Pin Bar Success - Keep it Simple

I’ve been a contributing author to DailyForex for over three years now and one of the first pieces I submitted was about the humble Pin Bar. And today, three years later, I still use this same candle with the same technical set up.
Trading a Pin Bar is simple. The fundamental and political events surrounding the market are complicated and change over time. The technical principles based on human reactions to those events don’t change. Because people’s psychology doesn’t change. That’s why I can trade using the same technical principles that I used three years ago.
Let’s look at a trade I placed early this morning on the EUR/USD 4-hour chart.
EURUSD h4 111814
I had marked out the most recent resistance on my chart at 1.2577. When the price returned to that area, it formed a Pin Bar confirming the resistance. In this case, the tail of the Pin Bar hit the resistance to the exact pip.
What’s a Pin Bar: it is a candle where the entire body is in the top third or bottom of the total candle length. That gives the candle an appearance of a pin. It signifies a reversal and if taken with another piece of information on your chart, such as a previous support or resistance, it signifies a strong reversal because there is “confluence”.
In this case, I entered the trade with a market order at the open of the next candle. I placed my stop-loss just above the high of the Pin Bar which made it 35 pips. On this trade, I was aiming for a 1:1 risk/reward. On 4-hour timeframes and above I typically go for 1:1 because of the longer time I am in the trade. I usually go for higher risk/reward ratios on lower timeframes.
My target was filled in the next candle. Actually, within three candles and at the time of writing this, the price had moved almost 100 pips in the money. But I was out at a mere 35 pips and happy relative to my risk on the trade.
On my charts, the settings are GMT + 2 hours. If you have a broker with different settings, the 4-hour candle may start at a different time which means you may not spot the Pin Bar. Sometimes I miss trades because of this, but that’s okay. You can’t get them all.
So that’s the entire trade: previous resistance, Pin Bar at resistance, short entry with target & stop-loss. Simple.
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All Currencies Are Not Equal

Traders tend to focus on the here and now of price movements, watching a range of currency pairs and picking whichever ones look most active or technically interesting to trade. While it can be a good thing to be diversified and to spread your risk around the market, don’t fall into the trap of thinking that one currency is just the same as another. There is a deeper structure and meaning behind the major global currencies that is not widely discussed within the retail Forex community. Taking a few minutes to think about it could really help your trading and improve your returns, because all currencies are not equal.

USD is the Key

The USD is, by far, the most important currency in the world, primarily because the USA is the world’s only military and political superpower and a key driver of the global economy. For these reasons, the USD is the reserve economy of the world. If people anywhere in the world lose trust in their own currency, they turn to the USD. The currency of most nations usually measured, first of all, in relation to the USD. The US stock market is the most important stock market in the world and to invest in it, you need to have USD. If you liquidate your shares in it, you receive USD. Oil and gold and other commodities are primarily priced in USD. There is more USD floating around the world than any other currency, and it is the major currency of interest to speculators around the world, at least measured over the long term.
Of course there are other currencies of great size and importance, such as the EUR and JPY. However they are not even close to dislodging the USD from its prime position.

The USD Trends More Predictably than any other Currency

When back testing momentum models across a range of currencies, it is the USD pairs that can be shown to have trended the most reliably, whereas smaller currencies are far more volatile and unpredictable.
Momentum models apply the proposition commonly heard in trading “buy when it has been going up, and sell when it has been going down”. This methodology has not worked very well with more minor currencies, but can be proven to have been a profitable strategy over at least the past decade when applied to USD pairs.
For example, suppose you bought a currency pair each week when the price was higher than it was 6 months ago, and sold a currency pair when its price was lower than it was 6 months ago, exiting at the end of each week. The raw results, excluding spreads and interest charges, from 2002 to date are as follows, by pair:
USD Pairs
USD Pairs 111914
The average result per USD pair was in excess of a positive return of 20%.
As EUR/USD, GBP/USD and AUD/USD performed especially well, let’s test how the other EUR, GBP and AUD crosses performed:
Euro Pairs 111914

Results for other look-back periods such as 3 months or 12 months are not shown here, but produce similar patterns.

This suggests that newer traders should have an easier time trading by sticking to the USD pairs, meaning the 4 majors and maybe also AUD/USD and NZD/USD, and trading in the same direction as longer-term trends. Another advantage of trading these pairs is that their spreads / commissions tend to be low.
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The Tokyo Stock Exchange

The Tokyo Stock Exchange (TSE), the second largest stock exchange in the world, follows closely behind the New York Stock Exchange, based on monetary volume. It has also become a major player in the world of stock trading throughout the world.

TSE was established on May 15, 1878 and the first thing it did was to issue government bonds to former samurai. Trading stocks in bonds, gold, and silver currencies became popular in the 1920’s when Japan experienced rampant growth in their economy. Following WWII, the exchange was closed down and reopened in 1949 under the guidance of American authorities.

5 Exchanges

The Securities and Exchange Law was enacted in March of 1947 and revised in April of 1948. On April 1, 1949, three stock exchanges were established in Tokyo, Osaka and Nagoya. Trading on these exchanges began in May and in July of that same year five additional stock exchanges were established. The Kyoto exchange became the Osaka Securities Exchange in March 2001. The Kobe exchange dissolved in October 1967 and the one in Hiroshima merged into Tokyo Stock Exchange in March 2000. Fukuoka and Niigata became one with Tokyo Stock Exchange in March 2000 and the Sapporo Securities Exchange was established in April 1950. Japan now has five stock exchanges.

Standard trading hours today on the exchange are from 9:00 a.m. to 11:00 a.m. and 12:30 p.m. to 3:00 p.m.

Currently, the TSE currently lists 2,375 domestic companies and 27 foreign companies. The TSE accounts for 90.6% of all securities transactions in Japan, considerably more than its rival exchanges, the Osaka Stock Exchange (4.2%) and the Nagoya Stock Exchange (0.1%).

3 Sections

There are three sections to the TSE: There are 1,724 companies listed in the first section which consists of stocks of large companies. The second section is for mid-sized companies and has 494 companies. And the ‘Mothers Section’ representing the fastest growing, most liquid companies in the country has 157 on its list.

There are two main indices tracking the Tokyo Stock Exchange are the Nikkei 225 and the TOPIX. The Nikkei average is an index of companies selected and calculated by the Nihon Keizai Shimbun, Japan’s largest business newspaper. It is a price-weighted average and is the most watched index for Asian stocks.

The TOPIX measures all other listed companies as well as the J30 index of large industrial companies. The TOPIX is considered as the most appropriate benchmark for evaluating portfolio management Like most major exchanges throughout the world, the major functions of the exchange are to provide a responsible market place that lists and monitors securities and supervises trading participants. The management team at TSE today is headed by headed by acting Chairman and CEO Taizo Nishimuro and comprises nine directors, four auditors, and nine executive officers.according to TSE.

The last few years have seen several incidences where the TSE was forced to shut down. In November 2005, the longest interruption in the history of the exchange, 90 minutes, took place due to technical issues with a newly installed transactions system. On December 8 of the same year, a net loss of 7 million occurred J-Com shares were mistakenly sold. And on January 17, 2006, after a raid by prosecutors on the internet company Livedoor, the TSE was forced to close early as trade volume nearly exceeded the system’s capacity of 4.5 million trades per day causing the Nikkei to fall 2.8%.
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5 Ways to Spot a Scammy Forex Broker

If you are looking for a new Forex broker, or wondering if your broker is giving you an acceptable deal, then here’s a checklist of a few things for you to consider when making your evaluation.

1. Forex Brokers are not all Crooks!

It would be very unfair to take the attitude that Forex brokers are all crooks. What you should bear in mind though, is that most Forex brokers do not place their client’s trades in the real market, and charge spreads instead of commissions. This means that most Forex brokers are in a direct conflict of interest with their clients: the more their clients lose, the more money the brokers make. In fact, their business model is based upon the failure of their clients’ trading.

It is a sad fact that most retail Forex traders lose, but this is mainly due to their poor trading methods, and means at least that Forex brokers do not have to act dishonestly to make a profit.

However, more profit is always good news, so there are a few tricks that some brokers have up their sleeves to squeeze more money out of pliable clients, and here are some things you should watch out for:

2. High Spreads / Commissions

Spreads have come down a lot in recent years. Of course, the more money you can fund your account with, the better spreads you will probably have available to you. This is because brokers offering better spreads usually require higher minimum deposits. In any case, you really should shop around. The days of having to pay a 3 pip spread for EUR/USD are over.

Recently, more brokers have been introducing commission-based models, where clients pay a set cash amount per trade. When you encounter this, carefully calculate how much you usually risk on a trade per pip, and then from that extrapolate the “spread” you will be paying. Sometimes these spread plus commission deals are designed to make the offer look better than it really is, and you can only discover this once you make personalized calculations.

3. Overnight Financing

Unless you are a pure day trader and close all your positions before 10pm or Midnight London time every day, you will either be paying or receiving a small amount (usually less than 1 pip) on every open trade you have at this time. This is based upon interest rate differentials between the currencies making up that particular pair, but is structured by practically every broker as a net loser for the client. Some brokers are far worse than others, and many do not advertise these rates – you only see it on your statement the next day once the payment or deduction has been made. If you contact most brokers, they will usually be prepared to quote you their current overnight financing rates. Get a few quotes and compare them on the same currency pairs, and you might be surprised by the results. If you like to hold trades for the long-term, do a few calculations on how much you are likely to pay on this overnight financing. You might find that it significantly eats into or even erases your profits.

4. Running of Stops / Spikes

It is not widely understood that brokers control their own price feeds. There is no central exchange, and most brokers are not making the real trades, and they can quote you any price they want! Of course, they have to keep the prices fairly honest, as otherwise you could use other brokers’ price feeds to correctly forecast price movements, and they would lose money as a result. So you do not really have to worry that your broker is just going to make the price up.

What you might have to worry about, is that a broker can see where their clients are clustering their stop loss orders, and if the general market price comes very close to triggering these stops, the broker might be very tempted to just quickly nudge their price over that level and pocket the profits. This can be done even more easily during news announcements or sudden shocks which have the effect of spiking the general market price up or down. An unscrupulous broker can always send the price a little higher or lower at such times.

To be fair, mistakes are sometimes made, and brokers will often repay stopped-out trades after excessive spikes when enough of their clients complain. Nevertheless, it is something for you to watch out for.

5. Outages

There are times when the market is running away in one clear direction. If you want to place a trade and you cannot get a connection to your broker, or the trade is repeatedly rejected for some unknown technical reason, then watch out. This is a sign of a broker that is using unfair methods to prevent their clients placing winning trades. If it happens a lot, it is a suspicious sign.

These are not an exhaustive list of things to consider when choosing a Forex broker, but they are the most common brokerage issues that can make winning in Forex much more difficult than it needs to be if you do not consider them.
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3 Ways to Stop Your Account Blowing Up in a Wild Market

Last Thursday’s wild movement by the Swiss Franc wiped out a lot of Forex traders who were short of the currency. However, there were three things these unfortunate traders could have done that probably would have ensured their accounts survived to trade another day.

Let’s firstly be clear what really caused most of the wipe-outs in order to identify the potential remedies: the market moved so fast that stop losses could not be honoured, and were “slipped” by huge quantities, resulting in trade exits on far worse terms than anticipated. Traders not using stop losses found themselves unable to exit trades for several minutes, at a loss of approximately 14% multiplied by whatever true leverage they were using. Most retail Forex traders use true leverage of at least 8 to 1, which would have been enough to wipe out their accounts.

What could have been done differently to prevent those wipe-outs? What can traders do now to protect themselves from being wiped out by a sudden and huge fluctuation in the market?

Use Guaranteed Stops

Some brokers offer guaranteed stops. It comes at a price, meaning that if you want a guaranteed stop, you have to pay a higher spread and/or commission on the trade. Usually, even over periods of several years, traders using guaranteed stops on every trade will come off worse than traders using normal stops which might suffer from slippage. However, guaranteed stops do provide a protection against a “black swan” move in the market.

Lessen Risk: Lower Leverage

Most brokers offer very high leverage, but you do not have to use it. There are brokers allowing position sizes of 1 penny per pip. Professional traders tend to use no more than 3 to 1, which would at least have avoided a total loss of an entire account.

Question If a Currency is Prone to a Sudden Huge Move

It must be said, even in hindsight, that there were a few voices warning that the Swiss Franc could suddenly massively rise in value. This currency was being kept artificially weak by its own central bank, and was bound to strengthen dramatically immediately as soon as the Swiss National Bank announced its abandonment of its capping policy with mere words.

Trading all the time with guaranteed stops and very low leverage is probably too much for most retail traders to reasonably bear. However, it is possible to identify any currencies that are prone to a dramatic movement following a few words from its central bank, and trade those currencies in particular with guaranteed stops or very low true leverage.

The only major global currency that is likely to meet these criteria at the time of writing is the Japanese Yen. The JPY has weakened with the encouragement of the Japanese Central Bank. Were the JPY to suddenly announce that in its view the weakening had gone far enough and should proceed no further, it might suddenly strengthen by a fairly large amount, although it would almost certainly not be close to the huge 14% move by the CHF.

Prudent traders might decide to trade certain currencies only with guaranteed stops or very low leverage, or even to avoid them altogether. Unfortunately, a sudden and devastating act of terrorism in any major city, especially in a global financial centre, with a weapon of mass destruction, is something that cannot be intelligently guarded against. In any case, such an event would be likely to shut down global trade.
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