Trade Dow Futures (Part II)

Stock index futures like the Dow Futures or the S&P 500 Futures are traded for speculation as well as hedging purposes. Stock-index futures are by far the largest category of futures contracts traded as a percentage of the total number of futures contracts traded. The dominance of index futures clearly speaks of the major role that stock-index futures play in risk management for the entire stock market.

Stock index futures like the Dow Futures or the S&P 500 Futures are traded for speculation as well as hedging purposes. Stock-index futures are by far the largest category of futures contracts traded as a percentage of the total number of futures contracts traded. The dominance of index futures clearly speaks of the major role that stock-index futures play in risk management for the entire stock market.

There are many advantages of trading stock index futures like the Dow Futures. Stock index futures like the Dow futures are a better option than trading individual stocks. Some of these advantages are gains in the futures markets are taxed at a lower rate than the stock market capital gains.

Globex is a 24 hour electronic trading system for a wide variety of futures contract. If something happens on the stock market overnight when it is closed and you want to hedge your risk, you can trade Dow Futures on Globex. Many futures brokerages offer lower commission rates as compared to stocks.

You are betting on the direction of the Dow Futures contract value, in this case DJIA and not on the individual stocks that make up the index when you trade Dow Futures or for that matter any other stock index futures.

In a sense by focusing on the value and the general trend of the stocks as a group, you are blocking out a good deal of the noise that is often associated with the daily gyrations in the prices of the individual stocks.

Aside from hedging, you can simply speculate with the futures contract like the Dow Futures just by using technical and fundamental analysis. Stock index futures like the Dow Futures are guaranteed to move in response to the economic indicators. You can setup positions with both futures and options as you wait for the news to hit the wire.

Any information that moves the stock indexes can be used to make profit by investing in stock index futures. Stock indexes move when economic news of fundamental nature is released. For the past many years, the monthly NFP employment report which is issued the first Friday of every month at 8:30 AM EST has been an excellent mover for stock index futures like the Dow Futures.

You don’t need to trade every major index contract in the world to be successful; you just need to find one or two with which you’re comfortable -the ones that enable you to implement your strategies.

The better off you are, the more you know about a particular type of a contract. So the best way to trade futures contracts is to become a specialist in one type of the contract like the Dow Futures or the S&P 500 Futures or NASDAQ-100 Futures.

You can use your knowledge of technical analysis to figure out how many days the Dow Futures contract tends to spend rising or falling using Bollinger Bands or Moving Averages. You can get an idea when the Dow Futures contract is likely to turn around. So by becoming a specialist in trading Dow Futures you can make a lot of profit daily for the daily movements in DJIA. This way you can become a Dow Futures swing trader. Every time profiting from a turn in the DJIA!

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Trade Dow Futures. Learn Swing Trading!

Decreased Volatility Breakout Strategy (Part III)

When you have identified the triangle formation on either the daily or weekly chart, get ready for a breakout. Each triangle type has its own directional bias. When you trade triangle breakouts, ignore any first breakout attempts whether it is to the upside or the downside. There can be three possibilities when you try to trade the decreased volatility breakout strategy.

When you have identified the triangle formation on either the daily or weekly chart, get ready for a breakout. Each triangle type has its own directional bias. When you trade triangle breakouts, ignore any first breakout attempts whether it is to the upside or the downside. There can be three possibilities when you try to trade the decreased volatility breakout strategy.

Possible Case No 1: Suppose the second breakout attempt is in the downside direction for the descending triangle. Similarly it is in the upside direction for an ascending triangle. In simple 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. You should not forget to ignore the first breakout.

Place a stop buy order at least 10 pips above the horizontal resistance level to capture the potential upside breakout in case of an ascending triangle. 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. You should make sure each side of the triangle gets touched two times at least.

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

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.

In case of an ascending triangle, ignore the first breakout attempt and make sure the triangle is touched at least two times. Since the breakout direction is opposite to the most expected direction, cut the position size to half for this trade in order to reduce risk. 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.

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

Possibility #3: In case of symmetrical triangles, there is an equal possibility of upside as well as the downside breakout. Just follow the above guidelines and 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.

Trading Decreased Volatility Breakout (Part II)

Third Stage-Aging Trend: Aging trend is the period of consolidation as the trend comes to maturity. This is the period where lot of profit taking will take place. As the momentum of the trend exhausts itself, volatility tends to decrease at this stage of the trend.

Third Stage-Aging Trend: Aging trend is the period of consolidation as the trend comes to maturity. This is the period where lot of profit taking will take place. As the momentum of the trend exhausts itself, volatility tends to decrease at this stage of the trend.

Experienced traders 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. Both the bulls and the bears are hesitant to make daring moves at this stage of the trend.

Currency prices have moved by a large amount in the previous period of high volatility. This is the period of consolidation and the prices tend to stay calm during this period. 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.

Traders become desperate to get out of their positions especially if they have been caught on the wrong side of the market. Many stops will get triggered during this stage of the trend.

The trend now reverses itself. There is a sharp follow through of the prices in the reversed direction during this stage of the trend. Now you understand and know that within a trend, currency prices can experience decreased volatility followed by increased volatility which is again followed by decreased and 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.

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 also use triangles as one of the best indicators of decreasing price volatility in the currency price charts.

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

Decreased Volatility Breakout (Part I)

Without understanding the crowd psychology, you cannot become a successful trader. Always try to understand the crowd psychology. Trading breakouts is one of the most popular ways of making pips from the forex market. Decreased volatility breakout is one of the subsets of breakout trading. While this strategy is similar to the strategy of trading breakouts, but it is specific to a certain conditions in the forex market. With this strategy, you try to take advantage of periods of low volatility in the forex market.

Without understanding the crowd psychology, you cannot become a successful trader. Always try to understand the crowd psychology. Trading breakouts is one of the most popular ways of making pips from the forex market. Decreased volatility breakout is one of the subsets of breakout trading. While this strategy is similar to the strategy of trading breakouts, but it is specific to a certain conditions in the forex market. With this strategy, you try to take advantage of periods of low volatility in the forex market.

Volatility is a measure of the scale of price fluctuations over time. Volatility tends to be high when prices change to a large extent within a short span of time. The reverse also holds 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 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 their way or not. Instead of focusing on the high volatility market, why not concentrate on the low volatility period.

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. 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 are four main stages of a trend. 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: When the trend progresses, it becomes fully charged as there is now evidence from fundamental data that supports the trend direction! 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.

During this period a lot of changing positions will take place. This causes the currency prices to move more dramatically within that trend period. Traders who were initially on the wrong side of the market become new converts to the trend.

Everyone wants to jump in the trend. More and more positions are established. Traders become convinced of the direction of the trend and new information convinces most of the traders of the direction of the trend. Hence volatility tends to be high during this period. This brings prices to higher highs in an uptrend or lower lows in a down trend. Always remember, Trend is your friend. Ride the trend as long as it lasts.

Do You Have The Forex Traders Mindset? (Part II)

Greed is a form of fear which is the fear of missing out. So you need to control and face your fears in trading. The first step in overcoming fear is to recognize the various forms of fear connected with trading. The second step is knowing how to control those fears.

Greed is a form of fear which is the fear of missing out. So you need to control and face your fears in trading. The first step in overcoming fear is to recognize the various forms of fear connected with trading. The second step is knowing how to control those fears.

Why so many people bought tech stocks during the dot com boom? Everyday their mouths would salivate on reading rosy pictures of potential gains that could be made in investing in those stocks further fueling the bubble that was going to burst all of a sudden. Have you ever thought why do so many people rush to the departmental store during the sales season? Is it is the fear of missing out. Any kind of buying mania stems from the fear of missing out. People are afraid of missing out a good opportunity. This form of fear is a kind of greed.

This fear manifests itself especially during a sharp rally or decline of a currency pair in forex trading. Suppose you are interested in choosing a good currency pair for trading. You see on your computer monitor that the EUR/USD pair is making new highs, as it keeps on going up and up.

You start imaging that by entering into the market at this time; you can make a windfall fortune. Immediately buy, buy, and buy signals start ringing in your mind. Your heart starts pounding. Your pulse gets fast. You start feeling the acute pain of not being in the market when the EUR/USD pair continues to move higher and higher. Your mouth is watering with the thoughts of making potential huge profits. You dont want to miss out this opportunity. Others cant be wrong in buying the currency pair, you reason out with yourself.

This fear of losing out hypnotizes you into placing buy orders frantically. You start thinking, Everyone is buying and I havent. I am losing out a highly profitable trade. You have some doubts at the far back of your mind but you simply ignore them. You want to ride the trend just like everyone by rushing into it headlong.

This type of trading is very dangerous. It compels you to enter into a trend very late when most of the buying has been done. The mindset, How can I not be buying/selling when everyone else is buying/selling, is extremely dangerous. Be disciplined! Be glad to think that most of the traders are pouring dumb money into buying a currency pair that is already overbought.

There will be winners and there will be losers in trading. Trading is like a game. Sometime you will win. Sometimes you will lose some of your trades. You should know that the fear of losing out is the most prominent among the new traders. They get paralyzed by the fear of making a losing trade.

New traders dont yet have the adequate skills and knowledge to help assess and evaluate trading opportunities with a high level of confidence. This leads to trading paralysis. New traders become afraid of pulling the trigger when it comes to entering or exiting a trade as they fear losing money.

Now you should not be afraid of pulling the trigger and being fearful of damaging the account based on only one trade. How to overcome this type of trading paralysis? Decide before entering into a trade, how much you can afford to lose. Use a stop loss order that is in accordance with your money management rules.

Do not get caught up feeling invincible or pessimistic after a win or a loss. It is very easy for traders to oscillate between emotional high and low. The outcome of just one trade should not affect your overall performance. Try to develop your own winning forex trading system that can give more winner than losers in the long run.

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