The best way to understand exponential moving averages (EMA) is to examine how they are calculated. Mathematically, EMAs are said to be recursive which simply means, that an EMA value depends in part on the previous value. Given EMA Mi, we wish to determine the next value Mi+1. The formula is:
Mi+1 = Mi + α (Xi+1 – Mi)
Xi+1 is the price or other value that serves as the basis for the EMA.
α is a constant less than 1 and is normally a fairly small value. Shortly, we will see how to determine an appropriate value for α.
So, let’s make sure that we see what is happening with the above formula. If the new price Xi+1 is the same as Mi, then no change takes place in our EMA. If price is greater, then a fraction of that price determined by α is added to the EMA. Correspondingly, if the price is less than the EMA, the new EMA value will decrease.
So, how do we determine the right value to use for α? The formula for α is simply:
α = 2 /(N + 1)
The symbol N represents the number period value. For instance, if we want the 9-period value for α, our formula indicates that it has a value of 0.2 = 2/(9 + 1).
We have one final detail to cover and that is how we calculate the first EMA value. The initial value is simply the initial price or X value.
EMAs are popular because the more recent values are weighted more heavily than the current value. With each update, all previous values are in effect multiplied by the quantity (1-α). So, the significance of a particular X value continues to become less and less important. Now you should see why an EMA is also known as a fading filter because the significance of all of the previous updates fades away at each update by a factor of (1-α). Note also that an EMA can only rise when price is above it and can only decline when price is below.

Looking at the moving averages used in daily charts, it can be seen that the market is comfortably above all the three moving averages and for entry, traders will look for entry points for dip towards short term moving average, around 1.5750 level and in case the move the extended (which is more expected), the nest entry level will be long term and medium term moving averages crossing each other around 1.5600 level. RSI is approaching 70 in daily charts and seems to suggest that sooner or later, GBP/USD will look to take an extended dip.

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The Eur/Usd is the most traded pair in the forex market because these are two of the most largest economies on the planet and when you put them together it provides a great deal of liquidity and interest.  Therefore the largest volume occurs in the Euro and that creates some volatile moves and at times powerful trends.

This week has proven to be a powerful trend indeed and many accounts have been hit because people have been caught by surprise. I personally hope that none of you got caught in the Euro bullish onslaught as quoted by @Xiphos_Trading on Twitter that occurred this week and if you would have been reading this blog you would have seen that I pointed a potential turn here. 

The month January can many times be an indicator as to how the entire year ahead as shown by The Disciplined Trader in a very useful video on his blog might help you come up with some trading ideas, I like Normans advice in the video to stay disciplined.

I want to thank everyone for the participation in my blog posts and I encourage you all to leave a comment below as to what your thoughts on the market are and also if these posts have been helpful.

The Euro/Usd Weekly chart is still bullish and we have had a nice run. I am not going to make any predictions this week except to say that we are still in a stron bullish move and I recommend trading with the trend so at this point I am going to be buying all significant pullbacks until I see that pattern fail and then I will think about doing something different.

Trade Idea of the week:

If you have been following the Canadian economy of late you will find that during the global crisis happening in much of the world Canada has been prospering and they have reduced debt and grown the economy.  Read this article about the Canadian economy as reported by the Pittsburgh Tribune this Sunday. On one hand Canada is prospering and on the other hand Europe and the United States are in Global Crisis.  I don’t even have to post any links about the downfall of those economies because of the headlines are everywhere, but just in case you are not on planet earth.

Here are two reports articles that talk about the current condition of Europe and the United States:

• Euro Crisis reported by the Washington Post
• 2012 U.S. Economic Outlook

Summary and Trade Plan:

The Canadian economy is good, Europe and U.S. is bad, so how should we trade? We have an incredible setup forming right now with the Eur/Cad.  The rebound in the Euro has also brought a nice bounce in the Eur/Cad, which in my opinion is a great opportunity for us Forex Traders. This is a good chance to short the bad Euro and take advantage of the strong Cad.

Lets take a look at the charts: Click on the Chart to View Full Size.

This trade could get us another 500 pips and please share it with your friends if you think there is anything good here.

Looking at the moving averages used in the daily charts, it can be seen that GBP/USD has managed to sneak above all the three moving averages and in case of retracement, it will first look to touch short term moving average, which will around 1.5640 level and then it will look to touch long term moving average around 1.5575 level.

Looking at the moving averages used in the daily charts, it can be seen that GBP/USD is above all the moving averages and around 1.5550, the short term moving averages is touching the long term moving average and this level seems to hold the key as break below that level will resume the long term downward trend.

This is Nathan Tucci and I wanted to write this article to talk about competition. Lately, I have been hearing a lot about how competition is a bad thing, and there shouldn’t be winners and losers, you can see what this gentleman says in article here:  The Case Against Competition. This type of unreasonable belief has driven us to pay workers equally when one is clearly doing a better job, and allowing both teams to win in little kids baseball. I definitely believe that there is some good in not comparing yourself to everyone, and being proud with who you are—that is a good attitude, but the fact in life is that there are winners and there are losers.. and that is a great thing.

Without competition, what would drive us to succeed? It is because of competition that newer and better technology is coming out all of the time. Look at what the competition in the Automobile industry has created because of the competition between major manufacturers.

 Competition is the reason for such advancements throughout the years. Someone along every line of improvement thought to themselves, “I can do it better.” It is that pride that you really can accomplish greatness that causes greatness to become a reality.

Competition teaches us how to win and how to lose. It forces us to be better. It forces us to become more creative. It forces us to work harder. It forces us to be smarter. It forces us to keep our eyes on the prize.

As Forex traders, especially, we should understand competition–and we should love it. Forex is all about competition; for us to win, someone else must lose and that is okay… They will have another day to beat the competition. But as a Forex trader, you NEED to be a competitor. You can’t be afraid to lose, and more, you need to love to win.

The great Vince Lombardi said, “Winning isn’t everything, but wanting to is.”

To state the obvious, what keeps traders profitable, is Winning Trades! So winning is a vital component of our trading, and we need to really go after it if we want to succeed.

The reason I have been thinking about competition so much is because (if you haven’t already heard) we are hosting a trading competition called the Currency Trader Challenege. I think every trader who hears about it should enter because it can only teach them to be better, and ideally, pay them $2500.00. The competition is a month long, starting Feb 1st and ending the 29th. We are charging 25 bucks to enter so that we can cover the prize, and I highly encourage you to enter.

The great thing about the competition is that you really don’t need to be a professional trader. This is a great competition for beginners and experienced traders alike. It will help give beginners a real trading experience without needing to risk their own funds as the traders are given a demo account to trade with during the competition. It is a great experience to build on as a trader, and because it is a small competition, even a beginner has a good shot at winning. Trust me, this is a much better gamble than playing the lottery

The competition is going to be a lot of fun for those that join. It is all demo trading–you’ll be issued a demo when you join–and we’ll be posting updates regularly about who the top traders are and how much they are making. We’ll also crown the King at our live event, which the winner will get a free pass to. We will be posting the winner’s accomplishment on our website and interview the winner about their success as well.. It should be a great competition, and over 2 grand isn’t a bad prize either.

I hope you will take advantage of this opportunity to get involved in some serious competition. There is also more info on the competition and rules listed on the sign up page.

Click Here to Join

Nathan

Sophia Todorova has a background in teaching and psychology, and as such relishes the idea of assisting new traders on their journey to Forex trading success. Technical Analysis is her passion. The charts speak, and she listens.

A few years ago a friend and mentor of mine said to me “I love to lose, because only then will I know that I am doing something wrong and need to change” After I heard this, I thought: Haha..Now I know his secret. You see, prior to this conversation, this trader seemed so fearless that I have to admit, I really envied him. He loves trading and approaches it like a game. He has his strategy, and he knows it works because he has done the necessary preparation. If he has a string of losing trades he would just keep going until he reached his maximum daily loss allowance. On the surface it would seem that he fails to take trading seriously. However that is not the case at all. He has prepared himself so well, has tested himself so many times, that he just relishes the challenge, and seeks to out-do himself time and again. He has excelled in a way that only comes from knowing there is nothing to fear from the market. And only after having done what may seem to be tedious preparation to the average trader, was he able to excel in this way. He spent five (5) years practice trading his before he attempted to risk money on the market,….That’s right..I said five years. I am in no way implying that every trader who wants to succeed should do this, but it shows the extent of his dedication, and the seriousness with which he approached trading.

The trader in the story above embodies what every trader yearns to attain, and the simple reason for his success is that he trades without the inhibiting, immobilizing fear that causes trading to remain but a dream for many others. So how can one become successful in trading by embracing losses? To answer this question, I will discuss what causes fear in the first place:

• Lack of preparation/ Ignorance: This is definitely a major contributor to fear. Every trader can attest to the fact that if they get into a trade without proper planning can cause major nerves to take over if the market were to move rapidly against his position. Trading preparedness is a mindset that needs to be developed over a period of time from the very start of one’s trading career. It is preparedness that results in self-confidence, and allows a trader to remain calm and unfazed in the face of what is often described as the brutality of the trading environment.

• Risk Management: This is not, by any means a new concept. “Only risk what you can afford to lose” That’s a very well-known cliché, but what does it really mean? Does it imply that you only risk 1-2% of your trading account at any one time? Personally, I have reservations about that ‘one size fits all’ approach. It is my opinion that a trader, even if he only risks 1%, is risking too much if he does not feel totally at ease with the potential for its loss. An array of factors should be taken into consideration when arriving at this decision. These include your track record, total disposable income, as well as your psychological state of mind, and how confident you are in your trading.

• Stubbornness/Ego: Unless you were one of the lucky few to have received the essential mentorship at the start of your career, you can probably relate to this aspect. The market is very good at humbling the trader who has an inflated ego. This ego, or stubbornness prevents you from exiting and reversing a trade when you know that you are clearly wrong. Revenge trading is born out of ego, and never ends well even if you realize momentary success. A trader might not consciously be aware that his ego is negatively affecting his trading; it most times requires self-reflection to bring it to light.

Only after the necessary preparedness can you truly embrace your fear of losing . The market is what it is, and if approached with the respect it deserves, it will likely reciprocate, and you will realize success. Be like a child. The market does speak…we only have to listen.

Thanks for reading, and I wish you a restful weekend!

Hello Traders I hope you all are having a great weekend.  Welcome to the review of the Eur/Usd pair. I have been studying the Euro Zone and the United States, economies, news, charts and data trying to give me some clues as to what is going to happen next so we can trade it After all that research I have just come up with a one word answer: Perspective: The situation in both the United States and Europe can be spinned anyway you want based on your perspective of how you view the news and data. I am actually tired of trying to figure it all out, it is a mess on both sides and I am not going to spend my time making a case for either direction because it doesn’t matter anyways because the market will change its mind as soon as I get it all figured out.

How to get on the right side of the trades:

Ok so now that we know perspective is important we need to figure out the Markets perspective on things, yes I know the market doesn’t think but it responds to how the world is viewing a certain situation. So the market is following the views of the world overall on any given entity that is being traded. In this case the Eur/Usd.  I have been calling a Euro Bounce for the last two weeks in my weekly articles I also state the the media is Fickle in last weeks report. (You can also see the charts I posted there as well.)  What this all means is that the we should follow price and Market Sentiment together.  Here is the Definition of Market Sentiment as defined by investopedia:

The feeling or tone of a market (i.e. crowd psychology). It is shown by the activity and price movement of securities.

To go back to my main point it means it is the current perspective of the people that are trying to move the markets.  This can change in a hurry, Right now all eyes are on Euro Destructions, but please do not forget that the market has a short memory and can be talking about how bad the U.S. is tomorrow. Especially since the U.S. Debt problem could actually be worse than the one in Europe, and once the sentiment changes, all you will hear is negative news about the Dollar. Now I am not saying it is going to happen it is not a prediction, but rather I would like you to begin to observe how the media flip flops, and how the media reacts to certain things.  The financial media is reactionary and they will focus on what they think is a story, that is why they are always jumping around. They will always try to find the next new thing or the next big thing, and therefore the sentiment is always changing.

Because of this lets train ourselves to look for clues as to how the market changes or how it reacts. Be thinking when hearing news try to think about different angles, try to expand your viewpoints and look at things from different perspectives.

Important: News is a joke to me and I only follow it to determine the current sentiment to help guide me in the direction of the trades I am taking.

Important: Watch Price and support and resistance, see how price reacts and then trade it in combination with the market sentiment. Sometimes it can pay off big time to be ahead of the pack when reversals are coming and sometimes it can hurt you big time because you are trading against the grain.

Current Sentiment Items that might help you in your quest to see which way the tide is turning.

• More Hints at Qe3 coming our way soon, Very bad for dollar as reported by Forex Crunch.
• US Debt is in the worst position ever as reported by Bloomberg
• Bailout Economics do not work as reported by Zero Hedge

Now to the Most important part: To the Charts!

Ok so last week I reported strong support with the weekly charts and boy did that hold up in a big way. We have an extremely strong bullish weekly candle.  I am not going to write out my analysis because the chart I prepared does all the talking.  I am going to lay out a top down analysis for you so you can see exactly how I prepare for the week of trading.

So based on the chart I am very bullish until this weekly bullish candle gets taken out to the downside. That could happen next week I do not know but I know that I am going to follow the current trend.

Take a look at the daily:

Now I am going to post two different Hourly Charts for you to look at.

One More Hourly Chart:

Summary: So that is my take on it, my strategy is going to be to watch those support zones, and look for longs when I see a bullish candle close in the direction of the new trend. I might be dead wrong, there could be earth shattering news to crush those levels. But that is my plan and I am sticking to it this week.  Please share some comments, links, ideas, etc. I want to know what you think? What is your plan, be critical ruthless evaluation is how I have improved myself, it won’t hurt my feelings I promise.

I have worked hard on this article and if you think it is worth anything to anyone please share via Social Media, Thanks.

Some other reading material that might interest you:

• An exact opposite opinion Eur/Usd  from my friend Jakob at Trade Profits (we can’t both be right )
• Technical Analysis From Forex Abode
• And Tim Knight Running with the Bulls