I came across quite an interesting site this week that I thought I’d mention to you for two reasons.

1. The FREE information the site offers is quite interesting and certainly worth your attention.

and…

2. The site owner, Mark McDonnell, has a very interesting style of customer service.

Forex Early Warning http://www.forexearlywarning.com

The basic ideas that the site offers are nothing new and are certainly not revolutionary. They center around the idea of a heat map of the 8 main currencies: USD, EUR, GBP, CHF, JPY, AUD, NZD and CAD. The heat map the site offers is web based and is split into two sessions, Asian and European/American. It simply shows a percentage change from the start of each session up/down of the ATR(14) for each pair. Pairs are grouped together so that you can easily see if, for example, the USD is strong or weak. You can get similar tools for free of course. The best one I’ve found is over at Forex Factory.

There are a whole bunch of resources and articles on the site that revolve around how to usefully use the heat map.

You can check out the heat map yourself for free for 30 days after which time it will cost you $20 a month for the privilege. You also get two ‘trading plans’ each day which are nothing more than a long winded explanation of which currencies are strong/weak and where the support and resistance levels are. To be honest you don’t really need this information as it’s blatantly obvious where the support and resistance levels are if you just look at the chart.

Beware though when you sign up! If you don’t give Mark your full mailing address and phone number you’ll get a curt email demanding that you provide it just like I did.

“Steve please verify your email address that you used for forexearlywarning and give us your full street address and phone number.”

Then if you make the cardinal sin of asking why a site that you only signed up with to check out what they have to offer needs your mailing address and home phone number you get an EVEN more curt response.

“In the United Stated(sic) we have anti terrorist laws and laws against money laundering, also we contact you by phone for your new users orientation. A full profile filled out qualifies you for customer service. If you have questions we will nto(sic) respond unless we have your full information suite.”

Mark forgot to use my name and made a few typos in that response. Guess he’s too worried about the hordes of Al-Qaeda members flocking to his site to launder money!!!

Mark also runs a yahoo group for trend traders that I thought I’d check out and I tried to post an innocent question on the group regarding the latest DVD of one of his seminars that he was trying to peddle. I simply inquired as to whether there were any short samples of the DVD so potential buyers could see the quality. Needless to say my audacious question never made it onto the ‘open’ group. Instead I got yet another friendly email from Mark.

“theforexheatmap.blogspot.com/2009/12/summary-of-forex-video-resources-from.html

Steve here are all of the video resources, they are all free except for the $34.99 DVDs on my web site.

If you are interested, buy them, if not don’t.

Steve be realistic, some people charge $3000 for DVDs. Yes they are high quality and so is everything else we do at forexearlywarning and I think you know that.

Mark M”

After my interaction with Mark I went ahead and wrote my own version of the heat map so I could run it directly from within metatrader. I also added alerts so I would be signaled when a particular currency started showing strength or weakness. Now I have no need to bother Mark ever again and I can leave him to get on with the daunting task of combating World terrorism and thwarting those nasty money launderers.

My advice would be to check out the site, take all the free information on offer and then grab some free tools and test the concepts out for yourself. Don’t give Mark one single cent of your hard earned cash.

UPDATE: I received this empty and baseless threat from Mark a few days after making this blog post.

“Steve it appears that you have places (sic) copyrighted materials of mine on your website. I have the snapshots of the material with the URL.

http://www.automatedtradingsoftware.com/blog/

You were not given permission to do so by the copyright owners. Please remove all copyrighted materials and let us know when you are finished removing it.

Now you know why we asked so many questions. You can continue to make us out to be bad people but be careful with the language and remember you may have violated a a (sic) law, and we wont be blogging about that anywhere.”

It’s obvious Mark is no lawyer as their is nothing in this post that infringes anybody’s “copyright”. The image, which I guess is what he’s referring to, was found via Google image search. Maybe Mark should work more on his people skills and spelling/grammar than playing at being a lawyer or a DHS agent.

That said the basic idea is quite simple and makes a great deal of sense and I’ve found a great indicator to make it even easier with MetaTrader 4.

Point & Figure charts allow you to see the movement of a currency in terms of price rather than time, which is what we’re used to with candlesticks etc. When price moves a pre-determined amount of pips a new box is drawn and if it moves against us a pre-determined amount of pips boxes are then drawn in the oppoiste direction.

An image may be useful here so take a look at this trade I took a few days ago and hopefully it should become clearer.

From the image above you can see where I entered the trade based on one of the patterns that P&F uses. This great indicator gives alerts and warnings as patterns are forming and when they become fully formed. This was the most common, and to be honest the only one I really look for, the “Triple Top/Botton”. When price breaks by one box you enter with a stop loss placed at the top/bottom of the set of blocks that created the triple top/bottom plus one box. Take profit is up to you but I have just been using a straight 1:1 risk reward.

I’ve only been testing this particular indicator for the past two weeks which isn’t really enough to get too excited about but I must say the results have been impressive which is why I wanted to share it with you. I found the indictor on Forex Factory but had to edit it to allow for 5 decimal places.

Here’s how the trade turned out…

Another simple, stress free trade that turned out profitable. Of course not every trade will be a winner but it’s amazing how just observing movements in terms of price and removing the distraction of time can give you a much better ‘feel’ for the currency. If you feel the price isn’t going the way you want it to you can just bail out with a small profit or minimal loss and wait for the next trade.

Here’s the indicator for you to test if you’re interested.

Point & Figure Inidcator for MetaTrader

I place it on a 1 minute chart with a box setting of 5 and a reversal of 3.

Good luck and hopefully you’ll enjoy success with this indicator.

I’ve found a really nice  free ebook written by Tom Williams that explains everything about VSA. It’s a thinly veiled plug for the Trade Guider software but it does offer a very in depth and detailed view of VSA and the methods involved. It’s simply a MUST read for anybody serious about VSA.

I’ve uploaded a copy for you here so please take advantage of it. The writing is a bit stodgy in parts but the lessons Tom teaches you are invaluable so it’s worth persevering with trust me! (If for some reason the link isn’t working there’s also a copy to be found in the first post in the VSA thread I’m following below)

Also there is a very interesting and educational thread going on at the moment over at Forex Factory which I would encourage everyone to checkout.

You can find it here.

Personally I’m finding my research into VSA very interesting and I’m sure it will benefit my trading. I hope you’ll find it useful too and that it will help you to become a better trader.

Good luck!

Steve

A typical scenario which occurs for most traders is they enter a trend with their currency trading signal the price retraces, takes out their stop and then the trend immediately goes back the way they thought, piling up thousands of dollars and their not in!

If this has happened to you, you’re not alone. Most traders have this problem and volatility is the cause.

Of course prices don’t trend in a straight line otherwise currency trading would be easy – they constantly retrace against major trends. Quite simply, you need to employ money management rules to keep you in the major trend and not get stopped out so here are some tips.

1. Don’t Trade the Market Noise

If you want to avoid getting caught by random volatility avoid short term trading strategies such as forex scalping or day trading. All volatility in a day is random. So if you place stops using daily support and resistance you are wasting your time.

Forget day trading and look at long term trend following.

2. Be Selective

You don’t get paid for how often you trade you get paid for being right with your trading signal and getting your market timing right. The big high odds trades don’t come around every day and you need to be patient to wait for them. I know traders who trade less than a dozen times a year, who make triple digit gains and you, can to.

You will also find many of the best trading moves come from breakouts and you need to look for these.

3. Use Breakouts.

Most major trends start from breaks of highs and lows and pick valid ones (check our other articles for more information on breakouts) When a break occurs your stop is obvious below the breakout point. If the breakout continues do not trail your stop to close! This is the major error of most traders in any form of trend and we will discuss this next.

4. Moving Stops

Most traders fail to win because they trail stops too soon. They want to restrict risk so much they create it by bringing their stop within normal volatility and getting bumped out the trade.

Make sure you leave your stop until the trend is well underway and trail outside of random volatility.

A good way of doing this is using the 40 day Moving average as a stop. Sure you miss a bit of the trend when it turns – but you can’t predict that anyway, so there is no point in trying. If you caught 50% of every major trend you would be very rich.

5. Deciding Risk per Trade

Today you can get leverage of 200:1 or more but for a small trader to use all of this is madness.

Sure your gain will be huge – but your stop has to be so close, you are guaranteed to get stopped out. De-leverage and use 10 or 20:1 and risk more per trade.

In forex trading you have to take a risk and you need to be outside of daily volatility with your stop, or you’re going to lose. Risking more to your stop means your chances of winning are higher, if you hit high odds trades and that’s what you need to do.

Volatility can destroy your account quickly, if your forex money management doesn’t handle it.

The above tips will work. In the next series of these articles we will look at how to measure volatility and look at standard deviation of price, which is essential forex education for any trader and a great tool to help time trading signals – the Bollinger Band.

Many traders think forex money management takes care of itself, it doesn’t and you need to get protection for your trades and deal with volatility to win.

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