Is Technical Analysis Important

To be frank, when I just started investing in the stock market, I thought fundamental analysis rules and that technical analysis is for short term traders. I was very wrong indeed!

Now if you asked me whether I prefer fundamental analysis or technical analysis? Ill say both! Under different market condition Ill apply them differently. For example, during the stock crash in August till now, Im looking at the charts every day, I also focus on the macro economic news, but less on the corporate earnings because the published corporate earnings are historical figures that may still look nice but its meaningless if youre at the market top (if thats your assumption).

However, during normal bull run from March 2009 to beginning of 2011, I focus more on coporate earnings than the charts because as long as the bull trend was intact, I do not bother so much about the daily fluctuations. While focusing on the corporate earnings, I pay special attention to EPS growth on a quarter to quarter basis. Most blue chip stocks have strong growth during this period, and so are their share prices.

As mentioned in my book, I Love Stocks, my favourite indicator is 20 day and 50 day moving averages to see the overall view of various markets in the world. Another technical indicator that I often use is the MACD, it is clear and absolutely suitable for our Bursa blue chip stocks.

Technical analysis is based on 2 important assumptions: (1) history repeats itself (2) the stock market is the sum of all behaviours of the market crowd. If history repeats itself, this suggest that by looking at charts, we may be able to forcast the future price movement!

Although there are over 200 technical indicators, but its not necessarily to know them all. As the saying goes: when using the indicators, you should apply "KISS" rule, meaning Keep It Simple, Stupid or Keep It Short and Simple, which ever it is, having too many indicators will cloud your mind.

Having said that, that doesnt mean knowing one or two is enough to help you make investment decision which involved your hard earned money! The following is the list that most investors would look at:
1. moving averages
2. MACD
3. Stochastic
4. RSI
5. Bollinger Band
6. Volume average
7. Fibonacci retracement
8. Money Flow Index
9. On Balance Volume
10. Candlestick
11. Trendlines
12. Price patterns (Head & Shoulders, double top, double bottom)

What a list!

If possible, you may try to understand some of the famous technical analysis theories such as the DOW Theory and Elliot Wave Theory. I hope Im not scaring some of you.

Knowing these indicators and theories is one thing, applying them well is another difficult task that requires certain amount of trading experience.

For me, I usually use fundamental analysis to identify the right stock and apply technical analysis to time the entry and exit for the stock. This way, Im applying both and Im quite happy with the results.

Happy investing,
Pauline Yong

Diposting oleh Unknown 10.01 0 komentar

Targetting the JPY Crosses Why it is so Hard to Develop Long Term Profitable Systems for These Instruments

If you have been interested in system development and you have been following my achievements for a while you would have certainly noticed that I have never developed a system to target any JPY crosses. The reason why I havent done so is not because I havent tried but because the development of long term profitable systems for them has proved to be extremely hard. On todays post I want to share with you my experience with these instruments and why I have had a very hard time attempting to develop strategies that profit from these very volatile forex trading instruments. I will explain to you why price action based strategies simply do not seem to work for these pairs and what other alternative solutions I have put in practice to develop a long term profitable system that is able to diversify our trading with these JPY beasts.

The JPY crosses are a series of instruments in the forex market that pair the Japanese Yen with a non-USD currency. These instruments are most commonly EUR/JPY, GBP/JPY and CHF/JPY but other more exotic pairs like NZD/JPY and AUD/JPY are also available. These pairs have some very notable characteristics which set them apart from regular forex pairs like the EUR/USD and the GBP/USD. What makes them so special is the extremely large daily volatility and their overall lack of liquidity (when compared to major pairs). Developing a system for these babies is no easy ride and I will just show you why this is the case.

System development is based on the finding of exploitable market inefficiencies. Price behaves in a certain way that allows you to enter a trade with a high probability of success under very diverse market conditions. Lack of liquidity introduces a blur to this image and therefore it becomes very hard to find inefficiencies because price is "all over the place" so to speak. Lack of liquidity makes different price patterns appear on very different market situations signaling many different things taking your mathematical expectancy away from positive territory. So if you try to trade a given candlestick pattern you find that the pattern sometimes leads to where you want to go and sometimes it doesnt - like it always happens - but the lack of liquidity increases the number of times it leads to where you dont want to go significantly, to the point where you lose all the edge you would have gained from it.

For this very reason, the development of price based strategies on the JPY crosses is often not a good idea since you are very vulnerable to the "blur" introduced by the general lack of liquidity of these instruments. Systems that have success on very varied currency pairs - like Teyacanani - simply fail to profit on JPY crosses due to the fact that their signals simply dont lead anywhere. After analyzing 10 years of price data for the EUR/JPY I have found that price action is extremely hard to predict due to the fact that lack of liquidity makes it follow a very random walk in the short and perhaps medium term. This is the exact effect you would expect from lack of liquidity since crowd behavior becomes less representative and more individual human behavior - which is just random - starts to show through the charts.

What is the solution then ? Since price action based strategies seemed to fail to bring positive results on these currency pairs for me, I decided to change into indicator based strategies that allowed me to remove the "noise" from the market more effectively. The idea here is that JPY crosses do follow crowd behavior in the long term so introducing a strategy that averages data and gives me an idea of where things are going would most likely prove more effective. This is in fact the case and indicator based strategies do show positive mathematical expectancy values with less effort. However, the fact that the currency pairs lack liquidity makes the eventual profitability of these strategies much lower than what can be achieved on the regular USD paired instruments.

In the end it becomes obvious that lack of liquidity complicates any mechanical profitability to a large extent since market inefficiencies become far more scarce and difficult to capture. Lack of liquidity makes the effect of smaller parties larger and therefore the movements are just more random overall. Crowd behavior becomes less significant and therefore we lose a significant edge that we are able to use on major currency pairs. Many of you may think that this "randomness" constitutes an inefficiency on its own but the fact is that it does not since you arent able to predict when it will appear with a statistical advantage. If you assume that JPY crosses are random and attempt to profit from their volatility you will fail when they trend and vice versa. The problem is not the character of the instruments but the fact that lack of liquidity does not allow us to have a positive statistical edge on most strategies.

Does this mean that we wont have any mechanical JPY-cross trading strategy ? No, it just means that it will be much harder to develop and probably profit and risk targets wont be as good as for regular systems based on more liquid currency pairs. As a matter of fact I am currently developing some strategies to address these JPY crosses. Hopefully I will be able to tackle this beast and - in the end - we will have some likely long term profitable systems for our JPY trading friends :o)

If you would like to learn more about automated trading and how you too can learn to design and develop your own trading systems with sound trading tactics please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Diposting oleh Unknown 21.45 0 komentar

Why There is An Expert Advisor That Works

For the past six months I have been very intrigued by who and what drives the prices up and down in the forex market. It is quiet obvious that retail traders hold just a small portion of the cake while funds, banks, exporters, importers and the like hold a much bigger chunk.

I have also asked myself if this people drive prices in a mechanical way. Is it predictable ? One of the most important questions for retail traders. Can we predict the direction of the market ? Or more specifically, can we consistently predict the direction of the market ? The answer - I think - is a shade of yes.

Even though we all have different opinions on the technicals and fundamentals of currency pairs, we all know what we all expect. I mean, for example in the case of a non farm payrolls release, we all think it will be say 100k, then it is 70k, there will unmistakably be a hike in the EUR/USD pair. It is all not because 70k is "good" or "bad" for the economy - although this may be aligned in some cases - it is because the market goes either with or against main trader expectations. This drives the market and people react predictably to this news events.

In the case of more technical situations I think the same may apply. People are psychologically predisposed to certain patterns on charts. This makes their appearance constant. People are used to feeling certain emotions once they see certain changes in price on a currency, then they react the same way they have always done. They will always see trends, retracements, breakout patterns and similar graphical figures.

Although I may not demonstrate conclusively that prices are predictable by means of repeating market behavior I may speculate that the fact that the same people are trading the same currencies on the same charts creates some sort of very complex pattern inside their conduct. People who grasp this pattern are successful retail traders. People who dont, well, they are the other 90% if you know what I mean.

My analysis so far, predicts that there may be an expert advisor that works on all market conditions. This is because an expert may - unless psychological factors in trading change substantially because of an event - trade based on the "pattern" given by currencies through human behavior.

And even though I have no way to know the nature of this pattern or implement it mechanically I know it is there, hidden amongst the price. Waiting to be discovered. Not all experts are doomed to failure, some may get the key to our psychology .

Diposting oleh Unknown 20.00 0 komentar

Why There is No Universal System Differences Between Currency Pairs

Can we build a system that trades successfully on all forex currency pairs ? This has often been a question of the automated trading system world that simply asks if there is a universal inefficiency, an inefficiency that is so common that it can be found an exploited on all different currency pairs. Up until now, the answer to this question has been a resounding and unequivocal NO. To the best of my knowledge no system has ever been developed to work on all currency pairs despite the claims of many system sellers who tell you that you can use their systems on all of them. But why has it been impossible to build such a system ? Why does trading all currency pairs seems like such a big challenge ? The answer lies within the very fabric of the market and the way in which the different currency pairs trade and react. Within the following paragraphs I will explain to you some of the basic aspects of these currency pair differences and why it makes the creation of any universal system extremely hard if not impossible.

You may have been told that inefficiencies in the market arise due to crowd behavior- which is a human characteristic- and that all currency pairs in forex show it to some degree. When you hear this it becomes easy to think that if a system "really works" then it is bound to work on absolutely all the instruments available in the currency market. After all, every instrument is bought and sold by humans and this would make them inherently inefficient.

Certainly if all instruments traded with the exact same number of people and with the exact same objectives we would be able to easily find a universal inefficiency but the matter of fact is that this is not the case. The first dramatic difference between instruments is the number of participants and the inherent liquidity of each currency pair. Some pairs like the EUR/USD are very liquid while others like the GBP/CHF dont have 1/10th of the liquidity of the former so their price action is dramatically different and the inefficiencies within it become dramatically different. The less people who trade a given pair, the more efficient it becomes since crowd behavior becomes less pronounced and individual decisions start to play important roles.

Then we have other differences that also make the movements of currency pairs different. For example if you are trading the USD/JPY and there is a negative trade balance against Japan then there will be a given fixed amount of money each month that will pull the USD against the JPY just merely because of business transactions that have nothing to do with speculation. The volume of these transactions is very significant and the time in which they are processed and their magnitude will have an impact on the way in which a pair moves.

Many other factors such as central bank intervention and even cultural differences play an important role in the way in which a pair moves when compared to another and all of these factors help to explain why the finding of universal inefficiencies is so hard. However when you look at higher time frames (daily and beyond) there seems to be some coherence and this is the reason why some systems that target month or year long trends manage to exploit the same inefficiency on several different currency pairs. However the success of these systems along the whole portfolio is never total and more often than not there are very strong differences between the profitability of different currency pairs and several pairs where the systems simply do not work.

So will we ever find a global and total inefficiency ? I would have to say that probably no, but if there is a chance it will take a lot more liquidity on all instruments and a lot more market participants to make this the case. Certainly in the future if the market volume on the illiquid currency pairs increases enough we might be able to have - even though not a truly universal system - at least systems that will have better success along different currency pairs.

If you would like to learn more about system development and how you too can build your own likely long term profitable systems based on sound trading tactics please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Diposting oleh Unknown 13.30 0 komentar

Becoming Successful in Forex When There is NO Time Tips for the Family Guy with a Full Time Job Part No 2

On yesterdays post we talked about the disadvantages people have when they attempt to become full time forex traders or even simply successful traders when they have full time jobs and families that take up substantial amounts of their time. Near the end of the post I pointed out that patience and a long term look are bound to be absolutely important to the success of a person in this situation and I also said that exploiting strengths and reducing weaknesses was also an important part of this journey. On todays post I will elaborate on the more practical aspects of this advice and I will lay out a plan that you - as a person with a full time job and family - can follow to become successful in forex trading in the long term.

Many of you may be asking how I came up with such a plan if I dont have a full time job nor a few kids to make my life a lot more complicated. The truth is that even though this is not the case my advantage is that I know what has to be done to become a successful trader even if I did not do it from the above mentioned situation. This has allowed me to extrapolate what I learned to device a plan for people in such a situation. Of course, I would not bother to tell you this plan if I had not put it into practice before, something I have been doing for a while with a friend who has a wife, two kids and a full time job. For the past year this friend has been executing my plan to the letter and his results have been very good - a positive evolution towards a long term profitable trading outcome. Certainly he is not even close to quitting his day job but he made profit this year and did not wipe his account (a true achievement for having such a small amount of time !).

What was the plan he followed ? When he asked me to help him become a successful trader I told him about all the disadvantages I talked about in yesterdays post and I said to him that he had to approach trading in a very particular way to achieve success. Since I knew he had no clue about what he needed to do I laid out a plan for him so that he could go towards long term success in trading with under 5 hours of work each week. This is what I advised him to do :

Forget about short term trading, to trade one hour charts you need to stay at least 5-8 hours a day in front of your computer, to trade even smaller time frames you need even more time. If you attempt to trade short term charts when you get home tired at night you will definitely only get frustrated and lose.

Learning is the top priority, understanding what you are doing is the most important part of trading success. I told him to dedicate 2 hours each week to go through learning material and through its application. I encourage him to read classical book in currency trading and technical analysis and to actually PUT that knowledge in practice over visual backtests of at least 5 years of data. Often people read a lot but they fail to apply the concepts and knowledge they acquire.

Daily trading systems, perhaps one of the most important things I told him to do was to start trading daily systems and STICK with them. I encourage him to do evaluations of several different daily systems and to stick to those that had profitable long term results. He ended up trading a very simple MA cross based system on the EUR/USD. One pair, one decision each day, efficient, trend following trading.

Keep a journal. I told him that keeping a detailed journal of his trades was VITAL. Since the system traded once every few weeks it was actually quite easy to do this and visual backtesting analysis of his systems became CLEAR.

Learn to program. I said that evaluation is a significant part of success and that coding was an important thing to speed up evaluation. I insisted that he spent one "learning session" every month to learn how to code on mql4. The result was that after a few months he was able to start coding and backtesting his simple daily trading strategies.

Profits, for now, do not matter. When you start trading everything seems to be about the profits. I told him that profits are the reward for learning and that the first thing you wanted to do was learn and then profits would come. I advised him to just trade the systems he designed and evaluated without concerning himself with "last trade was a winner or a loser" or "I have lost all the trades".

So to sum it up, what you need to do is to approach trading in a way that exploits your strengths (your willingness to become a successful trader) and diminishes your weaknesses (lack of time). Putting a very strong emphasis on education and focusing on the evaluation and trading of daily strategies seems to be the best way for people who have "very busy lives" to start to become successful traders. Certainly it will take a few years to get there but the road is much easier, much clearer and much more rewarding than attempting to trade at a play field where you will most likely lose. By using systems that require little baby sitting and just a few quick minutes of analysis my friend was able to go from not trading at all to becoming at least a person in a clear path towards long term profitability in forex trading.

I hope that the above article has been helpful to all of you who are facing this situation of wanting to become successful trades with little time to do so :o) If you would like to learn more about automated trading systems and how they can be used to achieve profits in trading through understanding and sound design please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Diposting oleh Unknown 13.15 0 komentar