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Backtesting any trading strategy allows a trader to simulate its expected performance using historical price data. With Backtesting, traders can actually test their trading strategies and know how well they would have done if executed in the past.

Now an important question that comes to anyone’s mind is what type of a trading strategy can be backtested? Any trading strategy that does not have any ambiguity in its rules can be backtested effectively. Example of a simple trading strategy that can be backtested can be as follows.

When the DMI+ is above DMI- and the MACD histogram has crossed above the zero line, go long when the 5 period moving averages has crossed above the 20 period moving averages.

When the MACD histogram has crossed below the zero line and DMI- is above DMI+, sell short when the 5 period moving averages has crossed below the 20 period moving average.

This one example is just meant to illustrate that any trading strategy having clear cut rules can be backtested with the historical data. However, using the past price data to simulate future results often misleads traders into thinking that their backtested results will also give into similar results in actual real time trading.

There is much difference between live trading performance and the backtested trading performance. Many potential factors can and will make hypothetical performance and actual performance differ significantly. So you should not fall into the trap of thinking that Backtesting may be a perfect method for identifying the most profitable trading strategies.

A trading strategy that may have worked very well over the past three years may work in an entirely different manner for the next three years as the market changes and evolves. One of the most important facts that you should always keep in your mind is that market change considerably overtime.

Technical indicators also need to change with the market. Do you know that often technical indicators that have been giving profitable signals in the past are subsequently unable to replicate their performance in the future? This may frustrate you. But this is exactly what makes trading a challenging endeavor.

Secondly, real time trading and trading with the past historical price data are two different things. A trading strategy in real time may be much different from the way the trading strategy behaves on Backtesting in term of trade execution. These differences can potentially skew the results.

However, Backtesting is still the best available method for evaluating a trading strategy without actually trading it in real time environment. Backtesting can provide a trader with a reasonable expectation of the trading strategy’s potential worth and usefulness.

Backtesting can be done by using two methods. The first one is the automated Backtesting. This is the most popular method. Automated Backtesting entails using a specialized program. The trader inputs the specific rules and criteria for the trading strategy into the Backtesting program.

An entire picture of the past performance is created with the help of that software program. The software automatically applies those rules to the past price data and tallies the past hypothetical profits, losses and other information.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Grab a totally unique version of this article from the Uber Article Directory

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Point and figure trading in many ways is similar to the support and resistance breakout trading on bar or candlestick charts. The main difference is the look and functionality of the price charts themselves!

Point and figure charts represent price in a radically different manner from the more familiar bar and candlestick charts. Many forex charting platforms provide the option of point and figure charts.

Point and figure charts are a pure price action play because these charts generally exclude all other elements like time, volume and open/close other than price. Point and figure trading is based exclusively on price action.

Technical analysis is the study of price action. Technical analysis is used to predict or confirm an uptrend or downtrend or a consolidation in the market. Point and figure charts represent clear evidence of such important technical characteristics like trend, support/resistance and breakouts. Thus a point and figure chart focuses on the behavior of price action which is the most important factor from the technical analysis point of view.

A point and figure chart is constructed with a column of boxes alternately labeled with Xs and Os. An X column means that the price has risen in that column. Conversely, an O column means that the price has declined in that column.

A new column is created going in the opposite direction when a reversal occurs on any column. Only when price moves a significant amount regardless of time will an existing column grow or a new column is created. So there is no time, volume, opens and close on point and figure charts.

Two variables can alter the way the point and figure charts look and act. The first variable is the box size. This is the minimum amount that the price is supposed to move before a new box in the existing column is created.

X is equal to fixed price increase. Each X denotes a rising trend. For example, if a column of Xs has 10 boxes, price would need to move an additional amount equal to the preset box size before another X would be added to the top of the column.

You can use the charting software to do the actual drawing. However, you should understand the concept behind the point and figure chart. Suppose, you are using the point and figure chart. You set the box size on the point and figure chart to be equal to 10 pips on the point and figure charting software.

X column and O column. In an X column, the price would have to move another 10 pips above each X box before another X could be added on top of that X. On the other hand, in an O column, price would have to move 10 pips lower than the each box in O column to add another O box on the bottom of the column.

The second important variable is the reversal amount. How do you decide to add another column to the point and figure chart? It depends on the reversal amount. This is the amount of pips the price needs to reverse before a new column is created.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Grab a totally unique version of this article from the Uber Article Directory

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Divergence trading is one of the ways to trade the market. Though divergence trading is not often used but if used correctly it can be highly profitable. Divergences are often used as important trading signals. But it doesn’t mean that divergences will always predict a reversal correctly. Price oscillator divergences have long been acknowledged by technical traders as a solid indicator of potential price reversals. Well defined divergences particularly on the long term charts can be surprisingly accurate in many instances.

Have you used divergence before in your trading? In case no than let’s me illustrate what a divergence is. Price divergence oscillators can be spotted with just two elements on the price charts. Catching a major price reversal at the correct time can be so profitable that only a few accurate divergence signals are needed to offset the inevitable false signals.

How do you determine a divergence? There are two elements in a divergence. The first element is the price and the second element is an oscillator that runs either above or below a price level. This second element can be Stochastics, RSI, MACD or any similar oscillator.

The Moving Average Convergence Divergence (MACD) is among the most popular technical indicator or an oscillator invented. Many traders use MACD as their sole confirming indicator.

MACD acts as a sign of trend momentum by representing the relationship between two moving averages. MACD is a multifaceted indicator. Some traders also take trading signals exclusively from MACD.

You must have used MACD in your trading. MACD is basically the difference between two moving averages. MACD can be traded by taking signals from the crossovers of two lines, crosses above and below the zero line. Relative Strength Indicator (RSI) is another popular oscillator that provides a measure of price momentum.

RSI is an indicator that gives overbought and oversold signals in ranging markets. However, its usefulness like most other indicators tends to diminish during a trending market. RSI may also be used for divergence purposes. Stochastic indicator may also be used for divergence trading.

Technically speaking what is a divergence? When there is an imbalance between the price element and the oscillator element a divergence occurs. This is the point when the oscillator is providing a strong hint that price may be losing its momentum and a change in price direction may therefore be impending. Both the price action and the oscillator begin to go separate ways and start telling opposite stories.

A bearish divergence is a hint for an impending reversal back down. A bearish divergence occurs when the price hits a higher high while the oscillator hits a lower high.

What does a bearish divergence means? It is an indication that price may soon turn and go back down as the higher high in the price may lose its momentum and begin falling in case of a bearish divergence.

On the other hand, a bullish divergence hints at an impending reversal back up. A bullish divergence occurs when price hits a lower low while the oscillator hits a corresponding higher low.

Divergences are often used as hints of possible turns and reversals. However, divergences are not frequently used as a full fledged self sufficient trading strategy. When used in conjunction with other trading tools, divergences can be a remarkably effective method for helping to time major market events.

Mr. Ahmad Hassam is a Harvard University Graduate. Try These Cash Printing Forex Signals From Heaven! Learn Fibonacci Retracement Don’t reprint this exact article. Instead, reprint a free unique content version of this same article.

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There are a number of pivot points that you need to calculate. How is the pivot levels calculated? Beginning with the main Pivot Point that is calculated from the previous day’s key price points, the resulting support and resistance are subsequently derived from the following calculations:

Resistance 1 R1 = 2PP- Previous Low. Resistance 2 R2 = PP + (R1-S1). Resistance 2 R3 = Previous High + 2(PP-Previous Low).

Main Pivot Point PP = (Previous Low + Previous High + Previous Close)/3.

Support 3 S3 = Previous Low-2(Previous High -PP). Support 2 S2= PP- (R1-S1). Support 1 S1 = 2PP – Previous High.

Now most of the trading software has the inbuilt function to calculate the pivot point for you. The main pivot point can be calculated for any time interval. The main pivot point is very important. After calculating these pivot points they are plotted on the currency price chart. Trader’s can calculate the current day’s pivot points using the above formulas based on the previous day’s price data.

Breakouts or bounces may be traded with pivot points. Once these pivot levels are calculated and plotted, they are used in much the same way as Fibonacci Retracement. These pivot points are often also used as profit targets. Pivot points also indicate whether the market sentiment is bullish or bearish. Traders also use pivot points as reference levels to provide information as to whether the current price is relatively low or relatively high within its expected price range for the day.

S1, S2 and S3 as well as R1, R2 and R3 are used as references in pivot point trading. For example, traders may look for long trading opportunities with the view that the price will reasonably move towards equilibrium around the main PP level if the price is near the day’s S2.

Pivot point trading can be adapted to any time frame. This makes it a highly reliable method of analyzing the market. Many traders use different time frames in their trading decisions. You can also calculate the pivot levels for a week and for a month time frame too. Instead of calculating the pivot points for the current day you can also calculated the above levels for 4 hour charts as well as 8 hour charts.

When calculating the pivot points for the other time frames just replace the day’s highs, lows and the closing prices with the appropriate time frame highs, lows and closing prices. Both Fibonacci and Pivot Points are excellent technical tools that often encompass entire trading discipline in themselves.

The pivot point can become the target low for the trading session in an extremely bullish market condition. This number represents the true value of a prior session. It is important to understand that especially in strong bull or bear market conditions, it can be used as an actual trading number in determining the high or the low of a given time period.

Traders will step in and buy the pullback until that pivot point is broken by prices trading below that level. A retracement back to the pivot will attract buyers if the market gaps higher above the pivot point in an uptrending market. The opposite is true for the pivot point will act as the target high for the session in an extremely bearish market condition.

Generally prices come back up to test the pivot point if a news-driven event causes the market to gap lower after traders take time interpreting the information and the news. Sellers will take action and start pressing the market lower again if the market fails to break that level and trade higher. Technically speaking, in a bearish market, the highs should be lower and the lows should be lower than in the preceding time frame.

Mr. Ahmad Hassam has done Masters from Harvard University. Try These Cash Printing Forex Signals From Heaven! Learn Fibonacci Retracement Grab a totally unique version of this article from the Uber Article Directory

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Candlestick charting methods had been developed by Japanese rice traders hundreds of years back. However, candlesticks have become popular in the Western trading community especially the United States in the past decade.

Internet made possible the availability of online trading to retail trading. The advent of internet has leveled the playing field for traders whether they trade stocks, futures, options, commodities, precious metals or currencies. In the last two decades there have been seismic changes in the way people used to trade. Access to the market is now only one mouse click away. Trade just by clicking your mouse!

The opening of retail trading especially in the currency markets that was previously only open to large players like big banks and corporations has been a revolution. Market information is now in most cases freely available online. Internet has made commission rates dramatically lower. The result is that a whole generation of new traders and investors want to try their luck beating the market. You can now demo trade with virtual money to develop and hone your trading skills.

Did you attend the last Steve Nison Candlestick Charting Technique webinar? Now, you should. Steve is the master of candlesticks and you can learn a lot from attending his candlestick. I am a great fan of candlesticks charting and I have seen many traders both new and professionals becoming die hard fans of candlestick charting. Why? Because candlestick charting is the best tool available. Can you beat the market? It depends if you are using the right tools.

On your trading platform provided by most of the online brokers you will find various types of charts. There are many forms of charting techniques that have been developed over time. Why candlestick charting is superior to other forms of charting like the line charts, bar charts or point and figure charts? One of the best features of candlestick charting is its visual appeal and readability. You can glance at a candlestick chart and quickly gain an understanding of whats going on with the price action in the market.

Knowing support and resistance is very important for traders. Opening and closing price levels can be a very important area of support and resistance from day to day. You can easily spot and opening and closing price of a security or currency on a candlestick chart.

This information can be extremely useful for short term traders like day traders and swing traders. There are certain specific candlestick patterns that can help you identify when is the best time to buy, sell or wait on a trade or investment.

These candlestick patterns can be a real boon to your trading and you can combine them with other technical indicators for even more reliable results. Now in order to trade and invest effectively using candlestick charts you need to understand these candlestick patterns.

A trader needs to keep abreast of what is happening in the market. Many different types of candlestick patterns can tell you what may lie ahead in the market. Patterns appear on the candlestick charts as simple, single stick occurrences or complex multi stick formations.

This information can be highly valuable in knowing that the prevailing trend might reverse or continue. You may use the information provided by candlestick patterns to decide when to get into a trade, when to get out of a trade or even when to hang unto a trade you are already in.

Download your 82 page candlestick guide here complete with strategy flash cards all free. This is the best candlestick guide in the market and you dont need to waste your money on buying a guide because this candlestick guide is a complementary gift for you from the Options University.

Mr. Ahmad Hassam is a Harvard University Graduate. Try These 1500 Pips A Day Forex Signals From Heaven. Download Your Free 82 Page PDF Candlestick Guide! Get a totally unique version of this article from our article submission service

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The spot forex market is a decentralized network of buyers and sellers. There is no physical central exchange that acts as a central clearing house. The spot forex market is an over the counter market.

Stocks, options and futures all are traded on centralized exchanges with a clearing house as the intermediary. This brings a lot of order in these markets. Unlike the forex futures trading that is carried out through the exchange like CBOT, CME etc, over the counter in spot forex means that the buyers and sellers make a binding contract with each other after agreeing on the price and this is not carried through an exchange. The buyer and sellers can agree on any price!

There are several advantages of a central exchange like the counterparty risk for the trades is reduced. There is trading anonymity something that big players want to hide their trails. Forex traders in the spot forex market carry out their activities by dialing directly with one another or through brokers on telephone or internet.

In 2007, Chicago Mercantile Exchange (CME) along with Reuters launched FXMarketSpace; the worlds first centrally cleared global forex market place. In this centrally cleared system, CME will act as the clearing house and guarantee the performance of all the contracts for both buyers and sellers.

Only sophisticated investors with net worth of more than $20 Million can trade on the FXMarketSpace. Unfortunately FXMarketSpace is an institutional trading platform and is not open to retail forex traders.

There are many players involved in the spot forex market. Recently NFA (National Futures Association) had also passed certain new rules that make it more skewed against the small investor like you and me. The spot forex market is still skewed against the retail forex trader. Why is it so?

With the advent of the internet, it became possible to introduce trading platforms for the retail investors. Previously spot forex trading was the playfield of the big banks, multinationals and the hedge funds.

The forex market differs from other traditional financial markets. Things deemed illegal in most of the other financial markets are simply considered part of the game in the forex market. Insider trading, front running, price shading etc are all regularly seen in forex trading and have no legal repercussions whatsoever. Retail spot forex is seeing a lot of growth in the recent years. A mushroom growth of online forex brokers took place. Many did not have even enough capital with them to start the brokerage business. Most of these forex brokers behave like bucket shops. But this is the way; the spot forex market has developed over the years.

Why these players trade forex? What type of advantages they have over the retail forex traders? It is essential for you that you understand the nature of the spot forex market and who are the main players. Off balance sheet earnings are the declared aim of most banks and spot dealing in forex which represents a high loss potential but practically no credit risk falls in that category.

Over the counter (OTC) means that the spot forex market is spread all over the globe with no central location! Over the counter nature (OTC) of the spot forex market means that currency transactions do not take place at any single place. No government oversight and no central deal book to compare trades means that the banks can pretty much do whatever they want to their unsuspecting customers.

In order to understand a banks motivation for get involved in spot forex trading, all you have to know is that by combining large forex dealing desk with a decent trading group, you are talking about billions of dollars in profits. A players access to the spot forex market depends on the quantity of transactions of large amounts of money. Players in the spot forex market range from those who trade billions of dollars daily to those who only trade just a few thousand dollars daily. Now these are the main players in the forex market against whom you as a retail forex trader will be competing.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try These 1500 Pips A Day Forex Signals From Heaven. Develop Your Own Forex Trading System!

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