This section is for advance users that has experienced in trading forex

Trading The Forex In Regular IRA and Roth IRA

Trade using the Metaquotes MT4 Platform with no trading restrictions and lightning fast execution. This lesson is for forex traders in the USA however if you are outside the US check your local laws to see if you have a similar retirement system which is tax deferred or tax free for spot forex trading. In order to trade the forex IRA money you must open an account with a self directed IRA firm or trustee. Currently we have  three listed below. These three are by no means the only ones but will provide a forex trader with a starting point.

Confluence – putting it all together

In our previous lessons we talked about confluence, but we have not explained it. Well, the time to do it is now and it’s pretty easy to understand actually: it means that in a particular spot, we have more than one reason to enter a trade; more than one trading tool is giving us a good signal. Let’s see how that looks on a chart:

Fibonacci Numbers In Forex Trading

In the 13th century, an Italian mathematician first published a sequence of numbers that would become formally known as the Fibonacci numbers. Leonardo Fibonacci originally discovered the series of numbers when trying to explain the natural proportions of various things in the universe. They go as follows: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89.... As you can see there is a clear relationship between each number in the sequence. By adding the first two numbers together (1+1) you get the next number (2).

Breakouts and false breakouts

A breakout in Forex trading means that price breaks an important level of support or resistance and then continues to move in the same direction. We can have a breakout out of a range or consolidation area, a chart pattern (like a triangle) or a trend line. On the other hand, we have the false breakouts. What this means is that price breaks out but then it soon returns inside the level that was apparently broken. Below you will find a picture that illustrates a break of a resistance line:

Correlation between pairs

Have you ever noticed how the movement of some pairs looks just like the movement of others? For example if you look at a EUR/USD chart and compare it with a AUD/USD chart, you will see the huge resemblance. Look at the two pictures bellow to see it:

Divergence – Never trade against it!

When we talked about indicators, we told you some of them can be used for spotting Divergence, but we haven’t talked about it in detail. Well, that is the purpose of this article: to teach you all you need to know about one of the greatest tools available in trading – Divergence. It can identify with good accuracy tops and bottoms and it helps you to sell near the top and buy near the bottom.

Elliot Wave Theory

In the 1920's a man by the name of Ralph Nelson Elliot published a book titled The Wave Principle. In this book were 75 years worth of stock market analysis, combined with evidence that he hoped would prove his theory that the markets traded in repetitive cycles. He named upward and downward swings in price “waves” and explained that these swings were caused by outside influences and investor psychology.

Risk and reward - High accuracy vs. big reward trading

It is time to talk about Risk and Reward ratio, a very important aspect of money management. The Risk : Reward ratio is simply the relationship between how much a potential losing trade will cost you and how much profit a winning trade will bring you. If we use a 1:1 Risk : Reward (R:R) ratio, it means that our stop loss is the same amount of pips as the take profit. So for a trade that uses a 50 pip stop loss, we will have a 50 pip take profit level. Here is a picture to illustrate 1:1 R:R ratio

Multiple time frame analysis

Until now everything we talked about was referring to a single time frame, but what if two or even three time frames were in agreement? Well, we would definitely have a much stronger signal. For example, if the time frame we are trading and a higher time frame both have the RSI in overbought, that would tell us that the pair is more likely to come down. Here are the two pictures:

Understanding why position sizing is important

Well, let us give you an example and you will understand why position sizing is important. Assuming the account balance is $1,000 and we trade with a risk of $500 per trade, if we lose 2 trades in a row, the account is gone. That’s it. Two mistakes and the whole account is gone. Losing is a part of trading, there is no perfect system that can give you 100% accuracy and that’s why we must allow ourselves room for error. If we use a smaller position size and risk just 20% per trade, we will blow the account after five losing trades.