Commodity Futures Trader

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Moving Average Convergence Divergence (MACD pronounced Mac Dee) is the difference between the 26 day and 12 day exponential moving averages. A 9 day exponential moving average called the signal line or a trigger line is plotted on top of MACD to show buy/sell opportunities.

You can use MACD in three ways: Crossover, overbought/oversold conditions and divergences. In wide swinging markets, MACD proves most effective. When MACD falls below the signal line, the basic rule is to sell. Similarly, when MACD rises above the signal line and cuts it from below, it is a buy signal.

MACD is also very useful in telling whether the market is overbought or oversold. When the shorter moving average pulls away from the longer moving average, it is likely the price has overextended itself and it will comeback to the realistic levels.

An indication that an end to the current trend may occur soon is when MACD diverges from the currency pair. A bullish divergence occurs when the MACD is making new highs but the currency price fails to reach those highs and a bearish divergence occurs when MACD is making new lows and the currency price fails to reach those lows.

Momentum is an oscillator that indicates the rate of price change not the actual price level. This oscillator is the net difference between the currency pair closing price and the oldest closing price from the predetermined period. The signal is triggered when the oscillator crosses the zero line. The shorter the number of days included in the calculations, the more responsive the momentum oscillator will be to the short term price fluctuations.

Many forex traders start trading live before understanding and learning good money management rules. Develop a few good money management rules and practices them on your demo account before starting live trading. Developing your money management rules mean how much of your money, you are willing to risk on one trade. It also means determining how many contracts per trade your risk tolerance allows?

The important thing when you start trading is to learn how you can improve your investment results by making small changes and tweaks to your trading strategies. Good money management rules can make a huge difference between becoming a successful investor in the long run or an unsuccessful one that blows up the account in a few weeks.

Have you ever played poker? If you have, then rarely you will see good players put all their chips on a single bet. As a poker player, you know by risking only a small portion of your money on a single bet, you can win or lose but be still play the next hand. If you put everything on the table on a single bet, you have to be 100% sure of winning. An impossible thing, you can never be 100% right.

You must know this that currency trading is far more complicated as compared to playing poker. You will be dealing with hundreds and hundreds of variables that can affect the markets. What to talk of only 52 cards. You must understand and implement good money management rules in order to succeed at forex trading in the long run.

The power of pivot points is based on the fact that they work in all markets that have established ranges. Pivot points are leading indicators unlike most of the other indicators that are lagging.

Pivot points inform you about the price action in the future. They are calculated based on a simple mathematical formula. It determines the next time periods range based on the previous time periods data. The formula is very simple and includes the low, the high and the closing price for that trading session divided by three.

If you dont know what a range is, then a range is the high and low of a given trading session. Markets are just people like you and me buying and selling. The high for each trading session represent the buyers exuberant bullishness in that session. The low for each trading session represents the sellers pessimistic bearishness for that particular trading session.

A pivot point is that special line in sand where most traders turn from being bearish to bullish and vice versa. These points are used in the forex markets to tell if the sentiment has shifted from being positive or long to negative or short. If the price is trading above the point, you should go long. And if the price is trading below the pivot point, you should go short.

Currency prices in the forex markets are always jumping up and down. Forex markets are volatile most of the time. In the short term, you will only find noise in the intra day forex market. This makes it difficult for new day traders to know how to put a stop loss. Most of the time, prices in forex markets jump 10-20 pips for no apparent reason.

Most of the new forex traders get frustrated to find their stop loss being constantly tripped due to noise even when the market is going in the anticipated direction.

A static 10-20 pip stop loss is an arbitrary choice many traders make. Many new traders also use Trailing Stop Loss. Place your trailing stop loss too close and you will find your stop hit too early. Place it too far and you will have to forgo potential profits if the price retraces.

Many professional forex traders do use stop loss but mostly place it on their computers hiding them from their brokers. Best way to place a stop loss is using a dynamic level.

Because if brokers find many stop losses at a particular price level they can easily trip them using a momentary blip in their price feeds. You cant do anything. It was a momentary spike during to a sudden large transaction in the market. This is known as Stop Hunting.