Stocks & Commodities V. 31:9 (32-36): Beating The Currency Markets by Azeez Mustapha

Stocks & Commodities V. 31:9 (32-36): Beating The Currency Markets by Azeez Mustapha
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Beating The Currency Markets by Azeez Mustapha

Make It A Graceful Exit

It may seem impossible, but it can be done. Find out how.

Trading with the flow of the markets means entering highreward and low-risk settings, and taking a small loss if something goes wrong. We often think that a small loss will be sustained when trying to pinpoint a turning point in the market, but that may be unrealistic, especially if the supposed turning point becomes spurious. How can you overcome this challenge by using a few popular indicators? How can you recognize true dips or rallies in the context of an ongoing trend? How can you recognize a trap that may plunge you against a serious reversal? How can you exit properly and safely? This article will try to answer these questions.

It is well known that buying the dips in an uptrend and selling the rallies in a downtrend offers the best trading probability. Hence, the strategy discussed here trades pullbacks only (not breakouts).

Some people like to do nothing but trade. They are soldiers, pure and simple, on the battlefield of the financial markets. For them, trading has become a calling. However, each trader’s mindset differs, and studies have shown that most traders spend more time in positions that are showing positive returns.

Indicators and open trades

The market can be in one of these three phases:

* A bull market, where buyers gain the upper hand

* A bear market, where sellers gain the upper hand

* A ranging market, where supply & demand reach equilibrium.

Historical data may be adequate to measure past price behavior, but price will do what it wants. It may move up, down, or sideways. When we place an order, our portfolio is subject to pecuniary uncertainty, and our temperament is also on the line. Staying glued to the screen as you monitor open positions (for example, when there is negativity) may undermine your fortitude. Staring at your screen and wanting a negative position to turn positive has nothing to do with what the market is really doing. In fact, monitoring your trades 24/5 will only entice you to carry out irrational reactions that may untimely have an adverse effect on your trading.

The indicators used for this strategy are the linear-weighted moving average (LWMA) and the commodity channel index (CCI). More specifically, these indicators are the following:

* 30-period LWMA

* 50-period LWMA

* 14-period CCI

For details on how to calculate the LWMA, see sidebar “Linear-Weighted Moving Average.” The CCI is an oscillator developed by Donald Lambert in 1980 to indicate whether a trend is beginning or ending.

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