact numbers. Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these "tests" of support and resistance are usually represented by the candlestick shadows.

Notice how the shadows of the candles tested the 2500 resistance level. At those times it seemed like the market was "breaking" resistance. However, in hindsight we can see that the market was merely testing that level.

So how do we truly know if support or resistance is broken?

There is no definite answer to this question. Some argue that a support or resistance level is broken if the market can actually close past that level. However, you will find that this is not always the case. Let's take our same example from above and see what happened when the price actually closed past the 2500 resistance level.

In this case, the price had closed twice above the 2500 resistance level but both times ended up falling back down below it. If you had believed that these were real breakouts and bought this pair, you would've been seriously hurtin! Looking at the chart now, you can visually see and come to the conclusion that the resistance was not actually broken; and that it is still very much in tact and now even stronger.

So to help you filter out these false breakouts, you should think of support and resistance more of as "zones" rather than concrete numbers. One way to help you find these zones is to plot support and resistance on a line chart rather than a candlestick chart. The reason is that line charts only show you the closing price while candlesticks add the extreme highs and lows to the picture. These highs and lows can be misleading because often times they are just the "knee-jerk" reactions of the market. It's like when someone is doing something really strange, but when asked about it, they simply reply, "Sorry, it's just a reflex."

When plotting support and resistance, you don't want the reflexes of the market. You only want to plot its intentional movements.

Looking at the line chart, you want to plot your support and resistance lines around areas where you can see the price forming several peaks or valleys.

Other interesting tidbits about support and resistance:

1. When the market passes through resistance, that resistance now becomes support.
2. The more often price tests a level of resistance or support without breaking it the stronger the area of resistance or support is.

Source:http://www.babypips.com