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Forex Trading

Backtesting Explained (Part I)

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

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

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

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.

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.

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 in term of trade execution, a trading strategy in real time may be much different from the way the trading strategy behaves on Backtesting. 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.

Automated Backtesting is very easy. 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 is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Click here to get your own unique version of this article with free reprint rights.

Forex Trading

Picking A Winner

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Penny stocks always make for some good conversation between investors. While sipping the morning coffee some talk about the huge gains they have made while others are saying it is not possible.

So while do some investors make all the money while others keep losing money? well the profitable investors do a few things different than the ones who are losing money. Lets take a look at some of the strategies the profitable investors use.

One of the first things that every good investor does is find a company who is on the verge of breaking out. Now it may be that they have found a cure for cancer or developed a new technology that will change the world. Their profit has been steadily increasing in the last few quarters. Their chart shows all the signs of an upward trend. It seems like all the signs are saying this company is a winner! however we must be very careful before we dump our hard earned money into this company.

Many companies will provide online interviews of the CEO’s, this is a great tool and helps investors to better understand the goals and plans of the company. Many investors think wrong about these types of companies. One common thing said about these companies is ” if they are so great why are they so cheap” however most companies started out small. Think about dell and apple computers, apple was started from a garage and look how large the company is today! so never underestimate the power of the small business.

Nearly all of the successful penny stock investors do all of the above. There is a way to cut down your research time, let the pros pick the best stocks for you. The web is filled with great penny stock newsletters that will deliver the best investment opportunites straight to your inbox.

Wanna know how to make money trading penny stocks? then sign up for the FREE newsletter at SmartPennyStock.Com where you will receive the hot penny stocks that will make your account grow.

Forex Trading

Choices To Use For Forex Trading Systems

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If you want to get into the field of forex trading you should check out what to do when trading. There two forex trading systems are ones that can work in many ways. They can also be implemented in a variety of ways. It helps to look into these two options when getting into the forex trading field.

It helps to know first about what a trading system does. This works in that it is a series of guidelines used for one’s individual forex trading needs. These guidelines are used with the intention of predicting how a currency will change in value. You can also work with your own limits, or parameters, for trades. By using a good system you can help to improve potential gains or reduce potential losses.

The first option is the mechanical system option. With this you will make trades in accordance with prior data. You will also see how the value of a currency pair changes with regards to parameters you have. As a result of this it can be easy for you to get proper parameters set up. When you get your parameters ready trades will automatically work for you when reached.

A notable part of a mechanical system is that this can be an automated system. This means that the trader does not need to worry about manually handling trades. With a computer program for forex trading a mechanical system series of parameters for trading can be used. When a pair is heading towards a favorable result relating to these parameters it will be handled. This helps to keep the guesswork out of trading.

Next there is the discretionary system. With this you will trade currency pairs according to changing values. You will be able to be flexible with the parameters for trading that you use. You can change them as the trading session continues. In fact you can use any limits you want when trading as often as needed.

The discretionary system is one that will be used manually. This is because unlike with a mechanical system all trades here are personally implemented. No automation is used here.

To know what system is best for one’s needs it helps to consider prior experiences in forex trading. A person who is not very experienced should start with a mechanical system. This is so it will be easier to handle trades. Over time that person can move towards a discretionary system if desired.

It will help to look into these systems with your psychological values in mind. In many cases a person may be too nervous to make a trade. This is why the mechanical system is used by some people. A discretionary system can work for those who are disciplined and are comfortable with what they are doing. Either way the system you use should be based on the discipline you have for trading.

These forex trading systems are good ones to check out. A mechanical option can work to help with getting trades handled automatically. It can also work with preset parameters. A discretionary system will work with parameters that are more adjustable. These are two good options to check out when getting into the forex trading field.

To learn more about Autotrading the Forex visit Automated Forex Trading Systems.

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Forex Trading

Fibonacci And Pivot Point Trading (Part I)

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Traders frequently use the Fibonacci retracement levels and pivot points in their trading. Many day traders are diehard fans of the Fibonacci retracement levels and the pivot points. The use of Fibonacci retracement levels and pivot points are often considered by their adherents as complete, self contained trading strategies. Why some traders are diehard fans of the Fibonacci and pivot point trading? Continue reading the article to know why!

Don’t confuse the two methods as one. I want to make it clear the Fibonacci Retracement and the Pivot Points are two different methods and must not be confused as a single trading method. Both produce mathematically derived support and resistance levels that traders may use either as indicators of possible retracement turns or as zones to watch for breakouts. The horizontal price levels that are generated through Fibonacci retracement levels and the pivot points are calculated using different methods and formulas.

Why Fibonacci retracement levels and the pivot points work most of the time? What makes these tools work surprisingly well under diverse market conditions is the simple fact that many traders both small and large use Fibonacci retracement levels and pivot points in their trading.

Therefore the levels derived from these two tools become self fulfilling prophecy. This is why significant price action occurs around these levels due to the fact that many traders are watching and reacting to these price levels.

This phenomenon contributes to the Fibonacci retracement levels and pivot points frequent effectiveness and accuracy in describing the market movement. The most common Fibonacci retracement levels are 23.6%, 38.2% and 61.8%. These three Fibonacci retracement levels are most frequently followed by the traders.

As said above, Fibonacci retracement levels are very popular among the traders. There is a full fledge Fibonacci trading method. You will hear very often, the commentary on CNBC or Bloomberg that price is approaching the 38.2% retracement level and something important like a turn could occur at this level. This shows the popularity of Fibonacci retracement levels among the trading community.

Both methods have clear cut locations for the stop loss placement similar to most support/resistance trading methods. Fibonacci retracements can be traded either as a breakout opportunity or as a retracement bounce. Fibonacci levels can also be used as profit targets for existing open trades.

Most of the technical indicators used in technical analysis are lagging in nature. Pivot points are leading indictors of the price action in the market. This makes them very useful for the traders. Pivot points are derived mathematically from the previous day’s data that includes the previous day’s high. Low and close. The main pivot point (PP) is calculated by taking the average of the high, low and close of the previous days’ price action.

From the PP, four other primary pivot points are calculated. Two are above the main PP and two are below the main PP. The levels above are R1 and R2 where R stands for resistance.

You can easily find a pivot point calculator online. Most of the charting software also can calculate the pivot points. The two levels below the main PP are the S1 and S2 where S stands for the Support. Often these pivot points are further extended to R3 and S3.

However, it is always good for the trader to know how these numbers are calculated. This will give the trader an understanding of how these numbers are calculated and what are the variables that are used to calculate them.

Mr. Ahmad Hassam is a Harvard University Graduate. Try These Cash Printing Forex Signals From Heaven! Learn Fibonacci Retracement Get a totally unique version of this article from our article submission service