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Trading Psychology and Trading Patterns – when the usdjpy broke the 100 level

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Trading with price charts in the currency markets implies looking for repetitive shapes that happened in the past and by the time current price is making a shape like that traders have an educated guess about the possible outcome. This is what is known as a price pattern.

So looking for patterns when trading is one of the things that traders have in common as this helps forecasting price for the next period, depending very much on the time frame the pattern is being identified. If, for example, a head and shoulders pattern is identified on the weekly or monthly chart, then the measured move for it implies quite a strong move price will make.

When patterns are being used in combination with market psychology, the analysis becomes even more complex. It gives the trader a competitive advantage as, on one side, the pattern represents something from the past that can be projected into the future and on the other side market psychology comes to confirm/infirm that specific move.

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Trading systems based on models

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As we said in our previous article, we can classify trading systems into two groups: those based on models and those based on exploitation or data mining.

In this article we will discuss in detail the systems of the first type, defined as those who propose a model to represent the behavior of the market and from it, try to get benefits.

The algorithms that are part of this group are usually very simple in terms of the rules they use, although its development is usually relatively complex depending on the algorithm. The starting point of the models used for this type of strategy is the detection of a market inefficiency we want to exploit. Inefficiency produces an anomaly or a pattern on the price that can be described using a mathematical model that allows us to predict to some extent where the price will be in the next period based on a function based on historical price information.Let’s look at some of the most common strategies based on models.

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Bullish Kicking Candlestick Pattern

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The Bullish Kicking Candlestick Pattern is a formation that occurs in both downtrends as uptrends, which has a high reliability and indicates a possible change in the market trend. We can identify this pattern as follows:
  • In this pattern the market trend is not important.
  • The first candlestick of the formation consists of a Black Marabozu.
  • The second candlestick consists of a white Marabozu with a gap (hole) upwards with respect to the first candlestick.

A New Way to See Trading Systems

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Although you probably have already noticed it, the trading systems are evolving and becoming increasingly technical. As you can imagine, some professional traders recommend to make a qualitative leap and try to convince once and for all that the use of trend lines, price chart patterns and obsolete oscillators in the same way that comes in thousands of books it is not exactly the best approach to winning in trading. I know this is a very broad and intense debate and that many people are not quite agree, but I plan to present new ways of seeing trading that might be interesting for some.

That said, we will introduce a new way of looking at trading systems. And for this let us first reformulate their classification. Typically, systems classify roughly in the classical groups of trend followers, countertrend and pattern-based. But today I propose a completely different alternative to any other classification that you may have seen.

Considering how a system is developed, we can establish two groups of trading systems: trading systems based on models and trading systems based on exploitation (mining) of data. We will describe these groups in detail.

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Forex Strategy, the Rob Booker System

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Rob Booker is one of the most respected Forex traders in the world, with a lot of history behind him. The Forex strategy that I am going to present today is the system of Rob Booker, denominated Arizona System.

Rob, as all traders is evolving, and currently does not use this system, he is currently promoting his Trifecta system, but we must not forget that with this system he managed to convert $2500 in $100000, which means that this system is no so bad.

When a trader designs a Forex strategy, he does this to take advantage of a market anomaly, which usually gives us an advantage, and consequently benefits for our trading account.

This is not a usual strategy, I would consider it a trading system which joins several strategies under the same idea: define what is really happening in the market, and consequently, to act.

The market has two basic trends, bullish and bearish. There are also markets without a definite trend, where there is a lateral movement, which can be consolidation, accumulation, or distribution, but there are another times in the market, in which we really have no idea what is happening and there are not many opportunities for the trader. Rob intends to find and define through indicators, at what time we are in the market, and act using a Trading technique, or a different Trading strategy.

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Simple trading methods. Long-term trends following

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Continuing with simplicity in concepts and strategies, we will present some simple trading methods. These are certain methods for long-term trends following.

As a historical note about this type of methods, we can say that they have been there since “the origin of time” and, if they have not disappeared is for something and is that simple and effective trading methods endure in time unlike others, much more Sophisticated and complicated, that stop working and disappear.

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What is the Forex Drawdown?

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Forex Drawdown of a trading system is defined as the distance between the maximum and the minimum in the equity of a period, ie it is the worst streak of losses from the last maximum until it is exceeded by the next maximum. It is very common to speak of the maximum or historical Drawdown that is the worst streak of losses occurred during the entire trading period.

It can also refer to a decrease in the balance of a trading account.

For example, if you have an account with 5000 USD and you lose 1000, your account will have 4000 having suffered a drawdown of 20%. Knowing the drawdown suffered in a trading account is an important part of controlling risk. Traders will normally have a maximum drawdown limit that they are willing to assume in their trading plan.

Let’s look at a small example in the currency pair EUR/USD:

Forex drawdown

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Forex Scalping Strategy Based on two EMA

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Today we will present a strategy that requires mainly time. This is a 1 minute Forex scalping strategy. As its name implies, it is designed to perform quick transactions to achieve a series of small gains, which in the end add up and accumulate a big profit.

This technique is ideal for Forex beginners because of its simplicity. Read on to learn how to implement it.

What is Scalping?

Before explaining the strategy, it is worth remembering the concept of “scalping” in Forex trading. Scalping refers to a trading style in which many trades are made in a very short period of time. The goal of this style is to get a few pips of profit and get out of the market quickly.

Due to the short duration of its trades, scalping is a style that develops at a dizzying speed. However, for the same reason, it does not use many indicators or fundamental analysis, which makes it perfect for beginners. In scalping strategies traders usually perform hundreds of trades per day, making it a time-consuming style.

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GKFX – Forex and CFD Broker

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GKFX Review – Forex broker regulated by FCA

GKFX is a regulated Forex and CFD broker from United Kingdom which offers access to many markets, besides Forex, through Contracts For Difference. It was founded in 2009. This broker offer several services to its clients, including a web based trading platform, platforms for mobile devices, regular promotions and more.

GKFX is a Market Maker broker, which means that it offers fixed spreads regardless of market conditions, and can sometimes act as the counterpart of its clients during their trades. However, it also offers a trading account with similar trading conditions to those that characterize STP brokers with variable and extremely low spreads. Because it is a Market Maker, it does not charge commissions directly for the transactions of its clients, obtaining its profits through the spread that charges in the prices.

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