How to Use Pivot Points in Forex Trading

Technically Pure

FX markets trade technically "purer" than stock markets... something which we are all very thankful for! By that I mean price action reacts much better to resistance and support levels on a chart much better than equity markets do. FX traders and dealers only have supply and demand to make their buy/sell decisions from. It's all based on price levels, which is reflected in the charts. FX markets react better than stocks when it comes to Fibonacci tools, pivot points, trendlines and prior resistance - support levels, etc.

A lot of stock market price action is driven up, down or sideways by an endless procession of factors. Part of it is economic, part of it is fundamental to specific company, industry or sector. Another part of stock market action is pure emotion. Someone makes or sells a widget with perceived value higher than what turns out to be economic reality. Doesn't matter... stock prices can remain pumped on pure emotion longer than rational people can comprehend.

Another part of stock market behavior is rampant program trading. I read somewhere this weekend that stock market program trading measured by percentage of volume is now at historical all-time highs. Black box computer robots making buy/sell decisions shove stock market price action every which way but loose. Good luck timing some of those price swings or turns when the big bots flip one another like scattered dominos.

Currency markets aren't nearly like that. FX trade decisions are pretty much pure supply & demand, a commodity if you will. Now that's not to say they aren't affected by economic news or events. Each currency is weighted on econ conditions for that specific pair versus any or all others in the marketplace. Price value of currencies is nothing more than a reflection of where that denomination's economy ranks as weak or strong relative to others. There is no sentimental or emotional impact on a currency. No one buys the British Pound to unreasonable heights because they like the color scheme of the paper bills. No one sells the USD/CHF because that country has great skiing in the winter, therefore it's a "play" to profit from guesswork of increased tourism. If the Swiss economy is weak or strong, it'll be amply reflected in the CHF pairs accordingly.

"Fair Value" On The Floor

There are many ways to measure what fair value is for trading instruments. Volume studies like market profile or volume-weighted average price (vwap) are not applicable in spot forex markets because there is no centralized volume measurement. We could say that the old floor traders pivot values are one way to measure fair-value pricing in currency markets, i.e. a spot on the chart where neither buyers or sellers have firm control. Frequent tests of that level (or more aptly zone) gives a chance for traders to see which way prevails on the inevitable push away from there.

Like we said earlier, FX currency markets trade technically purer than stock markets being mercifully devoid of emotional baggage that gets attached to companies underlying stocks. No one cares to let alone physically can prop up or repress any major currency from trading higher or lower based on pure supply & demand... which is one of many benefits to be grateful for in FX. Floor trader pivot levels are one chart tool which adds value to our chart. I personally ignore all the levels except for daily pivot-point itself... actually have the others turned off so only the pivot is plotted.

Because the FX markets never sleep, it's debatable where to define a start & stop for determining floor trader pivot levels. After looking at all manner of settings, I simply go with a midnight to midnight est measurement and leave it at that. Writing the chart software code to measure FX sessions from 5pm est to 5pm est or something similar is another choice. Others opt to align floor trader pivot session measures with the hours of trading for that specific symbol or pair, i.e. open of Englan markets for GBP pairs, open of Japanese markets for JPY pairs, etc. In my opinion those are probably equal choices for effectiveness but no better or worse than standard pivot settings for midnight to midnight stretch. Along the endless journey a market takes going from point A to point B or likewise B to A, price action pauses at numerous spots. I'm sure we can find merit with just about any setting for daily pivot points... probably several of them. Pick one and stick with it for consistency sake. It's more of an individual choice than anything else, in all reality.

Chart 1: GBP/USD 10-Minute Chart

Looking at a 10 min chart of the Pound/Dollar, we see where price action held on top of daily pivot point (black line) support for several hours before lifting into R1 (dashed green) and S2 (solid green) on its way to eventual swing highs. Price action then settled right back to the R2 which was prior resistance now turned support. Where it heads to next may be determined by which way it breaks from the R2 magnet of price measurement.

From low to high the GBP/USD covered roughly 200 pips or $2,000 per standard FX contract. Taking +50pip to +100pip trades out of that overall swing was possible by targeting moves between or away from the various pivot levels.

Chart 2: USD/JPY 10-Minute Chart

Opposite the GBP and EUR but in mirrored fashion, CHF pushed away from its daily pivot and plunged below S2 towards what was in all likelihood S3 level before consolidating on a turn back upwards. Again, taking entry signals right at the various levels or as price action moves away from them is a pure form of catching directional moves headed towards visible targets.

Chart 3: EUR/JPY 10-Minute Chart

As noted before, FX markets tend to test the daily pivot at least once per session before pushing away to fulfill supply & demand elsewhere. Using that measure in conjunction with your other varied chart tools is an additional edge for pending directional bias.

Chart 4: USD/CHF 10-min Chart

True to frequent form, in this example the USD = Swiss Franc paused in consolidation at its daily pivot point before continuing the trend trek upwards from there.

Summation

Floor trader pivots have stood the test of time for a reason: price action reacts to them. For sure there's a limit to what will fit on our chart before the scene of visual clarity becomes clutter. I've always been an advocate of the "less is more" school for chart tools. That said, it pays to know where key price magnets are which help show the tipping points on our chart. Daily pivot points for currency/FX markets are one of several chart tools that add such value. Using them as a marker for points of attraction where price action is likely to trade and/or secondary spots for trade-entry decisions.

Austin Passamonte is a full-time professional trader who specializes in E-mini stock index futures and commodity markets. Mr. Passamonte's trading approach uses proprietary chart patterns found on an intraday basis. Austin trades privately in the Finger Lakes region of New York. Click here to visit CoiledMarkets

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Improving the Odds by Trading Multiple Time Frames

First off I want to thank TradingMarkets.com for giving me the opportunity to share my experiences as a trader and offer you a no nonsense trading approach that is not only logical and eloquent in design but will give you a serious upper hand in beating the markets consistently.

My name is Don Steinitz and for some of you serious chess players out there my last name may ring a bell. Wilhelm (later William) Steinitz (May 17, 1836 - August 12, 1900) was an American chess player and the first undisputed world chess champion from 1886 to 1894.

My background is in professional gambling. I started counting cards in blackjack back in 1975 when I turned 18. After quickly seeing the potential for making money, I packed my bags and left California to play full-time in Las Vegas Nevada where I live today. I put together a team of player years before anyone heard of the M.I.T blackjack team players.

We were only interested in games that we could clearly obtain an edge which included but not limited to concealed body computers for blackjack and roulette. We also trained to visually see the occasional exposed card from a blackjack dealer which gave us a tremendous advantage seeing both cards, as you can imagine. Okay enough of me and my past so let's start discussing the nuts and bolts on how to obtain a significant edge in the biggest game in the world called "Trading".

To understand the importance of first arriving at a sound theory before implementing and testing a trading program, we need to briefly review the characteristics of performance that indicate a robust method.

When testing a trend-following system, we should expect that a trend of 100 days, compared with a trend of 50 days, will produce larger profits per trade, greater reliability, and proportionally fewer trades. As you increase the calculation period, this pattern continues; when you reduce the calculation period this pattern reverses. You are prevented from using very short calculation intervals because slippage and commissions become too large; the longest periods are undesirable because of large equity swings. There must be a clear, profitable pattern when plotting returns per trade versus the average holding period.

Each time frame has a logical purpose and is said to be modeled after Gann's concept that the markets are essentially geometric. The shortest time frame is the one in which you will trade; in addition, there are two longer time frames to put each one into proper perspective.

The patterns common to time frames are easily compared with fractals; within each time frame is another time frame with very similar patterns, reacting in much the same way. You cannot have an hourly chart without a 15-minute chart, because the longer time period is composed of shorter periods; and, if the geometry holds, then characteristics that work in one time frame, such as support and resistance, should work in shorter and longer time frames. Within each time frame there are unique levels of support and resistance; when they converge, the chance of success is increased. The relationships between price levels and profit targets are woven with Fibonacci ratios and the principles of Gann.

One primary advantage of using multiple time frames is that you can see a pattern develop sooner. A trend that appears on a weekly chart could have been seen first on the daily chart. The same logic follows for other chart formations. Similarly, the application of patterns, such as support and resistance, is the same within each time frame. When a support line appears at about the same level in hourly, daily, and weekly charts, it gains importance.

LAWS OF MULTIPLE TIME FRAMES

1. Every time frame has its own structure.
2. The higher time frames overrule the lower time frames.
3. Prices in the lower time frame structure tend to respect the energy points of the higher time frame structure.
4. The energy points of support/resistance created by the higher time frame's vibration (prices) can be validated by the action of lower time periods.
5. The trend created by the next time period enables us to define the tradable trend.
6. What appears to be chaos in one time period can be order in another time period.

Above is the format in which I will show all my screen shots. This is what the MetaTrader 4 charting software looks like. This is the chart of the EUR/JPY (Euro vs. Yen) on the 15 minute timeframe. The 10 and 21 SMA's are above the 50 SMA, therefore we are looking to buy or trade long. You can plot all three moving averages which comes standard with this software.

The red line is the 10 SMA, blue line is the 21 SMA and finally the orange line is the 50 SMA. The red horizontal line is another tool that comes standard that I plotted to show the relationship between the 50 SMA and a horizontal line indicating the angle or strength of the trend.

Each green arrow indicates a potential trade setup. The definition of a trade setup is whereby a candle's upper wick is lower than or equal to the previous candles upper wick. In addition, the candles lower wick must be lower or equal to the 10 SMA. If both of these conditions coexist at the same time we have what we refer to as an alert candle.

The two white vertical lines are another tool that comes with the charting software that I plotted for reference only to show the segment of the trend that I wish to discuss.

Above is the same chart except we are looking at the 30 minute timeframe. This chart illustrates what the trend looks like on an upper timeframe e.g. 30 minute timeframe. Notice the relationship between the 50 SMA and the red horizontal line. We are concerned with the angle.

Obviously, the steeper the angle the stronger the trend. In order to trade on the 15 minute chart we must confirm what the upper timeframe in this case the 30 minute chart that we do indeed have a trend in our favor. The 10 and 21 SMA's must be above the 50 SMA as well as an upward angle of the 50 SMA itself. If any of these conditions do not exist on the upper timeframe we do not take the trade on the 15 minute timeframe and look for another opportunity.

On this chart we are not concerned with the arrows whatsoever only the strength of the trend. You'll need to visually look at the angle between the 50 SMA and the red line to determine trend strength.

This is the same 15 minute chart except the green arrows now indicate where to take your trade. To the left of each arrow is an alert candle except in this illustration we removed the alert candle's arrows to focus only on trade candles. The definition of a trade candle is whereby the current candles high penetrated the previous candles high (alert candle) by at least one pip.

In summary what we have accomplished is identifying a certain timeframe that's displaying a nice trend. We drop down one time frame and look for a retracement of the market (buy on dips) and wait for a nice set before pulling the trigger.

Next article, I will illustrate the exact rules except this time I will show a down trend. We will get deeper and deeper into every aspect of this methodology that has consistently allowed me to double my account balance in two weeks trading only 10% of the equity in my account without compounding.

Don Steinitz is a full-time professional trader who designs and sells automatic and manual trading software for the Forex market at: www.forexrobottrader.com. To download a free copy of Metatrader 4 charting software please click on the following link: http://www.fxdd.com.

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Market Profile for the 24 Hour Market

Market Profile is a powerful statistical analysis tool developed by J. Peter Steidlmayer and the CBOT during the 1980s. This article introduces traders to the Market profile tool and goes over the basic uses and functions.

Introduction:

Market profile is a technical analysis tool developed by J. Peter Steidlmayer in conjunction with the Chicago Board of Trade in the mid 1980s. Market Profile is a statistical analysis of time and price to create a graphical representation of a trading session or multiple trading sessions.

Price is plotted on the vertical axis, and time is plotted on the horizontal axis. Market Profile essentially puts a daily bar or candle under a microscope. By looking at a bar with the naked eye, all we know is where the bar opened, where the high and low were and where the bar closed. A Market Profile of that bar will let you know when the bar made the low, when it made the high and, more importantly, where the price action or Time Price Opportunities (TPO) for that bar took place.

Market Profile Construction:

A standard Market Profile assigns a letter to each 30 minute period of a session. Typically, a Market Profile will start with letter A and end with letter X. It is not required for each letter to represent a 30 minute time, this is just the default setting and most used time frame, I would not recommend using a time frame less than 15 minutes. For the purpose of this article, all examples are in a 30 minute time frame. Each letter is placed in a column next to the corresponding price.

After 30 minutes, the letter changes and if the price has already touched that level, the new letter is drawn in the next column, if the price touches a new level, the letter is placed in the first column. The CBOT uses an uppercase A-X for the midnight to noon period, and a lower case a-x for the noon to midnight period.

When Market Profile was first developed, most markets traded on set sessions that had an open and a close, however today many markets are open virtually 24 hours a day. This does not eliminate the usefulness of Market Profile because the same psychological factors are in place, in any market you have short term participants and you have long term participants. The concept of market profile centers around the normal distribution curve, or bell shaped curve used throughout nearly all statistical analysis.

Here is a daily candle for the e-mini S&P 500:

The open for this candle was 1168.50, the low was 1164.25, the high was 1173.75 and the close was 1169.50

And here is the market profile of the same session:

The open was 1168.50 noted by the green arrow, the high was 1173.75 noted by the highest printed letter "o", and the low was 1164.25 as noted by the lowest printed letter "q". But our market profile shows how the candle was formed, after the bar opened the opening range was tight, between 1169.25 and 1168.25 a range of just 4 ticks, then during the "q" period we made a low and during the "o" period we made our high. The value area for this session was between 1166.00 and 1171.75 noted by the red line. As the distribution of the day is normal, our support is at 1166.00 and our resistance is at 1171.75.

As you can see the day forms a nearly perfect bell shaped curve with the most price action taking place at 1169.50. As we can see when the price went above 1172 (High end of the range) it soon retraced back down and when the price went lower than 1166.25 (low end of the range) it quickly bounced back up, which can be interpreted as when the price was in the 1166.25 area buyers became attracted and when the price rose to 1172 sellers became attracted.

The middle part of the curve is our balance area, where we have a relatively equal number of buyers and sellers, when the price moved outside the balance area the market reacted and the price moved back into balance.

To get a better idea of how the Market Profile is constructed, let's look at the first 2 hours of a session.

Here are 10 thirty minute bars of the ESM0 contract covering 5 hours of data:

And here is the corresponding Market Profile for the same period:

The First period is the "L" period, which had a high of 1183.50 and a low of1178.75. If we look at the oldest bar in the chart above we can see the same levels, high of 1183.50 and low of 1178.78. The next letter is "M" and it stayed within the "L" period's range which matches the chart. The "N" and "O" periods also stayed within the "L" range. During the "P" period we moved past the "L" period's high and made a new high of 1186.25 before retracing back down to 1185.50 which is where the "Q" period begins, "Q" and "R" stayed within the daily range but the "S" period made a new low of 1178.50.

The "T" period made the low of the session at 1173.25 before retracing back up to 1175.00 and the "Q" period stayed within the "T" range. This session is clearly a trending session as the price moved throughout several TPOs without much resistance. We also know that the market stayed in its initial range for the first 4 bars made its high in the middle of the day and the low late in the day. Also, the 1181.50 level could be seen as resistance as we had 5 TPOs at that price.

Using Market Profile in Your Trading:

Now that we have briefly gone over the concept of Market Profile, how can we apply it to our trading? There are 2 main types of markets in terms of range development, normal or non-trending and trending. In addition to range development, market activity can be broken down into two categories initiative and responsive.

If the price moves past the previous day's value area and holds there, traders are taking the initiative of moving the price into a new value area, if on the other hand the price quickly moves back down market participants are responding to the new price by rejecting it as a value area. The psychology for long term and short term trader differs depending on the range distribution. During a ranging or non-trending days the short term traders are in control.

Think about it, when the price stays in a small trading range the only way to profit is to buy at the low end of the range and sell at the high end and vice versa. During a trending day, where the distribution is not normal or bell shaped the longer term traders are in control. During trending days, selling at the high end of the range does not make sense as the price will continue to trend higher, during this type of session, buying early in an uptrend and selling when the trend appears to be ending is the better strategy.

Now it should be noted that short term traders and long term traders have different ideas of value. Short term traders typically go for small price movements with larger orders while swing or long term traders typically trade less volume but go for more ticks. Therefore a short term trader may see value at the low end of a ranging day, where as a long term trader may not see the same value there. Identifying the range development for the day and knowing the previous days' value area can give you an edge over traders that do not have access to this data.

Here is an example of a normal day:

And here is an example of a trending day:

As you can see during the normal day, once the range was established, buying the low end of the range and shorting the high end was a good strategy, during the trending day though if you tried buying at the low end of the range, the market kept moving lower resulting in a loss.

Where can I get Market Profile Data?

Many software vendors have Market Profile data but it can be costly. Our company has a proprietary trading platform that provides free market profile data. Please contact FastBrokers for more information.

This was a brief introduction to Market Profile. There is much more to this powerful tool and if you would like more information please visit the CME website: http://www.cmegroup.com/education/interactive/marketprofile/

Disclaimer: The above information is provided for information purposes only and under no circumstances should be regarded neither as investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained. All materials are property of Fast Trading services, LLC and unless otherwise indicated, any unauthorized reproduction is prohibited.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

Jesse Richards is a Series 3 registered Commodities Futures Broker. Before getting his license, Jesse was a full time e-mini and stock options trader. He has spent time with a major U.K hedge fund and currently works for FastBrokers, a California based online Futures and Forex brokerage. For more information about FastBrokers please visit www.fastbrokers.com/index.php?JR750.

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How to Use Proper Risk Management in Trading Forex

The most common mistakes equity traders make when they begin to trade Forex are:

1. A failure to properly manage risk and

2. Not being aware of news events that will affect their Forex positions.

These mistakes are prevalent since there is such a huge difference in leverage between Equities and Forex. New Forex traders need to spend the time thinking about and understanding how leverage works, as well as how news and economic data will affect their trading plan.

New forex traders coming from an equities background, who are used to trading a cash account, understand that the profit and loss of their account is correlated on a 1 to 1 basis to the Value at Risk (VAR). In other words, a 10% rise or decline in the price of the stock will result in a 10% gain or loss on the cash position in their account.

Government regulations overseeing the equities markets allow traders to borrow up to 50% (2 to 1) of the purchase price of their securities for overnight positions and 4 to 1 intraday. A 10% move in a stock with 2 to 1 leverage will result in a 20% gain or loss on the cash on cash position in the account. A 10% move intraday with 4 to 1 leverage would result in a 40% change in the cash on cash value of the account.

Since a Forex account can be leveraged 100 to 1, a 1% move in a fully leveraged position would create a 100% gain or loss of the cash on cash value in your account. For each of the leverage changes in the previous examples the risk associated with the position changes dramatically. With the increased leverage of Forex trading, your trade plan must be adjusted to account for a shorter time frame in which to react to market news and or price changes. You cannot be trading Forex like a poker player and go "all in"; the increased margin creates too great a magnified movement in your profit and loss.

One solution offered by many Forex traders is to incorporate into their Forex trading plan the 2% rule. No more than 2% of the account value becomes the maximum amount the trader is willing to risk on a trade. This 2% becomes your "Value at Risk" VAR or (.02*Account Value=VAR). The VAR is then divided by the pip value to determine how many pips it takes to hit your max loss. The number of pips is deducted/added to the price bought or sold to determine placement of the stop loss.

For instance an account value of $10,000.00 would risk $200.00 on any one trade. A currency pair with a pip value of $10.00 would have the stop loss 20 pips away from the entry price. This is an easy tool that many use to help define risk within their accounts. Many experts have their own solutions' to position sizing. Author Van Tharp has written an entire book: "Definitive guide to position sizing" that outlines his premise on the absolute importance of not overdoing leverage and using position sizing to meet your objectives. It is his belief that this ONE tool is one of the most valuable, if not the most valuable tool to add to your trading system. You can read more about his solutions to position sizing at: http://www.iitm.com/Definitive-Guide-to-Position-Sizing.htm

While it cannot be overstated, the importance of position sizing to the potential success or lack of success to the Forex trader, it is just as important to be aware of news events affecting your positions. There is no excuse for being unaware of news given the availability of free information on the internet today. Equities traders have been lulled into complacency and are not obsessive about news because news events affecting stocks are often "pre-determined".

Pre-determined news releases are considered a controlled variable. One such example is a company's earnings announcements. Rarely do companies report earnings outside prescribed times and many websites provide earnings calendars. Typically earnings reports are released pre or post market so they do not disrupt the market and give investors ample time to digest the information.

On the other spectrum is currency trading that is affected by global economic news. This is new to most equities traders since foreign economic news is not something most equities traders follow. Since the currency markets never really close, economic news can be released anytime and move the market. A trader needs to be extremely aware of what events are forthcoming and what the data's effect will mean to their position. Following an economic news calendar is mandatory for the Forex trader. An excellent example of such a calendar can be found at www.mbtrading.com /economicCalendar.aspx. This calendar is free and is updated in a timely manner.

A Forex trader must familiarize oneself with an economic calendar and know when releases come out. Getting caught in a planned news event is an avoidable mistake. Simply checking an economic calendar and making sure to close positions ahead of news events can save your account from unnecessary losses. If you choose to hold a position through an economic news release your account should be lightly leveraged with a stop loss order in place.

To emphasize my point is this 5 minute chart showing the effects of a recent news event on 1/29/2009 and the 15 minutes following the U.S. Fed Funds announcement whereby they left rates unchanged:

During my experience in the 30 year Treasury pit at the Chicago Board of Trade (CBOT), I became acutely aware of the effects of leverage and news. Working in the pits provided me a unique perspective to what is important to leveraged traders. It was critical to be aware of pending economic data and not get caught in a major spike one way or the other. In the pits most small traders would close any open position before the news announcement and the big players would lighten up their positions to manage their risk.

Seconds before the data would be released, you could hear a pin drop as the tension in the pits grew. When the data was released, wild fluctuations would take place in a matter of seconds, fortunes made and lost before the market digested the news and settled down. Since the release of news was such a dramatic event on the floor it taught me the importance of learning when news events would take place. Hopefully the hard fought lessons I learned in the pit can help others avoid these problems, though unfortunately, we often cannot learn the lessons of another.

Disclosure: Trading in securities, commodity futures and off-exchange foreign currency (forex) is speculative in nature and not appropriate for all investors. Investors should only use risk capital when trading securities, commodity futures and forex because there is always the risk of substantial loss.

Sean Lydiard is Vice President of Institutional Trading at MBT Institutional a division of MB Trading. Prior to joining MBT Institutional, Mr. Lydiard was a securities trader for Electronic Trading Group, he began his career in the 30 year pit at the Chicago Board of Trade (CBOT). Mr. Lydiard is an active member of the Securities Traders Association of Los Angeles. He received his BA in Finance from the University of Colorado at Boulder and has his Series 3, 7, 24, 55 and 63 industry licenses.

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Finding the Right Forex Robot

Forex robots have become vastly popular over the past few years. As you may already know, the Metatrader 4 (MT4) platform is used to trade your robot because of it's built in programming language and automation capabilities. In fact, the extreme popularity of Forex robots is due in part to the widespread use of the MT4 platform.

The growth of the MT4 platform is not the only element of the widespread popularity of Forex robots. This article will show you how to filter through the overabundance of Forex robot sales pitches in order to find the best Forex robot for your trading style. We will teach you what you need to know about your EA and what your realistic goals should be. Finally we will touch upon some of the other players involved in the Forex robot game and how to best utilize them to maximize your chances of success.

A Forex robot, also known as an expert advisor or a Metatrader EA, is a trading system/strategy that has been quantified, automated, and coded into a program. If you are able to find a winning robot that coincides with your trading style/arrangement, you can be very successful in Forex trading. On the other hand, because Forex trading is risky, if you are utilizing an unsuccessful robot, you can lose all of your money. In an effort to try and avoid this, we will be reviewing some key factors to look for when selecting a Forex robot later in the article.

It is safe to assume that if you have made the decision to purchase a Forex robot, then you plan on making some money in the vast Forex market. However, “making money” means different things to different people. One person may be content making $20 per week while another may be seeking millions from the use of their Forex EA.

The best Forex robot for you is going to depend greatly on your appetite for risk. Before you embark on your Forex trading journey, you will have to decide how much you are willing to risk. With your risk appetite on hand, you need to look for robots that suit your trading style and analyze various statistical factors including maximum drawdown, profit factor, expectancy and efficiency. A majority of this information can be found in the best Forex robot report (www.bestforexrobot.com).

Generally speaking, the robots that make more tend to risk more in turn. Therefore a person that wants to make 10-20% per year on their investment may not be looking for the same robot that a person seeking a 1000% per year return on their investment would be. This nails down the point that your expected return is a huge factor in determining which robot is right for you.

You need to remember that the results that robot vendors display are often simulated and it is therefore essential to test your robot on a demo account before risking your hard earned money. Chances are, finding the right Forex robot for you will cost you both time and money. There are many things to pay attention to when choosing the best Forex robot for your trading. Much of the key statistical information needed to make a sound decision can be found in the best Forex robot toolkit. In this article, we will focus on one very important criterion referred to as robustness.

The majority of Forex robots only work effectively in certain types of markets. For example, some perform better in range bound markets while others are more effective in trending markets. However, it is often very difficult for a trader to determine if the market is in a range bound or trending. In order to achieve success with a Forex robot you should not give up the gains that it makes during a favorable market when the market is unfavorable.

To clarify this lets use an example. Let's assume you have a robot that performs well in a range bound market. As soon as the market starts to trend you will run into issues and begin losing money. To attain success with this robot you must not lose money during the trending market that you made during the ranging market.

In order to test if your robot is sustainable you have to test it, back and forward, through a range of market conditions. If you find that the robot sustains its profitability, then it can be considered robust. With this in mind, you must always remember that past results are never an indication of future performance.

In the above, we discussed back and forward-testing as being critical items in determining robot's robustness. What exactly do we mean by back and forward-testing? Back-testing is testing the robots success based on historical data while forward-testing is based on real time data. Both types of testing are essential to your robot's success.

Before you purchase a robot from a vendor, you should assure that it has been both back and forward tested by the vendor. Furthermore, you will need to run your own back-testing in Metatrader.

A good Forex broker can show you how to do this. On the same note, you should absolutely run the robot on a demo account to forward test it with fake money before taking it live. When back and forward-testing he robot, if it becomes evident that it is unacceptable based on your goals, you should return it if possible. If it turns out that you are happy with the robots performance, you should run it on a live micro account at first so you are not risking a lot of money.

Another key component to your Forex robot is the Forex dealer, an IB that you use for your trading. Choosing the appropriate dealer and taking advantage of the various perks and services offered by Forex IB's can be the difference between success and failure with your Forex robot in some cases.

A great way to work with reputable broker while experiencing favorable trading conditions is to trade your robot with a Forex IB. Among other perks, they can reduce your transaction costs by providing you with cash bonuses for every Forex trade you make. For example, if your robot trades 30 lots per month and you are receiving a rebate of $5/lot, you will get $150 for free every month. This adds up to over $1500/yr just for trading. This will both enhance your trading success and help pay for various Forex robots and products that you may want to purchase in the future.

After reading this text, you should feel confident about choosing a Forex robot that is best for you and your style of trading. To review, it is key to determine if your robot is robust and in line with your expectations of return. If you follow the guidelines outlined above, you will be one step closer to achieving Forex success.

Best Forex Robot offers a variety of complimentary tools to enhance the success traders using Metatrader Forex robots. Get your Metatrader EA tookit today at the Best Forex Robot website.

Frank O'Connor is a professional Forex trader and a market analyst for BestForexRobot.com. Best Forex Robot offers a variety of complimentary tools to enhance the success traders using Metatrader Forex robots. When you download the complimentary Forex robot toolkit you'll get a risk management indicator, Metatrader EA report, and Forex broker review guide. Get your Metatrader EA tookit today at the Best Forex Robot website.

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The Best Times to Trade the 24-hour Forex Market

Forex traders never sleep, or at least, it would appear that way, with markets open 24/7. With the aforementioned in mind, some may be wondering if there's another way to approach trading, or if there are simply "better" times to trade than others.

Within this article, we not only examine Forex hours and when the best times to trade are, but we will also examine the overall 'paradigm' behind trader's mindset of market-hours on the whole.

I Mean Really, Who Are You?

First and foremost, before we jump into a discussion of Forex hours, it's important to know what type of a trader you are...Doing so will help clarify the time frames you trade. Really, there are three types of traders out there: Forex day traders, swing traders and long-term holders. Have you decided this yet?

If you haven't taken a clear stance of what type of trader you are, it may be causing you to lost money...Here's why: Without knowing what timeframes you trade, without having made this decision in your mind, it may be causing emotional turmoil, unnecessary trading -- and even prompting you to trade at the wrong times.

Long-term (there are very few in Forex) will most likely not be concerned about market hours, as their positions generally attempt to transcend short-term volatility.

Swing won't be as concerned with short-term volatility, but for those who are attempting to hold for one, or more weeks, can perhaps use times when more than one market is open, for greater volatility entering, or exiting trades.

Day traders, should be most concerned about market hours. As we move through the next sections of the article, day traders will want to remember two things: Liquidity provides opportunity. Brokerages want to you to trade more. (I'll explain more on this in a moment.)

Hours of Operation

Personally, I think it's pretty cool that Forex markets are open 24/7, the perfect scenario for those who are trying outside of normal business hours, or live in a distant time zone. However, not all markets are open at the same time -- they do overlap though, The below graph shows when the four markets: London, New York, Sydney and Tokyo are open (on a 24 hour clock, based on Eastern Standard Time)

What you will notice in the above chart is there are three times when markets over lap...

3:00 AM to 4:00 AM - London and Tokyo overlap.

8:00 AM to 12:00 PM - London and New York are both open.

7:00 PM to 2:00 AM - Sydney and Tokyo trade together.

During times when more than one market is open, volume and volatility increase significantly, and are a great time for day traders to see action happen. However, when only market is open, trading can dry up significantly, especially late at night, via U.S. time.

There are two points to note here though:

1. While trading action can be slow when only one market is open, it does not mean that movement does not occur. Many brokerage firms will tell you that it is not a good idea to trade (for daytraders) during times when only one market is open. And, it's understandable too, since they make their money when you trade heavily. When only one market is open, there's a good chance you're going to trade less. Thus, remember that while Forex firms would prefer you only trade during hours where more than one market is open, you can still make money when only one market is trading.

2. When the New York markets is open, by itself, during the day, traders will generally see more action than when Sydney, or Tokyo are open by themselves. Usually, London can be fairly slow too, from 4:00 AM until about 7:00 AM, but can see an uptick in volume even before New York opens, as U.S. traders wake up and login, pre-stock market. Though the New York market is open by itself from noon to 7:00 PM, noon to 5:00 PM can see movement, as many U.S. stock, option and commodity markets are open too.

At the end of the day, Forex daytraders will likely want to be around mostly for hours when more than one market is open; however, only having one market open doesn't mean that currencies won't move -- especially in the case of New York hours.

Finally, by trading in currency pairs that are related to the markets open, there could be increased volatility, as opposed to the currency pairs that are not. However, we are a globally connected currency market and if one market makes a bold move, do not, for one second think other markets will not move too.

Because of the rise in Forex popularity, every market is connected like water...When a stone is cast in one market, the ripples will move through all markets.

Mark Whistler is the founder of WallStreetRockStar.com and is the author of multiple books on trading.

Mark's newest book, The Swing Trader's Bible (John Wiley & Sons, Inc.) - co-authored with CNBC/Fox News regular guest Matt McCall - will be on shelves in late summer, 2008.

In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.

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Why I Add to Winning Positions

Many traders find a great trade setup; take the trade, and then watch. If the trade goes in the opposite direction - if the trade does not do well many traders will consider adding to the position.

Averaging down, adding to a losing position, it does not matter what it is called, it is basically taking more of a losing position. It is no different than making reservations for a restaurant that you don't like because the food made you ill and the staff was rude. It sounds funny but it is true. By adding to a losing position you are asking for more of what you don't like.

Now, let's consider this scenario. Let's say that you make reservations for a restaurant, you show up to find your table waiting for you, the staff are wonderful and the food is great. Would you only eat an appetizer because you didn't want to "ruin the experience?" Would you leave early because you don't want to have "too much of a good thing?"

You probably wouldn't if you are like most people.

But this is exactly what many traders do - they add to losing positions (often maximizing the loss) and they rarely add to positions that immediately go in the expected direction.

Think about what that means for your trading account. That means that when you are right you are not maximizing profits and when you are wrong you are increasing your losses.

One great way to increase your profits is to add more positions as the trade goes in the expected direction. This is a lot like making reservations for that great restaurant - you know the food is good and you want some more!

Many traders can exponentially improve their profits by simply adding to winning trades and resisting temptation to add to losing positions.

Here is an example from this week. With this trade I sold the EUR/JPY at 137.00 and targeted the red line down at 136.00. I could have simply sold the EUR/JPY and waited for the market to hit 136.00 - and then I could congratulate myself and be very happy since the trade made 100 pips. But instead, because the trade went in my direction I added to the trade and made 280 pips instead. This is how it unfolded. I took one position at 137.00 and then I put additional sell orders in at 136.50 (one position), 136.40 (one position), 136.30 (one position), 136.20 (two positions) and 136.10 (two positions).

Instead of 100 pips on the winning trade I had several positions 100+50+40+30+(20x2)+(10x2) = 280 pips. Notice how I did not immediately add to the trade, but instead decided that if the trade went 50 pips in the expected direction I would allow the additional sell orders to kick in.

What would have happened had this trade immediately gone against me? Well, I would have only lost on the first position, thereby limiting my losses. I think it is important to wait for the market to give you feedback before you start adding to a winning position, so I always place additional orders at least 50% closer to the profit target than the initial position.

Think how much more money you would make if your losing trades were more than 87% smaller than your winning positions ... it is a lot like making reservations for that excellent restaurant, over and over again.

Walter Peters, PhD is a professional forex trader and money manager for the DTS private fund. In addition, Walter is the co-founder of Fxjake.com, and often coaches other traders. If you would like to learn more about Walter's trading strategies, take a look at Walter's upcoming webinar.

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