The first question. How do you identify whether this is a Hanging Man or a Hammer? Hammer and the Hanging Man both have a very small candle body accompanied by a long wick either on the bottom. If this type of pattern appears at the top of an uptrend with the long wick at the bottom, it is a Hanging Man. And if it appears at the bottom of an downtrend it is a Hammer.

Now, in most of the cases, you will also find a small wick on the top of the candle body. Now suppose, you find the Hammer or the Hanging Man. What you need is to look for the confirmation the next day!

If the opening price on the next day is less than the previous day’s close, you have a true Hanging Man. If not, then that was not a true Hanging Man. Now suppose, you think that you have spotted the Hanging Man in an uptrend. Wait for the confirmation the next day with the opening price.

A Hammer should have a very small candle body with a long wick at the bottom. Similarly suppose, you think that you have correctly spotted the Hammer in a downtrend. You should confirm this with the opening price on the next day. If the opening price is higher than the closing price the previous day, you have a true Hammer. If the opening price is not higher than the closing price the last day, it is not a true Hammer!

Whenever, you trade candlestick patterns, first spot them correctly than wait for the confirmation on the following day. The best chart for these candlestick patterns is the daily chart. Once, you get the confirmation, trade these patterns. They can be highly profitable. But in case, you don’t get the confirmation the next day with the price action, simply ignore the pattern as not true.

A Spinning Top is another candlestick pattern that reveals a tight battle between the bulls and the bears. Whenever, the battle between the bulls and the bears ends in a draw on a trading day, the following day, one side has to give in. When this happens an explosive move in one direction is highly likely.

How to identify a SPINNING TOP? A Spinning Top has a very small candle body in the middle with two equal wicks on the top and the bottom. This pattern appears very frequently in the daily charts and can be highly profitable if spotted correctly.

Mr. Ahmad Hassam has done Masters from Harvard University. Master Candlestick Patterns with this 82 page PDF FREE Candlestick Guide! Download your FREE COPIES of the HVMM Ultimate Day Trading System and the Universal Risk & Money Management Tool!

Looking at the basics of investing we find that there are no set rules. Dont confuse that with the set rules that must be followed when purchasing stock, bonds, buying a house and such. Those are just the details of making it happen. Investing doesnt have any real set of rules, you cant just write down a set of rules for investing and people get rich. We all wished it worked that way.

Investing is actually an art form. Like most art forms it takes knowledge, experience, practice, and lots of hard work. Like art it also takes commitment. Investing is a lifelong practice and commitment with goals along the way.

Whatever area you decide to invest in; stocks, bonds, real estate, and such there is one thing that is always consistent and will directly affect your money. Regardless what you invest in, people and society will always dictate how any investment will do. Why didnt I say data or the investment itself? People and society have a very profound and direct affect on any investment. For example, if you decide to invest in stock, how the company is doing is what determines if you make or lose money. What affects the company more than anything? People run the company; those people will either make or break the company and your investment.

Should I mention Enron? The company fell apart because of greedy people running the company. Investors lost a lot of money due to those people. What about Krispy Kreme? Societys obsession with weight, health, and healthy food almost destroyed the company just because of one report on how unhealthy the doughnuts are to consume. Making matters worse, people at the top almost finished the company because they got involved in fuzzy business practices.

People and society can and always will affect your investments. However, dont look at just the negative. They can also affect them in a very positive way as well. Just look at how many businesses got started. They started with an idea someone had and they grew it into an investment opportunity that it still making some investors kick themselves for not having enough forward insight to invest early.

While looking at the data and details of an investment, also take a look at the people factor. Ask yourself, Would society like this idea or product? Society and people are slow to change, so remember that when you are thinking of an investment which involves a drastic change in the behavior of society. So investing in a drive thru funeral home isnt probably a good idea even though our society loves fast and convenient services and products. Dont laugh; someone already tried it.

So before you throw your money into an investment, look at the people factor. Are the people running the investment worthy of your money? Would society accept such a new idea or product? These and many more questions you should ask yourself before throwing money into an investment.

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Most individual and retail traders do not have the patience for position trading. Retail traders dont have the stamina to stay longer than a few weeks in a trade. Position trading may mean keeping a trade open from one week to a month to as long as a year or possibly more in the fast moving world of forex trading.

Only those position traders who have the patience to stick with the trend and let their profits run are generally able to capitalize on these longer term price moves. This is somewhat unfortunate as most retail traders dont have that patience. Position trading can be one of the most profitable styles of trading due to the fact that many currencies tend to trend well on long term basis.

Position trading due to its long term time frame tends to rely heavily on fundamental analysis along with longer term technical analysis. This is unlike day trading or swing trading that relies almost exclusively on technical analysis due to the short time frames.

As a forex trader, you must be aware that there are two type of analysis that is done to analyze the market forces, fundamental and technical. Fundamental analysis concerns itself with the economic forces that drive the major market movements. Fundamental analysis is geared towards longer term price forecasts rather than the swing to swing movements that are primarily the focus of technical analysis.

These economic forces include interest rates, inflation, GDP, unemployment and help to determine the value of the national currency overtime. The general direction of change in the currency value over the long run is what interests the position traders.

Position trading and trend trading both follow almost similar approaches. However, position traders often rely on fundamentals along with the technicals; trend traders are almost exclusively technical in nature.

Carry trading can be considered a form of position trading as carry traders hold interest positive positions to benefit from both regular interest payments and exchange rate profits. How do position traders decide which position to take?

Fundamental analysis exclusively! Position traders establish positions on currency pairs according to their views and experience based on fundamental analysis. Forex position traders weigh strength and weaknesses in currencies by taking various fundamental and technical factors into account.

Lets suppose that a position trader performs fundamental analysis on economic conditions surrounding the major currencies and is of the view that the US Dollar is indicating fundamental weakness going forward.

At the same time, the position trader thinks that the Euro is showing significant fundamental strength going forward. This opinion may have been formed on the state of inflationary pressure in the economy, the recent rate of economic growth, comments by the Federal Reserve Board (FED) Chairman or the President of European Central Bank (ECB), the state of ongoing recession and so on.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

Thus when the price bounces off the support level, the bears take the opportunity to short again. Sellers are quite anxious to sell as they feel that the currency price should fall over time.

As with an ascending triangle, bulls and bears face a skirmish with both camps not feeling confident of the next market move. Spotting a descending triangle should allow you to be prepared for a downside breakout from the support level especially if it is a down trend.

When the support level is broken many of those long positions which have been placed above that level soon get stopped out. Prices tend to break in the middle or the final third part of the triangle formation.

It tends to give off even more bearish vibes than if it is formed during an uptrend if the descending triangle is formed during an existing downtrend. Unless you have reversal signals in the form of technicals or turn around of the market sentiment, you should always assume the continuation of the prevailing trend.

However, a descending triangle should not be considered to be the final word on impending downside breakout. With that said, prices also sometimes breakout from above the descending triangle successfully in a burst of bullish momentum.

Symmetrical Triangles: There are no horizontal lines in symmetrical triangles. This differentiates it from the ascending and the descending triangles. A symmetrical triangle consists of two converging trendlines that join a series of lower highs and higher lows. A symmetrical triangle has some resemblance to a wedge pattern.

The lower highs reflect the mildly bearish conviction of the sellers as they are willing to accept less and less of the price over time. The higher lows are formed when buyers of the currency pair are willing to pay a bit more to get a piece of action.

A symmetrical triangle tends to be less reliable as compared to an ascending or descending triangle. There is no way to predict the future breakout direction until one of the symmetrical triangle lines is penetrated. As with the other sloping triangles, breakouts usually occur in the middle or the final third of the triangle.

When trading triangle breakouts, you should always consider other pieces of information so that you can better pinpoint a higher probability trade set up. Besides the triangle formation, decreased volatility can also be detected with the exponential moving averages and the Bollinger bands.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

A high probability trade is in sight when the technicals are coupled with the current market sentiment when a particular type of triangle has been identified by the trader. All triangles show decreasing price volatility in action.

Triangles are basically continuation patterns. But they can also be reversal patterns. This depends on the different types of triangles and whether they occur in an uptrend or a downtrend. Triangles are also known as Wedges. There are basically three types of triangles: 1) Ascending, 2) Descending and 3) Symmetrical.

Ascending Triangle: It is basically a bullish signal when you see an ascending triangle on the chart. An ascending triangle can be easily identified by its upward sloping trendline. This upward sloping trendline creates the lower boundary of the ascending triangle. An ascending triangle can be either a continuation or reversal pattern.

The upper boundary is roughly horizontal and should connect at least two price points. The upper boundary represents the resistance level. The crowd psychology behind the ascending triangle is this that every time the currency price goes up to the resistance level; there is sellers in the market who push the price down.

When the prices retreat from their high and are on the way down, there are buyers who believe very strongly that the currency price should rise based on their own reasons. The buyers thus bid the prices higher than the previous low forming the upward slope of the triangle.

When these two lines, one sloping and the other horizontal converge at one point the triangle is formed. The appearance of an ascending triangle should prepare you for an upside breakout from the resistance. Breakouts tend to occur in the middle or the third of the triangle formation measuring from the start of the triangle to the tip.

The general guideline is this that when you see an ascending triangle during an uptrend, it is seen as an uptrend continuation pattern. But if it formed during an existing downtrend, it acts as a bullish reversal pattern.

Descending Triangles: A descending triangle works the opposite of an ascending triangle. It is viewed as a bearish formation even though it can be either a continuation or reversal pattern.

A descending triangle can be identified by the downward slope of the trendline which is formed by connecting the lower price highs. This downward sloping trendline forms the upper boundary of the triangle. The horizontal lower boundary of the triangle represents the support level and it is formed by connecting at least two price points.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

Possibility No 1: You should not forget to ignore the first breakout. Suppose the second breakout attempt is in the upside direction for an ascending triangle and it is in the downside direction for the descending triangle. In other words, the second breakout attempt is in the direction expected of the triangle type. This breakout could signal either the continuation of the existing trend or the trend reversal.

In case of an ascending triangle, place a stop buy order at least 10 pips above the horizontal resistance level to capture the potential upside breakout. You should make sure each side of the triangle gets touched two times at least. Set profit target according to your time frame. Place a stop loss order 10 pips below the horizontal level of the triangle to protect against false breakout.

Place a stop sell order 10 pips below the horizontal support level to capture the potential downside breakout for a descending triangle. Again make sure the triangle is touched two times before the breakout. Place a stop loss order 10 pips above the horizontal support level.

Possible Case No 2: The second breakout is to the upside in case of the descending triangle. Similarly it is in the downside in case of an ascending triangle. Again ignore the first breakout attempt. In other words, the second breakout attempt is in the opposite direction of the expected triangle type breakout direction.

Cut the position size to half for this trade in order to reduce risk in case of an ascending triangle since the breakout direction is opposite to the most expected direction. Set stop sell order at least 10 pips below the upward sloping trendline in order to capture the expected downside breakout. Place the stop loss 10 pips below the breakout point. Ignore the first breakout attempt and make sure the triangle is touched at least two times. Place take profit in accordance to your time frame.

Place a stop buy entry order at least 10 pips above the downward sloping trendline in order to capture the potential upside breakout in case of a descending triangle. Set your profit target in accordance with your time frame. Place stop loss 10 pips below the breaking point. Again reduce the position size to half in order to reduce risk.

Possible Case No 3: The decreased volatility breakout strategy works better when it is implemented on a daily or weekly chart. Dont use intraday charts on this strategy. You must have observed that we havent talked about the symmetrical triangle case yet. Now, there is an equal possibility of upside as well as the downside breakout in case of symmetrical triangles. Place stop buy entry order or the stop sell entry order 10 pips above the downward sloping trendline or 10 pips below the upward sloping trendline. Similarly set your stop loss orders. Just follow similar guidelines as given for the ascending and the descending triangle.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Develop your own Forex Trading System. Learn Forex Trading !

Both the bulls and the bears are hesitant to make daring moves at this stage of the trend. Experienced traders now know that the trend has aged and it is the best time to get out of the trend. They try to get out of their trades at this stage of the trend by closing their positions. This satisfies the appetites of inexperienced traders as they consolidate their positions by taking on the positions abandoned by the experienced traders.

This is the period of consolidation and the prices tend to stay calm during this period. Currency prices have moved by a large amount in the previous period of high volatility. The trend takes a short break and the volatility is low during this stage of the trend.

Fourth Stage-End of Trend: This is the time when the prevailing trend ends. After some new information is revealed about a currency that changes the opinion of the crowd, the trend reverses itself. This is the last stage of the trend. As the market players tend to absorb the information, this results in the rapid adjustment of prices within a short time.

Many stops will get triggered during this stage of the trend. Especially if they have been caught on the wrong side of the market, traders become desperate to get out of their positions. Most know that the trend has come to an end. The best way to preserve their profits is to get out of the trend as early as possible. Experienced traders had already gotten out of the trend during the aging stage of the trend. Most of the traders who are trying to get out now are inexperienced traders.

There is a sharp follow through of the prices in the reversed direction during this stage of the trend. Now you know and understand that within a trend, currency prices can experience decreased volatility followed by increased volatility as the crowd psychology keeps on changing.

You must know that sudden release of a breaking economic or geopolitical news can cause a lot of volatility in the forex market. Traders with open positions during this low period of volatility are the most vulnerable to unanticipated news. This volatility continues as long as the news is not absorbed by the market. Decreased volatility can be found during trending or ranging phases.

When the market shift from high volatility to low volatility or vice versa, this time can be used to profit from the change in volatility. During this time gains can be made from the unsuspecting players and this is known as the Decreased Volatility Breakout Strategy. Deceased volatility provides an excellent opportunity to traders to prepare and profit from an imminent change from low to high volatility.

How do you measure that the change in volatility? There are several technical indicators that can help you visualize the volatility in the currency prices. The success of this strategy lies in measuring the volatility of the forex market correctly. There are various ways to do that.

You can use triangle patterns as one of the best indicators of decreasing price volatility in the currency price charts. Combine the triangle patterns with technical indicators to confirm or deny decreasing price volatility. Two of the most useful indicators that can help you measure the volatility of the currency prices are: 1) Moving Averages and 2) Bollinger Bands.

You can take advantage of the decreasing price volatility in the forex market through identifying the triangle formations. When a particular type of triangle has been identified by the trader, a high probability trade may be in sight. All triangles show decreasing price volatility in the forex market.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Get Netpicks Forex Signals Free. Learn Forex Trading!

When prices change to a large extent within a short span of time, volatility tends to be high. Volatility is a measure of the scale of price fluctuations over time. The more the price changes during a certain period of time, the higher the volatility of the currency pair. The reverse also holds the volatility tends to be low during such periods when prices oscillate more or less close to a certain price level without deviating much from it over a long span of time.

It is the periods of high volatility that lets traders make pips and it is the volatile nature of the forex market that attracts the risk seekers in search of high returns. However, entering the market in periods of high volatility can be stressful for most of the traders as they dont know whether the trade will go their way or not. Why not concentrate on the low volatility period instead of focusing on the high volatility market.

Forex market is just people trying to buy or sell currencies. It is the psychology of the crowd that rules the market in the end. There is a tendency in the currency prices to alternate between periods of high volatility and low volatility in the forex market just like other financial markets. This recurrent pattern is due to the crowd psychology which is the force behind changes in the forex market.

You must understand how trend is developed in the currency market and how the crowd psychology affects the different phases of the trend. There are four main stages of a trend and there is a different crowd psychology behind each stage of the trend. These four stages are: 1) Nascent Trend, 2) Fully Charged Trend, 3) Aging Trend and 4) End of Trend. These four stages are closely linked to the cycle of volatility in the market. Lets discuss these stages of a trend in detail.

Nascent Trend: This is the first stage of the trend. In the beginning of the trend when the new trend just starts either upside or downside, most market players are still skeptical about the possible new trend direction during the nascent stage of the trend. Volatility is thus low as both bears and bulls tread carefully and are cautious. Nothing is clear at this stage of the trend. Market players are trying to confirm or deny the start of a new trend. So everyone is cautious.

Fully Charged Trend: This is the second stage of the trend and during this stage the trend becomes well established! The trend becomes fully charged as there is now evidence from fundamental data that supports the trend direction. The trend is in full progress and it is time for more action now. Traders who are caught on the opposite side of the market become exposed when the new information proves them wrong. They become desperate.

During this stage of the trend, a lot of changing positions will take place. Traders who were initially on the wrong side of the market become new converts to the trend. This causes the currency prices to move more dramatically within this stage of the trend. Volatility is high during the fully charge stage of the trend.

New information convinces most of the traders of the direction of the trend. Traders become convinced of the direction of the trend. Everyone wants to jump in the trend. More and more positions are established bringing prices to higher highs in an uptrend or lower lows in a down trend. Hence volatility tends to be high during this period.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

Just to remind you that forex markets are open 24 hours a day, five days a week. A market move is just likely to happen while you are asleep or in the shower as while you are sitting in front of your computer screen. Currency traders use market orders to catch market movements when they are not in front of their screens.

Trading can be very difficult without these market orders. Market orders are very critical to your trading success in the currency markets. Think of them as trades waiting to happen. If you enter an order and the subsequent price action triggers its execution, you are in the market so be as careful as possible while playing with the market orders.

Experienced currency traders routinely use orders to implement a trade strategy from entry to exit, capture sharp short term price fluctuations, limit risk in volatile or uncertain markets and preserve trading capital from unwanted loss. Market orders are essential for maintaining trading discipline.

Forex markets can be notoriously volatile and difficult to predict. While limiting the impact of any adverse price movements, using market orders can help you capitalize on short term price movements.

If you dont use market orders, you probably dont have a well thought out trading plan. While there is no guarantee that the use of market orders will limit your losses and protect your profits in all market conditions, a disciplined use of market orders will help you quantify the risk that you are taking. It will also give you the peace of mind in trading.

A number of different types of market orders are available to currency traders in forex markets. You should add the market orders to the list of questions you need to ask the broker when you open an account with a forex broker because you should know that not all market orders are available at all online forex brokers.

Take Profit Orders: When you have an open position in the market, use the take profit order to lock in profits. There is an old market saying, You cant go broke taking profits. Suppose you are short GBP/USD at 1.2354. Your take profit order will be to buy back the position and be place somewhere below 1.2334. Making you a profit of 20 pips! If you are long EUR/USD at 1.2845, your take profit order will be to sell the position somewhere higher close to 1.2875.

Limit Orders: A limit order is any market order that triggers a trade at more favorable levels than the current market price. Dont forget the saying, Buy low and sell high. If the limit order is to buy, it must be entered somewhere below the current market price. If the limit order is to sell then it must be placed somewhere above the current market price.