Forex ATM

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              A GUIDE TO FOREX AT THE MARKET™

                                 by Marco Mayer

Welcome to "Forex ATM“. In this guide you will find the foundational concepts of this
advisory, followed by more detail on how to use it.


      Trades

The trades you will see in Forex-ATM are examples of the simplicity that is possible
when trading Forex. The trades are created without the use of indicators. Only
simple bar/candlestick charts are used.

You will see two different kinds of trades in Forex ATM:

Breakout Trades: These are trades based on the Law of Charts, usually in the
direction of the underlying trend. For example a breakout above yesterday’s high,
which might be a TTE (Trader’s Trick Entry) bar, the high of a 1-2-3 formation, a
trading range or a reversal-/inside-/outside-bar. We enter such trades using a stop-
market order. Most of the breakout-trades will be taken from and managed on daily
charts, and usually last 2-6 days.

Pullback Trades: These are trades in which we try to get into a market that is in an
ongoing correction in the context of a strong trend. Instead of waiting for a breakout
pattern to show up, we simply get in at a specific price using a limit-order. Usually
these trades require a larger stop-loss than do breakout trades, but they also have a
lower risk of getting stopped out prematurely. Most of the pullback trades will be
taken from and managed on daily charts, and usually last 3-7 days.




The basic idea for both kinds of trades is to get into a market to catch the next swing
move it might be making. This move usually lasts a couple of days. After this move,
sooner or later there will be a significant correction in the market. When this
correction starts, we get out of the market. The aim of our trades is not to trade the
trends themselves, sitting out corrections; instead, we just want to catch the swing-
moves inside those trends. This is true for both breakout and pullback trades.

To get a better understanding of the basis for most trades presented in FX-ATM, you
can learn more about the Law of Charts on our Law of Charts website where you can
get an e-book about the Law of Charts for free.




Trading Educators, Inc.                          email:    marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                   phone:    800-476-7796 or 512-249-6930
Texas 78613, USA
                                          -2-




      General Advice

You are not expected to take all trades suggested in Forex-ATM. Take those trades
that you personally like and feel comfortable with. Also, there’s no problem if you
miss a trade. Forex-ATM is not a mechanical system or signal service. If you can’t
trade a suggested pair with your broker, don’t be concerned. There may be times
when the spread your broker offers for a specific pair is too wide for you to trade. In
that case, simply forget about taking that trade. The markets will be there, and other
good opportunities will come along.

Another important point to understand is that there are periods of trading during
which the trades shown in FX-ATM work very well, and other times when they don’t
all fall into place as easily. In other words, don’t expect to get great results with each
and every trade, but instead think in terms of a series of trades. Don’t think in days
or weeks looking at the performance but instead think in months and years. The
same is true for a possible lack of trades. There are times when there are no good
opportunities to trade for us. We will simply take no or much fewer trades than usual
during such times. Most subscribers of FX-ATM are serious traders with medium to
large accounts and we trade for only one reason: To make as much money as
possible with the least effort possible.

Also, when you want to get into multiple trades at the same time, watch out for
possible correlations. If you’re already long in EUR/USD because of a short-term
trade, and also go long GBP/USD and/or EUR/GBP at the same time, you might have
at least two highly correlated positions. That’s not a trading problem, but it could be
a problem with regard to your portfolio risk. Be careful to always make sure you
understand your real risk!

For example, if there are great trades in USD/CHF and EUR/USD, follow-up trades
may be given, even though they’re highly correlated. If that happens, you can
choose the one you like most, or split your risk and take both trades. If you have
deep enough pockets you may want to take both trades, but be aware of the risk.
Try to find a consistent way to handle situations involving correlation, and stick to it.

One of the big advantages of trading Forex compared with trading futures is that you
can trade very small position sizes resulting in small tick/pip-sizes. With some
brokers you can go as low as a 1 unit position. Though you might have a stop-loss of
300 pips, you can adjust your position size down to a pip-value that will, for
example, give you a 1% risk on your account; more about this kind of adjustment in
the “sample trade” section.

For each trade there will be a suggested stop-loss, and a suggestion as to where to
take profits. Please know that these are just trade management suggestions. The
important thing is that you always do what you feel comfortable doing.




Trading Educators, Inc.                           email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                    phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                         -3-




      Updates

From Sunday to Thursday there usually will be a new daily issue (PDF) of FX-ATM
available on the download-page between 21:00 and 23:00 GMT. There is no new
issue of FX-ATM on Fridays.

Whenever there's a new issue of Forex-ATM available on the download-page, you will
be informed about this via the Forex-ATM Twitter-Feed. There are many ways to get
notified about updates via twitter, for example on your mobile phone via SMS or by
using one of the various apps available for many smartphones.

Information on how to access the Twitter-Feed can be found on the download page
of FX-ATM.

On some days there will be no update because there are no new trades, as well as
no action required on open trades. But usually there are 4-5 new issues during a
trading week, depending on the current market situation. Also, in each first issue of
a new trading week, you’ll find a new “trading tidbits” article by Joe Ross.



      Questions & E-Mails

If you have any questions, feel free to send an e-mail. Help is available at:
marco@tradingeducators.com. On weekdays, answers will usually come within 48
hours, often much quicker.

If you have suggestions, or wish to give some feedback about what you like, dislike,
or want in the future, please send an e-mail.

We also provide you with additional support through the Community Forum at
Trading Educators (http://tetradersforum.com/forum). You will only be able to login
to the Forum for FX-ATM if you are a subscriber. A private forum room password will
be sent to you once you are subscribed to FX-ATM.




Trading Educators, Inc.                         email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                  phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                           -4-




      When to place orders

Just place your orders according to your convenience after a new issue of FX-ATM
with a new trading suggestion has been sent out. If you see that you missed an
entry, skip that trade or try to enter with a limit order at the suggested entry price
on a possible pullback. Chasing trades will hurt you more often than not.

Also, before placing an order, make sure to check the Twitter-Feed and/or the
download-page to make sure you have the most recent issue of FX-ATM.




       How to place orders

As you know, in trading Forex you always have to consider the spread between the
bid- and ask-price since there’s no official “last price” as there is in markets traded at
an official exchange. This spreads can be different depending on where you trade
(broker, ECN), what you trade (some currencies have larger spreads than others)
and the quantity you trade (if you can trade in million-lots, you’ll often get better fills
and smaller spreads than in trading 10k lots for example). This means if you trade
with a broker who has large spreads or where spreads get blown up when there’s a
news-release, you might get into or out of a trade too early. The same is true on
ECNs, especially for currency crosses that are not very liquid. During the daily
settlement procedure or on Fridays before the markets close, the bid-/ask spreads
tend to widen significantly due to a lack of market liquidity. This can be an issue
using stop-market orders to get in and out of trades since we don’t want to get
stopped in or out of a trade just because of the spread widening.

To prevent this from happening, we always place stop-market orders above the
current price at the BID side and stop-market orders below the current price at the
ASK side. This way we make sure that the market actually really trades through the
specified price where we want to get stopped in or out of a trade. If your broker does
not allow this kind of order placement, simply add a few pips to the specified entry-
/exit- price, or try to find a better broker. Of course the disadvantage of this is that
we usually get filled a few pips worse than the actual specified entry-/exit price on
stop-market orders but since we’re not daytrading for a few pips, this is no issue.
One way to reduce those extra-pips would be to use stop-limit, instead of stop-
market orders to get into trades. But this way you might miss some trades that
break out very strongly for example.




Trading Educators, Inc.                            email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                     phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                          -5-




      Sample trade

The following sample trade shows you how to actually use a trade suggestion, and
how to manage the trade.

Consider buying AUD/USD at 0.8721 (BID) stop-market. Suggested stop at
0.8661 (ASK); suggested first target at 0.8781; suggested second target at
0.8901. Basis is a TTE (Trader's Trick Entry) in front of a RH (Ross Hook).




As you can see, every trading suggestion comes with a chart that shows you the
trade visually (blue line = entry, red line = stop-loss, green lines = profit targets).




Trading Educators, Inc.                           email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                    phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                         -6-




Let’s go through this in detail:

ENTRY: Buy AUD/USD at 0.8721 (BID) stop market:
This means we want to place an order to buy AUD/USD if the BID-price of AUD/USD
hits 0.8721. On a short trade, we’d place an order to sell if the ASK-price hits the
specified price.

I consider a trade “open” if my own orders get filled, or if I get feedback from a
couple of subscribers who find themselves in the trade. Usually, though, the
differences between spreads and prices are very small, and won’t cause any
significant difference over a series of trades.

RISK: How much to risk on a single trade:
You need to decide how many units of AUD/USD to buy. You should make this
decision taking your account-size into consideration. Suggestion: risk a percentage
of your account on each trade. Following is an example of risking 2% on a trade. You
may want to risk more or less, but looking at possible drawdown, we suggest to not
risk more than 2-3% on a single trade.


      Account size: $50.000.

      Risk amount: 2% per trade.


2% of $50.000 equals $1000. Therefore, $1000 is the maximum to risk per trade.

In the following sections, you will see how to determine exactly how many lots to sell
in this example.

STOP LOSS EXIT: Sell AUD/USD at 0.8661 (ASK):
This is our stop-loss. If this price gets hit we want to get out of the trade. So we
place an order to close our position stop-market if AUD/USD hits 0.8661 on the ASK
side. On a short trade, we’d place an order to close the position at the market if the
BID-price hits the specified price.

Again, we prefer to not get stopped out just because the spread on the ECN where
we’re trading widens due to a lack of liquidity for example, so we always make sure
that the market actually really trades through our stop-loss price.

For a long trade, the stop-loss order should be placed when the specific price is hit
on the ASK price. For a short trade, use the BID price. If you can’t specify how your
stop-loss orders are processed, ask your broker about how this is actually handled or
add the usual spread of your broker to the suggested stop-loss price.




Trading Educators, Inc.                          email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                   phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                            -7-




POSITION SIZING:
If we enter at 0.8721 and get stopped out at 0.8661, that’s a risk of 60 pips. If we
want to do our risk-calculation as perfect and exactly as possible, we’d have to add
the expected spread and possible commissions for the market we’re trading to those
60 pips. But to keep things simple, let’s simply use the calculated 60 pips for this
example.

So if we want to risk $1000 on that trade, we have to be sure that a loss of 60 pips
in AUD/USD doesn’t cost us more than $1000, which means a pip should not be
worth more than $16.66 ($1000/60=$16.66). Therefore, we want a pip-size of
$16.66 or as close as possible to this, but NOT more.

Let’s assume we can trade in 10k lots with our broker. Many brokers allow even
smaller position sizes, like 1k lots, which allow even more precise position-sizing.

Since a position of 10k units in AUD/USD equals 1$ per pip, and we don’t want to
risk more than $16.66 per pip, we want to place an order of 16 lots (160k units = 16
10k-lots). This will give us a risk of $16 per pip, and a total risk of $960 ($16 x 60).

If there are one or multiple suggested profit targets, we suggest to always split a
position into three. In our example, this means to place two orders to buy 5 lots
each, and one order to buy 6 lots, instead of placing one order to buy all 16 lots. This
way we can nicely scale out of the position using profit target orders.

Our suggested way to scale out is to sell the first lot at the first profit target; the
second lot at the second profit target; and keep the last one for a possible
continuation of the move. This is also the way I manage the suggested FX-ATM
trades with suggested profit targets in my own accounts.

If there’s no suggested profit target, usually we simply trail the stop-loss as the
market is moving in our direction until we get stopped out with the whole position.




Suggested first profit target at 0.8781
Place an order to sell the first lot at the first profit target (LIMIT).

Suggested second profit target at 0.8901
Place an order to sell the second lot at the second profit target (LIMIT).




Trading Educators, Inc.                              email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                       phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                         -8-




Order Example for the entire position:

Place the following orders:

BUY 5 10k lots (50k units) AUD/USD STOP-MARKET AT 0.8721 (BID)

       If filled:     STOP-LOSS (MARKET) AT 0.8661 (ASK)

                      PROFIT-TARGET (SELL LIMIT) AT 0.8781 (Partial profit taking
                      order for 1/3rd of the position.)

BUY 5 10k lots (50k units) AUD/USD STOP-MARKET AT 0.8721 (BID)

       If filled:     STOP-LOSS (MARKET) AT 0.8661 (ASK)

                      PROFIT-TARGET (SELL LIMIT) AT 0.8901 (Take profit order for
                      1/3rd of the position.)

BUY 5 10k lots (50k units) AUD/USD STOP-MARKET AT 0.8721 (BID)

       If filled:     STOP-LOSS (MARKET) AT 0.8661 (ASK)



Basis is a TTE (Trader's Trick Entry) in front of a RH (Ross Hook).

This is the last part of each trading suggestion, a brief explanation why the trade was
selected. In this case, the reason why Marco has decided to take the trade was a
Trader’s Trick Entry in front of a Ross Hook.

If you want to get a better understanding of the basis for most trades presented in
FX-ATM, you can learn more about the Law of Charts on our Law of Charts website
where you can get an e-book about the Law of Charts for free.




Trading Educators, Inc.                          email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                   phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                       -9-




How the trade worked out

The trade suggestion was sent out on July 19th 2010:

Consider buying AUD/USD at 0.8721 (BID) stop-market. Suggested stop at
0.8661 (ASK); suggested first target at 0.8781; suggested second target at
0.8901. Basis is a TTE (Trader's Trick Entry) in front of a RH (Ross Hook).




Trading Educators, Inc.                       email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                         - 10 -




July 20: Long at 0.8721

Our entry-order was triggered and we actually got filled at 0.8722. The trade is
open!

July 20: First profit target hit at 0.8781; suggested stop at 0.8710




This simply means our first profit target at 0.8781 was hit, and we suggest moving
the stop-loss of the remaining two lots to 0.8710 (ASK). Usually, after the first profit
target is hit, the stop can be moved close to breakeven, but sometimes I decide to
give the trade more room depending on market conditions.

Also notice that on the chart, the blue line for the entry and the green line for the
first profit target are now missing. The reason for this is that each time an order gets
filled, the corresponding line gets removed.




Trading Educators, Inc.                           email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                    phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                       - 11 -




July 22: Second target hit at 0.8901; suggested stop at 0.8735




This means our second profit target at 0.8901 was hit, and I suggest moving the
stop-loss of the remaining lot to 0.8735 (ASK).




Trading Educators, Inc.                         email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                  phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                      - 12 -




July 23: Suggested stop at 0.8895




This means we’ve suggested moving the stop-loss of the remaining lot to 0.8895
(ASK) to secure more profit.




Trading Educators, Inc.                        email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                 phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                      - 13 -




July 27: Suggested stop at 0.8995




This means we suggest moving the stop-loss of the remaining lot to 0.8995 (ASK) to
secure more profit.




Trading Educators, Inc.                        email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                 phone:   800-476-7796 or 512-249-6930
Texas 78613, USA
                                        - 14 -




July 28: Stopped out at 0.8995




Finally, we get stopped out at 0.8995 (ASK), getting filled at 0.8994 with a nice
profit on the last lot. The trade is finished!




We hope this guide has been helpful, and that you will avail yourself of the
services offered through Forex ATM, as well as other educational services
offered at www.tradingeducators.com.

We wish you all the best in your trading.

RETURN TO DOWNLOAD WEBPAGE




Trading Educators, Inc.                          email:   marco@tradingeducators.com
1509 Jackson Drive, Cedar Park                   phone:   800-476-7796 or 512-249-6930
Texas 78613, USA

				
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