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Facts to Know about Rule-Based Forex Trading Systems

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Rule-based forex trading system means there shall be no guess works and proper discretion must be maintained for each and every trade by following certain rules which are already been set up. The rules must be simple and all the traders must understand the technicality of the rules. These rules are generally tough to make an outsider understand them. These rules are specific and not general and help one to understand all trading methods properly.

If you are discretionary trader you will use rule-based forex trading system but you will have the ability to be flat (sometimes you will not follow the rules) in correlation to the information that is accessible at the present time.

Many traders expect in the trading articles to read secret formulas, secret trading rules that will give them success if they follow those rules. Trading rules exist to help traders to avoid overtrading, to have edge and trading plan, increase the winning rate probability.

Rules of forex trading

Now, before moving into the rules and other things, one should follow for forex trading; let us understand the psychology behind it and some simple steps or rules one should follow for understanding the forex trading system.

1. SWOT analysis: Before doing anything, one must know themselves absolutely. Therefore, a SWOT analysis is extremely important in order to know your strengths, weaknesses, opportunities, and threats. Knowing these personality traits of yours will help you to figure out the trading measures and rules you should follow in order to rescue yourself from any monetary damages. This analysis will also prepare you mentally and emotionally, so that, you remain objective, disciplined and patient towards the tradings. Also, it helps you to have realistic expectations from the tradings done by you.


2. Goal settings: Setting a realistic goal is a tough and primary thing to do. So, you can keep a tab on your trading skills and rules. Now, financial goal setting means, sitting down with your calculator and understand the path to be taken to achieve a certain amount of financial returns from the investments you intend to do in near futures. This will also help you to understand the frequency of your investments. Also, do not forget to count some financial losses too in the trading system as we all know; investments are subject to market risks.

3. Financial status: Make sure you have a sufficient amount of cash for your regular tradings. Now, this means, you need to have enough not just for your investments but also for your daily uses and also have a sufficient amount of money saved with you for your future uses, in case of any occurrence of losses during the investments as the market remains very uncertain.

4. Selection of investments: Although, we know any kind of investment has a very high risk of losing money, saving and getting high returns from investments is always our goal. Therefore, the selection of a relatively harmonious market or investment is always important. In order to do that, choose a few currencies which relatively have lesser chances of value fall. Invest these chosen currencies in different time frames and markets for a few days to understand the movement of the in-flow and out-flow of the money. Repeat this process with other currencies as well to see what works best for you. Once you have your pair of currencies sorted, then, start reading and listening to news regarding the chosen pair of currencies and maintain a chart to understand the movement of the currencies better.

5. Testing methodology: Before jumping into the main pool, do test your methodology or system for some days by doing smaller and lesser investments of your selected currencies in the selected markets. This will give you a fair knowledge of whether your chosen method, market and currency are complementing each other or not. Sometimes, the support and resistance are not enough to turn back save yourself from a falling market, having said that, set and choose a system that can give an edge to your trading capabilities as well as is built with the concept of support and resistance.

6. Limit settings: Before starting with your forex investment, calculate and know your limit so that, you face minimum loss in case the market starts running against you. So, use the risk-to-reward formula to calculate and to set your investment limits. Now, after determining the limit, you also need to know how to stop your investments from facing losses. Always stop investing in a certain market at least 20 pips from the entry point of your investments. This process will make your investment into the standard-lot. But, in order to stop facing losses when your chosen market of investment is falling, you need to shift from the standard-lot to the mini-lot. Now, you will enter the mini-lot once you reduce the size and maintain a 2% risk-to-capital rule.

Now, in order to know out financial losses, you can also, prepare and maintain a market chart which will give you a fair idea of the movements in the market. Also, do investments into any market at least by keeping 25% of Daily Average true range (25% from Daily ATR) from the entry-level. This will ensure your 2:1 profit-to-loss ratio.

7. Dealing loss: Suppose, even after following every corner of the set rules and system, you tumble down the market slope, do not give up and be upset. We all he market is bouncy and maybe it was not your day or maybe you gave a wrong entry even after being diligent. Keep your patience and monitor the market fluctuations closely and then, head back into the market with better support and resistance.

Conclusion
These basic rules help traders to get an accurate idea of the investments and the net results. Thus, also helps one to do better money management. And in case any losses occur, then, recheck or change the technical indicators used to set the rules or the system. Often, people think by following a definite system there will be no occurrence of loss at all but if that would have been the true scenario then, traders would have been richer than their wildest dreams. So, obtaining and following a good trading system will only help you to follow your passion for trading without facing any monetary losses. You can modify some of the rules of the forex trading system in order to improvise and upgrade your skills in forex trading and tractions, once you become immensely successful and experienced in this field.

Happy trading!!

Intraday Swing

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Intraday swing trading is strategy when traders try to buy from the bottom or sell from the top against current several hours trend. The best performance traders can get if they follow major time frame trend (H4 or daily chart) and trade swing trade against hourly trend. But trader can buy or sell against major trend if price is on important level (for example yearly or monthly low or high).

Intraday swing is strategy in trading can use trend trading, swing trading and day trading combination in order to enable the trader to buy or sell any financial instrument after pullback. Swing trading do not mean only to buy or sell against major trend. But we will talk later about complicated intraday swing trading strategies.

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In the first step, we will try to analyze major types of trading.
The best strategy for beginners is to study these three main active types of trading. These types of active trading are;


-Day trading.

-Swing trading.

-Intraday Trading.

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These distinguishing factor between these three types of trading is the duration. Each represents the length of time one holds an open market position. Let us study in detail, the difference between the three.

Intraday Trading

This is the trading activity that takes place within a very short time frame, as the name suggests “intraday”. Intraday traders are mostly referred to as day traders. The trading period is mostly in the form of seconds, minutes or an hour time. The intraday traders always open and close the trade on the same date, so that they can capitalize on rapid fluctuation in exchange rates.

The intraday activity comprises of very many trade strategies to be involved since they are mostly rooted in technical analysis. These strategies include;

Scalping: scalping is a trading strategy that is aimed at the generation of profit from the slight price change in the stock price or currency value. Traders who are involved in dealing with several trading units belief that the slight change in the price of each unit of exchange leads to the substantial amount at the end of the day when dealing with several trading units. Traders practicing this method are called scalpers. They always employ an exit strategy to evade possible losses that may be incurred from continuous trading.

High-frequency trading (HFT): High-frequency trading is a kind of algorithmic mode of trading that involves high-speed trading with high turnover. this is done mostly by the use of developed electronic systems integrated with financial software. This kind of trading system always works with short term investments.

Order flow analysis: this kind of analysis can be described in the form of a game. This is a game within a game’. this is the strategy applied by the trader following the game rule’s but not based on other traders market decision.

Intraday strategy always relies on these factors so that its small profits can be used to realize maximum profits by limiting the risks.

Day trading

Contrary to intraday trading, day trading involves dealing with high volumes of trading units, identified early in the trading day and then executed session by session. The popular types of trading for daily time frame are;

Trend following: this is taking advantages of short-term, medium or long term moves that appear to be playing out in various markets.

Momentum: momentum trading is when the trader acquires and sell depending on the recent strength on the price strength.

Range: this is the strategy where a trader considers over-bought and over-sold areas. They buy the oversold and sell the overbought areas.

The day trading markets are described by inherent volatility and range, while intraday trade relies mostly on liquidity and daily analysis.

Swing Trading

Swing trading is the act of buying and selling commodities in several different sessions. The determinant the swing trading is that the positions are held through an independent session at a time. The trading takes places everywhere between six days or several weeks. The swing trader needs to adhere to the following considerations.

Carry and finance costs: this is the cost of storing physical commodities, and that can also constitute insurance cost.

Systematic risk exposure: this is the risk that can affect the entire commodities in the market. It can also be referred to as “undiversified risk”.

Account for extensive margin requirements: extensive margin is the range to which the resource is applied or utilized. An example is when several individuals carry a certain task that falls under a certain extensive margin.

Swing trading is characterized by its popular application in the determination of agricultural futures and forex. Central bank policies, seasonality and corporate earnings usually employ this policy in conducting their trade operations.

To achieve the market goals and success in trading, the choice of a trading type is the key factor depending on the available resources, the size of the market, and personal traits. However, any type of trade is applicable and productive.

Intraday Swing strategy explanation

Daily personal analysis is also a key factor in trading. Since you are the only important factor in your business you should make sure that you analyze your daily activities, your daily feelings and every deviation in profit-making and note down in your daily diary. Having these basic factors at hand, one can be able to explore different trading strategies in the trading field. Beginner traders can encounter most difficulties in deciding the kind of trade methodologies to use.

This struggle to discover different ways to get out with success, depend on how often the new trader research these three activities of trading. For the active futures trader’s research on the variety of analysis and methodologies towards the product market and exchange rates is very vital, since it is used in important decision marking like to buy and when to hold the commodity to the next peak period.

Intraday Swing strategy description:
Let we see in September 2019 on GBPUSD chart bullish several days major trend.

swing intraday major trend

If we see on 30 minutes chart, intraday several hours bearish trend we can wait price to pullback and than to make buy order like on image :
swing intraday short time bearish trend

This is example of intraday swing trade when we trade against intraday trend and follow major several days trend.

Conclusion

Have you ever thought of hitting your life goals and living your dream life? Then you should find a way to commodity trading and trade control. Investing in time-saving businesses such as forex trading or money exchange is the way to go. This kind of businesses require keen and determine traders. Risk-taking is a constituent factor and that trading discipline is a vital virtue that must apply, unlike in any other commodity trading activity.

Before we focus on the three main types of trading, we need to familiarize with the trading environment, be part of the game and participate in any activity concerning trading, and also get engaged with the factors that blend to form the trading discipline.

There are so many ways to practice disciple in trading. The most important and the first stage of trading discipline is having a trading plan in place before engaging any activity. Also, the trader must centralize all the responsibilities to himself/herself. You should be ready to face any situation and anything that might emerge against your trading activity. Always view these risks at all angles especially from the extreme scenario. This will help you to be bold enough to face any negatives that might come on your way.

Intraday swing is just one of the strategies that traders use very often in trading. If you trade against major trend you need to be careful because price need to be on very important level and need to see reaction on that price before you enter into trade. Winning ratio for swing trades is around 30%.

MACD settings for intraday trading

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In this article we developed one test, where we created one intraday profitable strategy, and than we and then we varied the values of the MACD settings parameters in several combinations. We wanted to see what is the best MACD settings for intraday trading.
basic MACD settings in Metatrader

As we know moving average convergence/ divergence or more commonly referred to as MACD for short is an indicator for trading which was created by Gerald and is used for various types of stock price technical analysis. It was developed in the last period of the 70s.

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MACD has been designed to help reveal the changes in the trend duration, momentum, direction and strength of the price of stock. Oscillator or the MACD indicator is a three time series collection which is calculated with the help of data from historical prices, it is normally the price of closing. The three series are the divergence series that is a difference between the average and signal series. The other two are signal series and average series.

Signal Line Crossover

The signal line crossover of MACD shows that the acceleration direction is undergoing change. The average velocity of the MACD line when it crosses zero indicates that the direction is being changed.

How is the MACD Indicator Used for intraday trading or long term trading?

The tool is used for the identification of moving averages which indicates a new trend, if it is bearish or bullish. The main goal of trading is to find a new trend as that is where one will find the most money and have a piece of the pie.

MACD Chart


The MACD charts shows three different numbers being used for the settings. The first number is for the periods and it is used for the calculation of the faster-moving average.
The second number of the periods is used for the slower moving average. Finally, the third number is for the number of bars which would be used for the calculation of the moving average which would be used for the difference between the slower and faster moving averages.

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Basic MACD settings

As an example, if one were to come across the default setting of the MACD parameters that are 12, 26, 9, these would be interpreted as:
Fast EMA period : The 12 previous bars are represented by 12 of the faster moving average.
Slow EMA Period : The 26 previous bars are represented by 26 of the slower moving average.
Signal SMA period: The 9 previous bars are represented by 9.

Vertical lines would be plotted and are referred to as a histogram. When it comes to MACD lines, there is a misconception. The 2 lines which get drawn do not reflect the price moving averages but rather are the difference of the moving averages between both of the moving averages.

When a slower moving average is plotted, the original line would be smoothened further, this helps provide one with a much more accurate line. The difference between the slow and fast moving average would be plotted by the histogram.
The divergence is the point where one would notice the two moving averages moving separately and the histogram will start to get bigger since the faster moving average would be moving away or diverging from the slower moving average.
The histogram would get smaller as the moving average start getting closer to one another. This is referred to as convergence since the faster moving average would be getting closer or converging to the slower moving average. This is the entire process of the Moving Average Convergence / Divergence.

Now, that you have understood what MACD does, it is time for you to know what it can exactly do for you.

MACD for Slow and Fast Moving Averages

As the fast line crosses under the slow line, a new downtrend would be identified. One would be able to notice that the histogram would disappear temporarily as the lines cross. It is due to the different in the lines when the cross is zero.
Furthermore, when the downtrend starts, the histogram would get bigger as the fast line would diverge or move away from the slow line. This is an indication of a solid trend. Let’s have a look at the examples.
Let’s look at an example for better understanding.

Our MACD intraday settings using Expert Advisor tests

Indicators :
1) MACD with several settings
2) Channel (we used our indicator but you can use any channel indicator for example Donchian channel).
3) Important level indicator. We have our indicator based on previous high and lows, but you can use Pivot points or Fib levels.

Rules :
We created several combinations and created BUY and SELL rules on 30 minutes chart :

BUY if we see bullish MACD cross or zero line cross AND price touch important level AND price is in bullish channel. Stop loss is last swing important level. Target next level.

SELL if we see bearish MACD cross or zero line cross AND price touch important level AND price is in bearish channel. Stop loss is last swing important level. Target next level.

In the first test we used 30 minutes chart and basic MACD settings. Than we repeated several tests with different combinations :
macd intraday settings and profits. Our tests.

Trade with the help of MACD

As there are 2 moving averages that have different speeds, it would be quicker to react to the movement of price for the faster one as compared to the slower one. Whenever a new trend is discovered, it would be the fast line that would be the first to react and it would cross to the slower line eventually. When the fast line begins to diverge as the crossover starts, it would move away from the slower line and a new trend would be indicated as being formed.

Crossover Example of MACD

MACD does have a drawback and that is the fact that they tend to lag behind when it comes to price since it is just the historical prices average. One would expect a bit of lag as the MACD represents the moving averages of others and it is as such smoothed out by one another. Despite this fact, it is still one of the effective tools used by most traders.

Indication of Changes in Stock or Forex Trends

The MACD series with the help of different periods EMAs are able to indicate the changes in stock trends. Normally, the fast EMA would respond much quicker as compared to a slow one. Subtle shifts can be revealed in the stock trends with the help of the divergence series.

Mathematical Interpretation

The MACD is a measure that is filtered of the price which is the derivate of the input with regards to the time in signal processing. Velocity is the term for the derivate as used in technical stock analysis. It would estimate the derivatives just like how if it had been calculated. The difference in the time constants would be discovered with the use of filtering by the 2 low-pass filters.

Just as it would have been filtered by an EMA of a single low pass exponential filter, MACD can be seen to approximate the derivative through calculation. The time constant would equal to the sum of two filters time constants which one would multiply by the similar gain. The MACD derivative would be estimated through the approximate filtering of the equivalent of an EMA filter that is of low pass.

Furthermore, the average series can also be thought of as a derivative estimate, for further smoothing would be done by the additional low-pass filter. The difference of the average series and the MACD serried would represent a measure for the second price derivate in connection to the time. The estimate would have an additional gain factor which would be equaled to the filter constant of the signal and have an additional lag.

Classification

MACD could be classified as an APO (absolute price oscillator) as it does not deal in percentage changes but instead with moving averages of the actual prices. PPO or a percentage price oscillator would compute the difference of 2 moving averages of the price on the other hand and divided by a longer moving average.
The PPO will calculate the changes that are relative to price and the APO would show smaller levels of lowered price securities and greater levels of the higher price securities. When one compares the oscillator values of various securities, a PPO would be preferred especially for ones that are of different prices.
Long term trends are ignored by DPO (Detrended Price Oscillator) which are another member of the price oscillator family. Instead, short term patterns are emphasized.

Trading Interpretation

EMAs highlight the current changes of stock prices. The MACD is able to gauge the changes in stock trends by comparison of the different lengths of the EMAs. The difference of the average that is claimed by the MACD and the MACD series helps reveal the shifts in the direction and the strength of the stock trends. It might even be necessary to correlate the indicators of the MACD to signals such as the RSI power.
There are some traders which would attribute importance to the MACD line that crosses the 0 axis and the MACD line that crosses the signal line. Importance is also due to the disagreements between the difference line or the MACD line as well as the stock price.

Signal-Line Crossover in our tests

It happens when the average lines and the MACD cross meaning that when the divergence would change its sign. The interpretation of this would be that it would be recommended to buy as long as the MACD line crosses over the average line. These events indicate a trend in which the stock would accelerate towards the crossover.

False Signals in our tests

It is possible for there to be false signals just like any other forecasting algorithm. It would be prudent to apply filters to the signal line crossovers. Different approaches are used by analysts to find the right results.We choosed our trading rules. You can make any test using its own strategy. Each strategy will have false signals.

Thoughts

We think that the best success we can get using standard basic MACD intraday settings because most “big dog” traders and institutions use this settings. In our test we got similar results but basic settings made the best results.

Swap Points and Its Importance in Forex Trading Strategies

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In this article we will write how to calculate swap points and their importance in forex trading strategies.
Swap Points and Its Value in Forex Trading Techniques

Fx Swap points or currency swap points is the difference between the spot rate and the forward rate in currency pairs that are indicated in pips. Normally this is carried out for a certain type of a currency pair which you want to trade.

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Within this a financial concept called Interest Rate Parity is used to calculate the points. This concept reveals that after investing some money and after getting the returns for different foreign currencies you have to make a comparison with the interest rate without doubt.

Forward dealers using this concept identify swap points in Forex currency trading simply by considering the advantage or the net cost when borrowing and lending currency mathematically over a period of time covering the forward delivery and spot value date.

How to calculate swap points – formula

Forward Prices, Swap Points in Forex Trading

To be able to calculate the based currency of forward rate with U.S dollar the equation below can help you:

Spot Price x (1 + Ir Foreign) / (1+Ir US) = Forward Price

Where “Ir Foreign” means the rate of interest for counter currency, whereas, “Ir US” indicates the rate of interest in the United States. Using this equation you can calculate the swap points, now you are able to get:

Forward Price – Spot Price =Swap Points

Spot Price x (1 + Ir Foreign) / (1+Ir US) – 1)

Rollover Swap in Currency Pairs

To be able to understand the equation and how it works for rollover swaps you have to carry out a practical example for calculating the fair value.
Being aware of the deposit rates of Interbank for each currency pair you want to deal is extremely important. You have to know the predominant terms based on the time period of the Interbank. After learning the terms you can compute the swap points for the currency pairs you want to deal by creating the base currency with the U.S. dollar by using the equation above.

By discovering the interest rate of the currency pairs you are able to furthermore calculate the rollovers. Being aware of the rollover from the delivery date to the following day where you can carry on doing business in the foreseeable future is certainly one of the best examples of rollover swap.
You can also make and crank out money using the interest rate of currency pairs that you buy and keeping them for a long time if the rate of interest is 0.25% U.S. Dollar for a short period of time. Because the interest rate is 5% for Australian Dollar for short term the currency held is short and you have to pay the interest rate for the currency pair.

A variation in the interest rate of 4.25% of currency pair is annualized in the rollovers. And you adjust to the specific time frame by implementing the tomorrow/ next swap rollovers for 1 year if you aren’t trading with rollovers.
Keeping an overnight position for a short AUD/USD there will be a variation in interest rate of 4.25% annually that is divided by 360 for a dealer as a rollover fee. Plus for a rollover period of one day is represented by 30/360. And for a day rollover swap it’s represented by tomorrow/ next rollovers.

By multiplying the sum of the transaction with the interest rate for tomorrow/ next period you’ll get the rollover fee of currency pairs. And by converting the currency into AUD/USD to get fair value price retail brokers usually charge the rollover fee in pips.

Holding a long position to get the sum equal to the AUD/USD dealers would try to rollover for a long term deal. But because of the downward offer spread by the Forex broker agents the amount received will be less. Find more answers read articles about “Usage of basis swaps for hedging”.

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