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"url": "https://www.pagoolabs.com/stories/api/42/?format=api",
"id": 42,
"title": "Managing a Futures or Forex Trade with Margin and Target Price",
"slug": "the-basic-setup-part-5-manage-that-trade",
"status": 2,
"publication_date": "2017-10-24T03:35:01Z",
"lead": "What is the role of margin and how do we manage the trade setup so we can then sit back and let the trade work for us?",
"excerpt": "Learn how to trade Futures and Forex markets. Understand margin, trade management and position sizing.",
"poster": "SeanManefield",
"content": "---\r\n\r\n#### **Part 5 - The Conclusion of The Basic Setup**\r\n\r\n##### **Margin**\r\n\r\nBefore concluding our discussion of the basic trade setup I need to say a few words about margin. The stop loss being triggered is not the only reason your broker may close out your position. You will also be closed out if the remaining funds in your account, less the marked to market losses from a losing position, fall below a given amount. This amount is called the **`maintenance margin`** and it varies by contract as well as changing over time.\r\n\r\nEach day your broker will mark-to-market your open positions. It is as if you closed the position, recognized any gains or losses at the day's closing price, and then immediately reopened a fresh position at the same price without paying commissions. Those gains and losses accumulate in your account and, if negative, your account will fall in value. Each open contract has a maintenance margin requirement and you must keep at least that amount of funds in your account.\r\n\r\nThe exchanges and regulatory authorities set the minimum margin but your broker may set a higher percentage to protect itself and its other clients from losses arising from your account. It is your job to familiarize yourself with the **`initial and maintenance margins`** of all the instruments you trade.\r\n\r\nAt the current price of gold at around $1280/oz, a contract of 100 ozs would cost $128,000 if you paid the full price. However the current initial margin requirement per contract is only $4,300, or just under 3.5%. That means you need $4,300 in your account for every gold contract you open. The maintenance margin, which applies after you have opened the position, is around $3250 or 2.5%. Your broker may set a higher amount. If you only had two open contracts then you would not fall afoul of the margin requirement since you would have $98K still in your account even at the SL price. That's more than enough to cover the $6,500 maintenance margin (2 x $3250).\r\n\r\nHowever if you opened 20 contracts and your risk was $2000 per contract then at the SL price you would be losing $40,000 from your account leaving only $60,000. Since that is not enough to cover the $65,000 maintenance margin ($3,250 x 20 contracts) you would have already received a **`margin call`** from your broker. In many cases, they would automatically close the position in order to protect their firm and customers from losses occurring in your account.\r\n\r\nIt is important to recognize that your broker does not take into account your stop loss since the market may blow straight through it without pause. While you might think in terms of your risk being capped by the stop loss, your broker will instead be watching your available funds and the current value of your equity in the open position. This is more likely to cause a problem if the original dollar risk was small and you opened a large number of contracts.\r\n\r\nThe dollar risk gets smaller as you trade shorter timeframes. A typical setup on a 15 minute chart will almost certainly result in many more contracts than a setup from the daily chart. Those extra contracts may increase the risk of a margin call if there is a strong adverse price movement.\r\n\r\nAnother issue to be aware of is that if you trade frequently, the funds from your last trade may not yet have been settled. Although your account balance looks healthy, the funds from your previous trade are not yet available to cover the margin of a new position and the remaining available funds may not be enough to ward off a margin call.\r\n\r\nKeep a watchful eye on margin and avoid opening any position where your available funds only barely cover the initial margin. Your broker probably has tools to help you calculate initial margin so stay alert to ensuring a margin call will never trigger before your stop loss.\r\n\r\n\r\n##### **Managing the Trade**\r\n\r\n![Successful Gold Trade](/media/uploads/2017/a_basic_trade_setup/20171008-Gold-setup3.png \"Successful Gold Trade\"):R50\r\nAfter all our hard work in coming this far, how did the trade work out?\r\n\r\nThe trade was a winner! To the right you can see that the market blew straight up through our TP level and continued rising for quite some time before running out of steam. That's why we have TP levels. We don't know where the top of the market might be.\r\n\r\nThis trade was very profitable and the following table lays out the arithmetic that you can apply to any setup.\r\n\r\n<div class=\"clear-floating-cols-above\"></div>\r\n<a id=\"Profit-in-the-Sample-Gold-Trade\"></a>\r\n\r\n Profit in the Sample Gold Trade\r\n Maximum Risk:\r\n TF = $100,000 Total Funds (fixed)\r\n MR = TF x 2% Maximum Risk\r\n = $100,000 X 2%\r\n = $2,000 Maximum Risk\r\n Setup:\r\n TP = 1295.00 Target Price\r\n OP = 1260.75 Open Price (fixed)\r\n SL = 1251.40 Stop Loss\r\n CS = 100 Contract Size (fixed)\r\n Trade Risk:\r\n TR = OP - SL Trade Risk\r\n Contract Risk:\r\n CR = (OP - SL) x CS Contract Risk\r\n = (1260.75 - 1251.40) x 100\r\n = $935\r\n Contract Potential Win (CW):\r\n CW = (TP - OP) x CS Contract Win\r\n = (1295.00 - 1260.75) x 100\r\n = 34.25 x 100\r\n = $3,425\r\n Number of Contracts to Open = Max Risk / Contract Risk\r\n CO = MR / CR Contracts to open\r\n = $2000 / $935 Max Risk / Contract Risk\r\n = 2.14\r\n = 2 Contracts rounded down\r\n Total Trade Risk:\r\n TR = ContractRisk x Contracts=Total Risk of the trade\r\n TR = CR * CO\r\n = $935 x 2\r\n = $1870\r\n Total Potential Trade Win:\r\n TW = CW x CO Total Potential Trade Win\r\n = Win per Contract x Number of Contracts\r\n = $3,425 x 2\r\n = $6,850\r\n Risk/Reward (Win) Ratio:\r\n RRR = $1870 : $6850\r\n = 1 : $6850 / $1870\r\n = 1 : 3.66 Risk Reward Ratio\r\n RR = 3.66 Risk Reward Multiplier\r\n\r\nThe risk/reward multiplier (RR) of the trade was 3.66, meaning the potential win was 3.66 times the size of the risk. That's considerably better than the double I hinted at earlier in this series. Most important, we knew the risk and the potential win *before* we entered the trade. We are $6,850 richer for each $100,000 of available funds, ignoring minor carrying costs for the eight days until the target was reached. We achieved that win without risking more than 2% of the funds we allocated toward futures and forex trading. When you manage your setups and position sizing as I outlined above, futures and forex markets can be no more risky than the way many investors trade equity markets.\r\n\r\nSince the market continued to climb in a favorable direction, I appear to have left a lot on the table in this trade. You might have better ideas where to exit or you might observe another entry possibility following almost immediately, but that is not the purpose of this series of stories on basic setups.\r\n<br>\r\n\r\n#### **Summary**\r\n\r\nThis series of stories on the basic setup has covered a lot of territory and I will have more to say in future articles on many of the sub-topics mentioned above. For now you should have a good understanding of how to open a position and limit your risk while setting a target price compatible with your overall risk/reward ratio. You have learned:\r\n\r\n- How to limit the size of your trades to 2% of your risk funds or less.\r\n- How to only choose trades that have target prices that will result in wins greater than losses.\r\n- How to calculate the number of contracts you can open without risking more than 2%.\r\n- How to pay attention to your margin levels.\r\n- How to define a trade setup.\r\n\r\nWhat I have not yet described how to do in these stories is:\r\n\r\n- calculate the TP\r\n- identify a proper trade signal\r\n- [build a system](/stories/43/2017/10/24/trading-systems-part-1-introduction/) out of individual signals\r\n- lay out a setup in a forex instrument.\r\n\r\nI will be writing about these topics in the coming weeks, so stay tuned.\r\n\r\nTraders cannot guess the future. All we can hope for is to make sensible judgements about the trend and where support and resistance lie. Once we are comfortable with these important details, the next step is to adopt a strategy or system that is more likely to win over time. The [following stories](/stories/43/2017/10/24/trading-systems-part-1-introduction/) will lay out some of the elements of such a system.\r\n\r\n---\r\nCopyright (C) PagooLABS 2017. All Rights Reserved.\r\n\r\n\r\n\r\n*[SL]: stop loss\r\n*[TP]: target price\r\n*[OP]: open price\r\n*[CR]: Contract Risk\r\n*[CS]: contract size\r\n*[CO]: number of contracts opened\r\n*[USD]: United States Dollar\r\n*[AUD]: Australian Dollar\r\n*[Yen]: The Japanese currency\r\n*[Euro]: The European currency\r\n*[forex]: Foreign Exchange including markets and trading\r\n*[signal]: a price pattern in the market triggering the opening of a position\r\n*[instrument]: a particular traded forex or futures contract such as gold or USDJPY\r\n*[instruments]: a particular traded forex or futures contract such as gold or USDJPY",
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"url": "https://www.pagoolabs.com/stories/api/38/?format=api",
"id": 38,
"title": "Setting up a Trade in the Futures or Forex Market - Part 1",
"slug": "basic-trade-setup-part-1-introduction",
"status": 2,
"publication_date": "2017-10-24T03:05:48Z",
"lead": "How do you set up a trade in either the forex or futures markets? You will learn how to measure the risk and potential reward of a trade before you open it and you will minimize the risk to just a small percentage of your portfolio.",
"excerpt": "Learn how to trade Futures and Forex markets. Understand contract size, stop loss, target, take profit, margin, basic trade setup, risk management, position size.",
"poster": "SeanManefield",
"content": "---\r\n\r\n#### **Basic Trade Setup Part 1 - Introduction**\r\n<div style=\"padding: 0 0 .1rem 0\"></div>\r\n\r\nA trade setup describes how to take a position in a market in order to profit from that market rising or falling. If for some reason (discussed later) you expect the market price to rise then you would open **`long`** by buying a number of contracts. If instead you expect the price to fall then you would open **`short`** by selling some contracts.\r\n\r\nIt may seem strange to sell first and buy later but it is just the symmetrical opposite of buying first and selling later. **`Short selling`** is also an important part of keeping **`futures`** markets liquid: how could you buy if someone else is not willing to sell? Also, a prime purpose of these derivative markets is to enable **`hedging`** and the offsetting of risks from other markets. Half the time that will require short selling.\r\n\r\nFor our purposes here, a trade setup is just a description of how you open that contract. It answers the following questions:\r\n\r\n- What is the **`open price`**?\r\n- Where is the **`target price`**, the price where you will automatically close out your position for a win?\r\n- Where is the **`stop loss`**, the price where you will automatically close out your position for a loss?\r\n- How many **`contracts`**?\r\n- What is the **`margin`** your broker requires from you to open and maintain your position?\r\n\r\nWhen you have finished this series of stories you will know how to only risk a specific percentage of your funds in each trade and how to calculate the number of contracts you need to do so. The material we discuss here is fairly basic, however it assumes a level of knowledge about charts, trading software and jargon that may be unfamiliar. Do not be discouraged by this, we all have to start somewhere. Most of the terms are common enough that a quick internet search should yield all the information you need.\r\n\r\nIf not, turn for help to our forums or the comment section under each story. If you want a special article on a topic you believe is important but not yet covered, make a post below and argue your case. If you can convince us the problem deserves its own story, we will be happy to oblige.\r\n\r\n\r\n#### **A Gold Trade Example**\r\n\r\nTo describe a setup, I am going to choose a reasonably simple example in a popular market: gold. Consider the following recent daily gold chart from April to August 2017. ![Gold daily chart](/media/uploads/2017/a_basic_trade_setup/20171008-Gold-setup1.png \"Basic setup\"):C90\r\n\r\nIf you remember the news at that time, there were ominous rumblings coming out of the Korean peninsula through July. War drums are usually bullish for gold because paper money often does not survive long when central governments are in turmoil.\r\n\r\nThe month long upswing from point B on the chart to O (for **O**pen) was followed by a six day downward **`retrace`**. Then, as the last trading session on the chart closed we can see that the **`candlestick`** of the day's trading was an **`outside bar`** enclosing the previous day's trading, and ending positively. Summarizing these developments to get a feel for market direction, we have:\r\n\r\n- The market is overall sideways, but currently trading in the middle of the range.\r\n- Since point A, the faster moving average (MA100) has crossed above the slower 200 day MA.\r\n- The current swing is up since point B.\r\n- the market has completed a week long retrace down.\r\n- The top of the sideways market is near points C and D, above the current price.\r\n- External global risk factors lean bullish on gold.\r\n- The previous trading session ended with a bullish reversal.\r\n\r\nI will get into all of these points more fully in a later story but for now I just want to walk through a basic trade setup with you. For our purposes here, let's just assume we have a bullish **`signal`**.\r\n\r\nWe will not be discussing **`brokers`** as your options vary widely by country. However there are many possibilities, from full service all the way through computer based online trading. Recently, since the 2008 financial crisis, many regulations have been tightened. Check the advertisements in your region and review the stories from other traders on the many social media platforms available to you.\r\n\r\nIn this story, I have presented a bullish signal in an example from the gold market. In the [next story](/stories/39/2017/10/24/the-basic-setup-part-2-stop-loss-and-open-price/) we will discuss *how* we will open a long position in gold. I will show you the key data you need to lock down the potential risk and reward before opening the trade.\r\n\r\n---\r\nCopyright (C) PagooLABS 2017. All Rights Reserved.\r\n\r\n*[SL]: stop loss\r\n*[TP]: target price\r\n*[OP]: open price\r\n*[CR]: Contract Risk\r\n*[CS]: contract size\r\n*[CO]: number of contracts opened\r\n*[USD]: United States Dollar\r\n*[AUD]: Australian Dollar\r\n*[Yen]: The Japanese currency\r\n*[Euro]: The European currency\r\n*[forex]: Foreign Exchange including markets and trading\r\n*[signal]: a price pattern in the market triggering the opening of a position\r\n*[instrument]: a particular traded forex or futures contract such as gold or USDJPY\r\n*[instruments]: a particular traded forex or futures contract such as gold or USDJPY",
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"url": "https://www.pagoolabs.com/stories/api/39/?format=api",
"id": 39,
"title": "The Open Price, Stop Loss and Target Price of a Futures or Forex Trade",
"slug": "the-basic-setup-part-2-stop-loss-and-open-price",
"status": 2,
"publication_date": "2017-10-24T03:20:02Z",
"lead": "What are the key variables you need to know for each futures or forex trade? You will learn about the Open, Stop Loss and Target Price of the trade, along with how many contracts to open.",
"excerpt": "Learn how to trade Futures and Forex markets. Understand contract size, stop loss, target, take profit, margin, Basic trade setup, risk management, position size.",
"poster": "SeanManefield",
"content": "---\r\n\r\n#### **Where to Open, Where to Close - Basic Setups Part 2**\r\n\r\nIn this story I will show you how to open a long position in gold. You will learn the key data you need to lock down the potential risk and reward *before* opening the trade. Instead of opening a contract at today's price and then hoping for the best, we will dispassionately look over the chart of gold and determine our entry, a defensible location to place our stop loss and a reasonable target price given gold's recent **`price action`**.\r\n\r\nBy doing so we will have a trade with a defined risk (the difference between the open and the stop loss prices) and a defined reward (the difference between the open and target prices). Once the trade is opened, we will rarely revisit these key setup prices because to constantly second guess every price movement in the market will wear you out emotionally. You will be in no state to make a rational decision to either close out this position or open a new one. Instead, all this work must be done beforehand.\r\n\r\nIgnore price movements in open positions and instead focus your efforts on analyzing the longer term trends that drive the current price action you see in the charts. These trends arise from either longer timeframe charts or the fundamentals driving the market you are trading. For example, in gold the relevant fundamentals are the global risk environment, price inflation and movements in interest rates. There is enough there to keep you busy without becoming exhausted following minor price wriggles.\r\n\r\n####<span style=\"color: #090;\">The Open Price</span>\r\n\r\nThe current price at the close of the most recent trading on the chart was **$1260.75** in **`USD`** (United States Dollars). In general we will attempt to open at the start of trading of the next period immediately following the signal. We might set a limit order to ensure there is no huge gap but we have to be careful about trying to get a better price or we risk missing out on the trade altogether. The worst scenario is that we find ourselves 'chasing' the price as it pulls away from us. Never chase a price - walk away instead.\r\n\r\nIn this case we will accept the open price (OP) as set by the market on the next day. We hope to open our position at that price or lower. But before we commit our funds we need to know our target price, the stop loss and how many contracts to open.\r\n\r\n####<span style=\"color: #009;\">The Target Price</span>\r\n\r\nThe target price (TP), sometimes called the \"take profit\" price (and conveniently the same initials, TP), must be based on something more than your optimistic hopes for a successful trade. The first target appears to be the top of the range, about **$1295**. You will have to accept that for now but I have much more to say on this topic in a later story in this series. Later on, I will show how to derive the TP by applying a **`risk/reward multiplier`** to the risk of each trade, but for now I suggest we use *discretion* and set an appropriate TP from the chart alone.\r\n\r\nIt is essential to recognize that all traders have losing trades and your winners must at least compensate you for the losses. Some writers argue that because you have a 50% chance of the market going either up or down then you will win half the time. If that were correct you would need to target at least twice the amount you stand to lose.\r\n\r\nUnfortunately it is not so simple. We do not know the future so it may be true there is a 50% chance of the market going either way. However the market takes many paths to go up or down. Even in the 50% of cases where the market goes your way, there is also the possibility that before the market goes up it first falls enough to trigger the stop. Since the stop is closer than the TP, it is more likely that the SL gets triggered first. Afterwards the price might recover and hit your target, but without you along for the happy ride.\r\n\r\nFor this reason we should require more from a potential win than only double the risk. You must avoid any trade with a potential win less than double if you have only a 50% chance of winning. More on that later.\r\n\r\n![Gold daily chart](/media/uploads/2017/a_basic_trade_setup/20171008-Gold-setup2.png \"Stop Loss and Open Price\"):C90\r\n\r\n####<span style=\"color: #900;\">The Stop Loss</span>\r\n\r\nInstead of holding on to a losing position, with all the resulting emotional and financial distress, we are going to set a price where we will automatically close our position should the market go the wrong direction. By placing a stop loss (SL) on our trade we effectively limit the risk of the overall position.\r\n\r\nUnfortunately the SL is not a contract with your broker - why should they take a position off your hands that you no longer want? Instead the SL price being triggered will result in your position being placed into the market and other market participants will determine the price you receive for closing it out. In normal market conditions there is a mild amount of **`slippage`** and you may get closed out at a worse level than the SL you set. You should allow for that in the calculations below.\r\n\r\nHowever, occasionally the market may be **`illiquid`** as an unexpected dramatic event begins to unfold. In such circumstances there may be no one willing to take over your position at anything like the SL price you set when you opened. Although thankfully rare, such events happen often enough that you should heed the advice below about the maximum percentage of your funds that you invest in any one position. Although such a loss might be painful, if you follow this advice you will survive while all around you other traders are being wiped out.\r\n\r\nNow we are ready to discuss where to place our SL for this simple gold trade example. The key to choosing an SL is to locate an area where the market has recently tested a price and found **`support`** (or **`resistance`** if opening short). By choosing an area of support to place a stop in a long trade, you are raising the probability that your trade will also survive any renewed test from other traders. Note this does not provide any proof your trade will survive, it just raises the probability. As you will see, consistently trading higher probability scenarios will bring you out ahead of the game.\r\n\r\nFor our SL we could choose the low at point B, 1204.75, but that is far below our current open at point 'O'. It would be better to use the low of the retracement at about **1251.40**.\r\n\r\nAlthough this closer area is more likely to be stopped than the lower SL at point B, there is always the possibility of the market falling and triggering both stops. In the unfortunate event a stop at 1251.40 gets triggered we can sit out the potential fall in price back down to B. If a buy signal occurs there then we can open a new position without any of the additional risk of sitting in a losing trade, unable to take advantage of new market developments and unable to go short. There are other advantages to choosing the closer stop to do with **`leverage`** which I discuss below.\r\n\r\nMore to the point, you are not trying to be *right* about the market, you are just trying to win. To win you need to be opening positions in the same direction as the traders who are moving the market. If the market goes the wrong way for your trade then you chose incorrectly and you need to be out of that position as fast as possible. The nearby support area where you placed your SL is the only flexibility you allow the trade. Once breached, you should immediately cut your losses.\r\n\r\nNow that we have specified our open, stop loss and target prices for the sample gold trade, we need to turn our attention to the number of contracts to open. We will look at risk and contract sizes in the next story.\r\n\r\n---\r\nCopyright (C) PagooLABS 2017. All Rights Reserved.\r\n\r\n*[SL]: stop loss\r\n*[TP]: target price\r\n*[OP]: open price\r\n*[CR]: Contract Risk\r\n*[CS]: contract size\r\n*[CO]: number of contracts opened\r\n*[USD]: United States Dollar\r\n*[AUD]: Australian Dollar\r\n*[Yen]: The Japanese currency\r\n*[Euro]: The European currency\r\n*[forex]: Foreign Exchange including markets and trading\r\n*[signal]: a price pattern in the market triggering the opening of a position\r\n*[instrument]: a particular traded forex or futures contract such as gold or USDJPY\r\n*[instruments]: a particular traded forex or futures contract such as gold or USDJPY",
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"url": "https://www.pagoolabs.com/stories/api/58/?format=api",
"id": 58,
"title": "Trading AUD.JPY Using Heikin Ashi on the Four Hour Timeframe",
"slug": "trading-audjpy-using-heikin-ashi-on-the-four-hour-timeframe",
"status": 2,
"publication_date": "2018-01-08T05:11:16Z",
"lead": "Here is a very simple forex trading system using the example of AUD.JPY and Heikin Ashi to determine entry signals. This is meant only as an exercise to aid in implementing your own system, with or without Heikin Ashi (HA).",
"excerpt": "A forex trading system using the example of AUD.JPY and Heikin Ashi to determine entry signals.",
"poster": "SeanManefield",
"content": "---\r\nFirst let's take a look at the long term chart of AUDJPY, going back to before the 2008 financial crisis.\r\n![AUDJPY MN1](/media/uploads/2017/Forex_Setups/2017-11-27_AUDJPY_MN1.jpg \"AUDJPY MN1\"):C90\r\n\r\nThe first thing that stands out is the lack of any meaningful trend. All the price action has been contained within the extremes of the 2008 event. [In an earlier story](/stories/44/2017/10/24/trading-systems-part-2-timeframes-fundamentals-reversals-and-retracements/#shorter-timeframes) I discussed how to move to a shorter timeframe when no trend was clear on the current one.\r\n\r\nThe weekly is just as aimless, while the daily timeframe has been sideways throughout 2017 with distinct legs up and down. From mid September we saw a good run down on the daily but not enough for the 100 and 200 period moving averages to confirm any down trend.\r\n![AUDJPY D1](/media/uploads/2017/Forex_Setups/2017-11-27_AUDJPY_D1.jpg \"AUDJPY D1\"):C80\r\n\r\n\r\nIf we focus just on the daily chart and the leg down that started mid September 2017, marked **A** above, we could say that we have some evidence that a down trend is underway. Now, obviously, this is not enough evidence to short this daily AUDJPY, but it may be supporting evidence for a shorter timeframe. By the time the chart ends in early January 2018, it becomes clear there was no down trend, just a continuation of the sideways behavior noted above.\r\n\r\nHowever on October 24th the market stamped out a lower high and an HA reversal. As I have pointed out in earlier stories, reversals only make trading sense in the presence of a trend. On October 24th, we did not know the future so the question was, what were the consequences of using this information on a shorter timeframe, say the H4?\r\n\r\nThe supporting evidence is not strong enough to support a trade placed here but given that our earlier stories written around this time used the AUDJPY pair as an example, let's investigate further.\r\n\r\nTo be consistent we would have to close out any short trades still open in our *system* as soon as the daily HA reverses upward (turns green). That happened on November 30th. So we are looking to trade short in the period October 24th until November 30th inclusive.\r\n![AUDJPY H4](/media/uploads/2017/Forex_Setups/2017-11-27_AUDJPY_H4_HA.jpg \"AUDJPY H4\"):C100\r\n\r\nHere, as in the earlier stories, I am assuming a risk-return multiplier of four. This means we automatically close winning trades when they reach four times risk. Whichever method you use to calculate TP, it should emerge from the [simulation step](/stories/48/2017/10/24/trading-systems-part-6-simulations-on-systems/) where it is the optimum multiplier for a large number of simulations in your market of interest. In the cases I have examined using Heikin-Ashi reversals in a trending forex market, that key risk multiplier is a little less than four. I will continue using four below, but your optimal multiplier will depend on your precise strategy. Calculating the risk multiplier is discussed [here](/stories/48/2017/10/24/trading-systems-part-6-simulations-on-systems/).\r\n\r\nLooking at the H4 Heikin Ashi above, we can see the shorting period extracted from the daily. The first thing to note is that the period critically satisfies some of the basic down trend characteristics we have seen in a number of our earlier stories:\r\n\r\n* the MA100 has already crossed below the MA200, indicating a down trend\r\n* both MAs are sloping down\r\n* the longer timeframe, as mentioned above, is in a Heikin-Ashi down trend.\r\n\r\nLooking over all the Heikin Ashi reversals around the shorting period, we have 8 possible trade setups to consider. Not all of them will result in a trade:\r\n\r\nSetup number | Trade Comments\r\n-------------| ----------------------------------------\r\n1 | Not opened - before the short period starts\r\n2 | Not opened - before the short period starts\r\n3 | Not opened - red bar is not after a retrace\r\n4 | Not opened - red bar is not after a retrace\r\n5 | Not opened - red bar is not after a retrace\r\n6 | Opened - results in a win of 4 x risk\r\n7 | Opened after #6 closes - loss after failing to trigger TP\r\n8 | Not opened - after the short period ends\r\n\r\nIf some of these comments are confusing, you might like to look back on [earlier stories where the basic trade setup filters](/stories/45/2017/10/24/trading-systems-part-3-signals/edit/#Rules-and-Filters) are covered. Remember that while #6 is open, no other trades can be simultaneously opened otherwise the trade risk will be greater than 2% of our funds.\r\n\r\nBecause the daily HA reversal does not finish until close of trading on November 30th, all open shorts should be closed at the open on December 1st. Following this rule, the final trade would be a gain of about 1.5 times risk rather than a loss but I will count it as a loss so as not to inflate the success of the strategy and also because until now I have always advocated holding until the SL or the TP has been triggered. I have not yet discussed any other reason to close early because, quite frankly, getting into the habit of closing open trades for any other reason is a killer of trading profits.\r\n\r\nAlthough the longer timeframe indicated a down trend, the H4 only allowed two trades to open, one win and one loss. However, and this is a key to successful trading, the win was greater than the loss. In this case the win was four times the only loss, resulting in the strategy winning three times your allocated risk. If you allocated 2% of your funds at risk to this strategy, you just made 6%. Not bad for five weeks.\r\n\r\nNowhere here do I advocate you follow such a naive Heikin Ashi reversal system. The point is to show you how to construct your own without relying on expensive, black-box Expert Advisors which often times simply drain your account.\r\n\r\nSo what happens after the daily reverses up, do we continue the strategy by trading longs on the H4? I leave that as an exercise for you. However, while you may be able to eke out a trading profit doing this, trading the AUDJPY at the H4 timeframe will remain hampered by the fact that this currency pair is not trending at longer timeframes.\r\n\r\nAs you can see, this systems approach depends on the trend and highlights the importance of correctly identifying which direction the market is trading. It is an important clue that successful trading requires putting more effort into trend analysis than jumping from one indicator to another. The Heikin Ashi signal used here is not a required indicator. You could almost use any other. All that is required is that you open each trade *consistently* and follow all the rules you have already established in the [simulation testing stage.](/stories/48/2017/10/24/trading-systems-part-6-simulations-on-systems/)\r\n\r\nCopyright (C) PagooLABS 2018. All Rights Reserved.\r\n\r\n\r\n*[SL]: stop loss\r\n*[TP]: target price\r\n*[OP]: open price\r\n*[HA]: Heikin Ashi\r\n*[H4]: Chart of the four hour timeframe",
"image": null,
"forums": "Not linked to a forum",
"replies": 9
},
{
"url": "https://www.pagoolabs.com/stories/api/54/?format=api",
"id": 54,
"title": "What Determines Which Currency is the Base and Which is the Quote?",
"slug": "what-determines-which-currency-is-the-base-and-which-is-the-quote",
"status": 2,
"publication_date": "2017-11-27T04:10:34Z",
"lead": "What do the Forex ticker symbols mean in foreign currency trading and how to understand Base Currency, Quote Currency and Account Currency.",
"excerpt": "We explain what the Forex ticker symbols mean in foreign currency trading and how to understand Base Currency, Quote Currency and Account Currency",
"poster": "SeanManefield",
"content": "---\r\n\r\n<a id=\"base-vs-quote\">\r\n##### **Base vs Quote**\r\n\r\n\r\nForex contracts are expressed as a pair of foreign currencies such as <small><strong>AUD.JPY</strong></small> where the first currency is the Base currency and the second is the Quote currency. The base describes the commodity itself, just like oil, gold or Intel stock (INTC). The forex contract is priced in units of the quote currency.\r\n\r\nFor example, an ask price of 84.75 for <small><strong>AUD.JPY</strong></small> tells you that one Australian Dollar will cost you 84.75 Japanese Yen to buy.\r\n\r\nIf your accounts are in Euros or USD then neither the base nor the quote of <small><strong>AUD.JPY</strong></small> is the same as your account currency. Your account currency would be Euros or USD in this case. A trading account will normally stipulate which currency your trading is based in and realized wins and losses from trading <small><strong>AUD.JPY</strong></small> will need to be converted to it.\r\n\r\n![Typical Forex Contracts](/media/uploads/2017/Forex_Setups/Typical_FX_contracts.jpg \"Typical Forex Contracts\"):R28\r\n\r\n BASE.QUOTE | Quoted in:\r\n-------------|-----------\r\n <small><strong>AUD.JPY</strong></small> | Yen\r\n <small><strong>AUD.USD</strong></small> | US$\r\n <small><strong>USD.CAD</strong></small> | Canadian $\r\n <small><strong>USD.JPY</strong></small> | Yen\r\n <small><strong>EUR.USD</strong></small> | US$\r\n <small><strong>EUR.CHF</strong></small> | Swiss Francs\r\n <small><strong>USD.CHF</strong></small> | Swiss Francs\r\n <small><strong>USD.MXN</strong></small> | Mexican Pesos\r\n <small><strong>USD.CNH</strong></small> | Chinese Renminbi or Yuan\r\n\r\nHave you ever wondered why the AUD contract is expressed as <small><strong>AUD.USD</strong></small> but the Japanese and Canadian contracts are defined in terms of the non USA currency, <small><strong>USD.CAD</strong></small> and <small><strong>USD.JPY</strong></small>? Why is the Euro written as <small><strong>EUR.USD</strong></small> and not <small><strong>USD.EUR</strong></small>?\r\n\r\nThe short answer is that you could write them any way you like providing there is a market and your broker supports those reverse contracts. However, most if not all quote vendors express the contracts in the same ratio we use here.\r\n\r\nThe long answer is that, except for the recent Euro, the reasons are many and fuzzily recalled. I have my version of the story to tell based on my own experience working with foreign currencies since the 1970s.\r\n\r\nBack in the dark ages, when researchers would enter data into mainframe computers using stacked decks of cards, there were many more European currencies than today. There were French and Belgian Francs, German DMarks, Italian Lira and many more. Some currency crosses were quoted in one fashion on one side of an international border but quoted in the reverse direction on the other side.\r\n\r\nThe preferred way to quote a currency for US traders or tourists should be just like the <small><strong>AUD.USD</strong></small>. When expressed this way, it gives the price of an Australian Dollar in the same way as the price of an apple: in the locally used US currency. On the other hand, it is less transparent for Australians who see a price quote that is slightly more confusing: how many US$ they get for one A$. That's like seeing how many apples you can buy for $1 instead of the price of one apple.\r\n\r\nBut the real problem was that currencies are rarely related by the same order of magnitude. So there might have been five Francs to the USD, three DMarks or 200 Yen but much more rarely 1.1 or 0.9 units of foreign currency. My memory is that the issue was resolved partially by aesthetics alone: it was never convenient to enter error prone numbers onto punched cards when the forex quote looked like a fractional 0.00512 US Dollars for one Japanese Yen.\r\n\r\nI remember handling currencies using both the normal and the reverse ratio but I and those around me mostly favored the quote where a digit other than zero was on the left hand side of the decimal point. It just felt better, and it was easier to check on the old printouts where decimals were hard to read. No doubt, the older traders around us felt the same way, although it was never discussed, as far as I can recall.\r\n\r\nUp until the early 1980s, one Australian Dollar cost more than one US Dollar. Other than the name, the two currencies developed independently of each other. There is no requirement for the two to trade at parity or any level other than what's determined in the market. The Australian Dollar derived from the Australian Pound (two dollars for every one Pound in 1966) which in turn had earlier derived from the British Pound. The British Pound in turn cost about US$5 through the 19th century until the turmoil of the First World War. Today each Pound costs roughly US$1.33 and is quoted as <small><strong>GBP.USD</strong></small>.\r\n\r\nThe Canadian Dollar traded around parity in the 1970s but closed out that decade around C$1.20 to US$1 so the quote was reversed to look like <small><strong>USD.CAD</strong></small>, with a quote something like 1.20. Had it been the other way around <small><strong>CAD.USD</strong></small> would have been 0.83, less aesthetically pleasing on the old printouts and terminals and slightly more error prone, although not as bad as the Yen or Italian Lira would have been.\r\n\r\nIf you follow all the currencies back to the 1970s you will notice a pattern where the currency with the greater number of units in comparison is usually placed on the right hand side as the quote currency. So the Yen is expressed as <small><strong>USD.JPY</strong></small> where there are today over 110 Yen to one USD.\r\n\r\nI believe we inherit today whichever pattern was common up to the 1970s when computer databases froze the prevailing ratios. This is true even for currencies like the AUD which have more since fallen below one US$. Modern computers with clear screens easily displaying the decimal point or comma mean we don't need to worry about those old punched card concerns anymore, but we do continue to use the ratios that were convenient in earlier times.\r\n\r\n<a id=\"what-about-the-euro\">\r\n\r\n##### **What About the Euro?**\r\n\r\nWhen the single currency was introduced the European Union insisted it had to be quoted <small><strong>EUR.USD</strong></small> and not the reverse. It could be that they hoped the USD would be worth less than the Euro, as a matter of pride perhaps, but I don't think so. For Europeans, the natural way of expressing the currency if you had a choice about it or, as in this case, if you were imposing the ratio by fiat, would be to set <small><strong>USD.EUR</strong></small> as the standard. That would mean European tourists and traders would approach a foreign exchange counter and purchase US$ priced in their local Euro currency, just as they would apples or anything else.\r\n\r\nIn the same way as Europeans express a desire to price oil in Euros, they would price USD in Euros. It would make the most sense and be easier for them to discern value. But they didn't.\r\n\r\nI believe the decision was poorly thought through. I think some Europeans saw the <small><strong>GBP.USD</strong></small> and compared that to their own French Francs (<small><strong>USD.FRF</strong></small>) or Deutsche Marks (<small><strong>USD.DEM</strong></small>) and decided they'd be the big boys on the block by insisting the Euro goes first in the ticker symbol, resulting in <small><strong>EUR.USD</strong></small>.\r\n\r\nHistory is littered with accidents rather than plans. Correct me with a better story in the comments if you have one. I am less interested in the official narrative than what the real intention was, if indeed there was one.\r\n\r\nSo that's where we are today - organically grown currency ratios for the most part with the Euro thrown in by fiat.\r\n\r\n\r\nCopyright (C) PagooLABS 2017. All Rights Reserved.",
"image": null,
"forums": [
{
"url": "https://www.pagoolabs.com/forums/api/trading-education/?format=api",
"title": "Trading Education"
}
],
"replies": 1
},
{
"url": "https://www.pagoolabs.com/stories/api/44/?format=api",
"id": 44,
"title": "What you Need to Know About Timeframes, Fundamentals and Reversals in Forex and Futures Systems",
"slug": "trading-systems-part-2-timeframes-fundamentals-reversals-and-retracements",
"status": 2,
"publication_date": "2017-10-24T03:47:29Z",
"lead": "This second story in the series \"Introduction to Trading Systems\" investigates how timeframes and fundamentals affect the trend. We also look at how to distinguish retracements from trend reversals.",
"excerpt": "This second story in the series on Trading Systems investigates how timeframes and fundamentals affect the trend. We also look at how to distinguish retracements from trend reversals.",
"poster": "SeanManefield",
"content": "---\r\n#### **Trading Systems Part 2**\r\n\r\nThe [previous story](/stories/43/2017/10/24/trading-systems-part-1-introduction/) introduced trends and showed how to recognize them using higher-high and higher-low cycles, (HH-HL, or LH-LL in downtrends) and moving averages. Here we will look further into timeframes and fundamentals to see how they affect the trend.\r\n\r\nIn some cases a trend can be almost indistinguishable from a sideways pattern. Cases like this are to be avoided because if other traders in the market lack conviction why should you be so convinced? Trade another market and come back to this one when the trend is more obvious.\r\n\r\n<a id=\"shorter-timeframes\">\r\n#### Shorter Timeframes\r\n\r\nAnother alternative is to move your trading to a shorter time frame: what looks like a series of whipsaws going nowhere on the weekly, may look like a strong trend on the latest section of the H4 chart. Equally, you could move to a longer timeframe: what looks like a sideways market on the H4 may be just a small retrace forming in a steady trend on the weekly. Favor longer over shorter timeframes if you can.\r\n\r\nYour charting software usually allows you to choose between various timeframes. The common ones include:\r\n\r\n- one minute\r\n- 5 minutes\r\n- 15 minutes\r\n- one hour\r\n- 4 hours (H4)\r\n- one day (D1)\r\n- one week (W1) and\r\n- one month\r\n\r\nEach timeframe collapses all the trades for that period into one bar on the chart. The open and the close are the prices where the time period began and ended respectively, and the high and low are the trading extremes over the duration of the period.\r\n\r\nIn general you should aim to trade the daily. This allows you 24 hours to digest a single candlestick, which is often enough time to review the news. You will have several days at least between trades, enough time to recover from a failed trade as well as time to remind yourself after a successful trade that you are very much human. In ancient Rome a slave would whisper in Caesar's ear that he should *\"Remember, you are only a mortal!\"* while enjoying the adolation of the crowd during a victory triumph. A win is often a lot of money so never let success carry you away. It's just a trading system and sometimes it wins, sometimes it loses. A level head helps.\r\n\r\nHowever if the markets are trendless on the daily or weekly charts, you might consider trading shorter timeframes where a tradable trend may be easier to see. Consider the Gold futures contract where gold has been consolidating sideways on the weekly chart after falling from its 2011 European crisis highs.\r\n\r\nHere is how a longer timeframe (weekly) looks for the Gold continuous futures contract:\r\n![Gold Futures - no trend on the weekly](/media/uploads/2017/basic_system_trading/Gold-Wk-NoT-20171015.png \"Gold Futures - no trend on the weekly\"):C90\r\n\r\nThose little wiggles in the chart look insignificant on the weekly but on the H4 they display a tradable trend:![Gold Futures - H4 trending](/media/uploads/2017/basic_system_trading/Gold-H4-T-20171015.png \"Gold Futures - H4 trending\"):C90\r\n\r\nIn terms of the basic operation of your system, nothing much changes in your setup, signals and system as you move to a shorter timeframe, other than the points I discussed above about analysis and recovery time. But there are some notable differences with shorter timeframes you must be aware of:\r\n\r\n- Unless the system is automated or you have trading partners scattered across timezones trading the same system on the same portfolio, no human can trade 24 hours continuously without sleeping.\r\n- You cannot assume the best signals occur while you are awake.\r\n- You will therefore miss many signals.\r\n- News that shocks the daily charts will so overwhelm the shorter timeframe that your stops can slip disastrously. Your system could be thrown into deep losses. Of course, the opposite may happen as well and you win, but then you are limited to a four fold win. Except for the very best, many brokers will force you to carry all losses but will turn on a dime to share in any gains should you win more than you expected.\r\n- Bid/ask spreads and commissions become a bigger percentage of the trade.\r\n- Margin comes into play because you will be buying more contracts given the closer stops and therefore the lower risk - see the series on [\"The Basic Setup\"](/stories/38/2017/10/24/basic-trade-setup-part-1-introduction/) for an explanation.\r\n\r\nChoose a timeframe that most suits your style, favoring longer over shorter timeframes where possible.\r\n\r\n\r\n#### The Fundamentals and Trend\r\n\r\nIf you trade a market you owe it to yourself to become familiar with its news and the fundamental influences that drive it. If the instrument is trading in a bull market you should know why. As it changes direction, ask what fundamentals have now changed? Are they likely to last long enough for a trade? Ask yourself the same question every day. This is your best early clue to a change in trend.\r\n\r\nIn a very important sense, the trend *is* the longer term fundamentals. If prices in the economy are inflating, gold, oil and other commodities will be rising in price. Currencies of countries with prices rising faster will fall against the currencies of countries with more stable prices. At present (2017), inflation is low and lower than many observers expected a decade ago. In consequence, prices for gold and oil are lower than their peaks set at a time when prices were expected to rebound. Of course, there are other reasons for the fall in some commodity prices but keep your eye out for if and when inflation starts to re-enter the system.\r\n\r\nThe fundamentals and the trend should be in sync, and if they are not then you should be cautious about trading that market until they are. Also, different timeframes have different fundamentals. A minor news conference or statement from the Bank of Japan might send the Yen in a new direction on the M5 chart but result in less than a blip on the daily.\r\n\r\nAs technical traders we are accustomed to the rubric that all news is already in the prices. There is a lot of truth to that but we should still be aware of the *major* fundamentals driving the trend, not the day to day press conferences or occasional burst pipe line. When the trend changes, the prices will reverse direction but it may just look like a deep retracement in the early stages. Knowing the major fundamentals and how that affects the markets you follow will help you spot a changed trend or paradigm shift sooner.\r\n\r\n\r\n#### Trend Reversals\r\n\r\n![Trend Reversal](/media/uploads/2017/basic_system_trading/UpT-Rev-EG-20171015.png \"Is the Trend Reversing?\"):R40\r\nIt is rarely clear when a previous trend is coming to an end and has begun to reverse direction. You could wait for a pattern of HH-HL or LH-LL to assert itself. Or you might wait for the faster (short timeframe) moving average to cross the slower. If you trade these markets you should have a good idea of the news in this area. What has changed in the fundamentals to cause this new market behavior? Does it look like these new fundamentals will be market drivers over the time horizen of your trades?\r\n\r\nIf you wait until a new trend is well and truly established, it may be too late to trade. These are normal issues that every trader has to grapple with. Follow rules that are consistent so that you can measure your performance and adjust if necessary.\r\n\r\n![Gold Short Pin Bar](/media/uploads/2017/basic_system_trading/Gold-D1-NG-Rev1-20171019.png \"Gold Short Pin Bar\"):C80!\r\nThere is a tendency for some traders to trade reversals because in looking at the charts, that's where the biggest gains cluster. ![Gold Short Pin Bar](/media/uploads/2017/basic_system_trading/Gold-D1-NG-Rev2-20171019.png \"Gold Short Pin Bar: Whoops!\"):R30 However, for long periods in a row, a trend can progress relentlessly in one direction. Based on probability alone, a series of smaller trades in line with the trend would be far more likely to succeed than guessing that one place where the trend finally ends. If you trade the trend then that last trade where the reversal triggered your stop would be a loss but all the earlier wins should offset that nicely. As you can see here above and to the right, what looked like a prominent pin bar in the Gold continuous futures contract, turned out to be one more bar continuing in the direction of the trend.\r\n\r\nThe one exception to this rule about not trading reversals should be those trading sideways markets, which I do not cover here.\r\n\r\nWhile it may not be clear for some time that a trend has reversed, evidence nonetheless accumulates pointing to that conclusion:\r\n\r\n- the fundamentals have changed\r\n- coming out of a previous downtrend the market puts in a higher low and a higher high\r\n- the moving averages cross, and\r\n- possibly a candlestick reversal pattern is evident at the low.\r\n\r\nAny one of these may not mean much but when several occur then its probably time to change over to a bullish strategy of buying the retracements. Evidence for a trend change applies equally at the start and at the end of a trend. Look to the much longer timeframe to see whether the new trend is likely to be a real trend reversal or a retracement.\r\n\r\n\r\n#### Retracements against the trend\r\n\r\nWithin the trend, retracements occur regularly. On the charts above you can see these retracements between each HH and HL. There are many reasons for why prices do not move steadily in one direction but it's apparent that traders have widely divergent views about the interpretation of events as they occur in markets. Perhaps you are yourself conflicted about which way a particular item of news will send prices. There are two views right there! Profit taking by traders on their winning positions could itself reverse prices for a time.\r\n\r\nEventually whatever was fundamentally driving the trend will reassert itself, the short term profit taking will stop and stronger hands will hold on. The net effect is more buying pressure than selling within a bull market. The retracement comes to an end and the trend resumes.\r\n\r\n![Setup after retracement](/media/uploads/2017/basic_system_trading/Ret-MA-EG-20171015.png \"Setup after retracement\"):R45\r\nAs you can see, this area where prices resume in the direction of the trend is an excellent place to enter a new position. We have a clear area where the market tested further price falls and for now rejected them. Retracements that signal a resumption in trend are valuable sources of the location of support and resistance areas. I will return to explore this area further in the next section on signals in Part 3.\r\n\r\nWhen a trend reverses, it is not clear until much later when prices cut through previous areas of support or resistance. However when a retracement reverses it is from a higher low in a bull market (or lower high in a bear market) and you continue to trade with the trend. The more time you spend with charts the less chance of getting the two confused.\r\n\r\n#### Summary\r\n\r\nTrade the longer timeframes whenever possible. They give you plenty of time to analyze the market and make the necessary pyschological adjustments you need to risk your money on a trade.\r\n\r\nEven technical traders should pay attention to the fundamentals as a guide to understanding the trend.\r\n\r\nDo not confuse reversals of trend with a retracement coming to an end. Check the history of the chart to see if the market is setting a higher low in what was a downtrend (or lower high in a previous uptrend).\r\n\r\nIn the [next story](/stories/45/2017/10/24/trading-systems-part-3-signals/) we will discuss how to receive a signal from the market. Signals are the heart of trading and typically include any special market price behavior that you have previously determined will trigger you to open a position. To do so, you will use the setup tools we have already discussed.\r\n<br>\r\n<br>\r\n<br>\r\n<br>\r\n<br>\r\n\r\nCopyright (C) PagooLABS 2017. All Rights Reserved.\r\n\r\n\r\n*[HA]: Heikin Ashi\r\n*[MA]: Moving Average over a specified period - 100 periods for eg\r\n*[EMA]: Exponential Moving Average - has a long 'memory'\r\n*[OHLC]: Open, High, Low, Close: the 4 key values for any bar on a chart\r\n*[bull]: An uptrending or rising market\r\n*[bear]: A downtrending or falling market\r\n*[SL]: stop loss\r\n*[TP]: target price\r\n*[OP]: open price\r\n*[CR]: Contract Risk\r\n*[CS]: contract size\r\n*[CO]: number of contracts opened\r\n*[MR]: Maximum Risk\r\n*[USD]: United States Dollar\r\n*[AUD]: Australian Dollar\r\n*[Yen]: The Japanese currency\r\n*[Euro]: The European currency\r\n*[EURJPY]: The Euro - Yen cross currency: buying Euros priced in Yen\r\n*[forex]: Foreign Exchange including markets and trading\r\n*[signal]: a price pattern in the market triggering the opening of a position\r\n*[setup]: An instance of a signal ready for trading with values for the number of contracts and the Open, Stop and Target prices\r\n*[instrument]: A particular traded forex or futures contract such as gold or USDJPY\r\n*[instruments]: Particular traded forex or futures contracts such as gold or USDJPY\r\n*[underlined text]: Congratulations! You have successfully hovered over text\r\n*[indicator]: A calculated line, such as a Moving Average drawn on a chart, that is separate from the OHLC prices but often calculated from them\r\n*[indicators]: Calculated lines, such as Moving Averages drawn on a chart, that are separate from the OHLC prices but often calculated from them\r\n*[H4]: Chart of the four hour timeframe\r\n*[M5]: Chart of the five minute timeframe\r\n*[H1]: Chart of the one hour timeframe",
"image": null,
"forums": [
{
"url": "https://www.pagoolabs.com/forums/api/trading-education/?format=api",
"title": "Trading Education"
}
],
"replies": 3
},
{
"url": "https://www.pagoolabs.com/stories/api/50/?format=api",
"id": 50,
"title": "Where Does the Day Begin in 24 Hour Forex and Futures Trading?",
"slug": "where-does-the-day-begin-in-24-hour-trading",
"status": 2,
"publication_date": "2017-11-09T03:02:22Z",
"lead": "How do you set a proper 24 hour timezone when trading forex and futures markets?",
"excerpt": "Teaches how to set a 24 hour world timezone when trading international forex and futures markets.",
"poster": "SeanManefield",
"content": "---\r\n\r\nWhen you look up and the sun is directly overhead in the middle of the day, it is night time for the other half of planet Earth. And don't imagine that's irrelevant. If you trade in the USA eastern standard time, EST, more than half the world's people, including India and China, are on the opposite side of the globe.\r\n\r\nThis means that traders across the world would be looking at different candlestick bars on their charts because their day starts and ends at a different time. If the high is set in the last few minutes of New York trading, European traders would instead include that price in their *next* day's chart. [Pin bars](/stories/46/2017/10/24/trading-systems-part-4-examples-of-signals/#Pin-Bar-Signals) would not necessarily look like pin bars to all observers. Better for your trading would be to use the timezone for charting purposes that most other traders use. Then you would be conveniently alerted to the same signals professionals see.\r\n\r\n#### <a id=\"No-existing-timezones-are-suitable-for-charting\"></a>**No existing timezones are suitable for charting**\r\n\r\nSo [which timezone](https://www.timeanddate.com/time/map/) makes the most sense to use? I am going to argue none of the standard timezones are optimal for trading 24 hour markets. Instead I will show you a new timezone, one that is widely used by many professional traders. I call it the FX24 timezone, named after FX for the forex markets. You can choose it here on this site as your preferred way to view the publish times of posts. Some trading software, such as most versions of MetaTrader, have FX24 built in. Our charts here, for weekly and shorter timeframes, all show times in FX24.\r\n\r\nLike exiting an airplane after traveling east or west, adjusting to a new timezone takes some effort. But humans do it all the time and we're quite good at it. But first, let's look at what happens if you continue to use your local time to trade international markets.\r\n\r\nThe first thing you notice, depending on where your trading is based, is that the week does not start or end properly. In the USA, you will see the *Sunday afternoon session*, while in Australia, NZ and east Asia they will face a Saturday morning half day. Almost conveniently for Europe, the FX24 timezone comes within a few hours of their standard day that they are tempted to ignore it. Unfortunately their day is not close enough and they will not see the same candlestick bars that other traders see. Europeans will also have a few hours of Sunday night trading.\r\n\r\n#### <a id=\"Which-timeframes-are-affected\"></a>**Which timeframes are affected?**\r\n\r\nThe weekly and monthly timeframes will not be affected since for the weekly, all trading from Sunday until the next Saturday will be included in each bar. The bars will be the same worldwide until weekend trading starts sometime in the future. For timeframes less than one hour, such as the 15 minute, the same bars will print wherever you are located.\r\n\r\nThe one hour bars will also be the same for most of the world except for timezones that start on the half hour, such as India's. Depending on exactly when your timezone starts its day, the four hour timeframe may or may not look the same to other traders.\r\n\r\n#### <a id=\"same-bars-that-other-traders-use\"></a>**How to see the same bars that other traders use?**\r\n\r\n\r\nThe two major financial centers in the world are in London and New York, five hours apart. That's too far for a happy compromise since it's late night in London when New York finally closes. But this hints at a solution.\r\n\r\nBecause we are referring to a 24 hour day and we do not want to talk ambiguously about am or pm, we need to be familiar with the 24 hour clock, or military time. This clock does not reuse the first twelve hours for the second half of the day, so 1pm becomes 13:00 hours and 5pm becomes 17:00 hours.\r\n\r\nLet's review some USA close times. Equities on the NYSE close at 4pm (16:00) EST. [Futures start to close](http://www.cmegroup.com/trading-hours.html) from 16.30 EST with most closing by 16:45 EST. Except for equities, futures markets start to reopen after 5pm (17:00). The same is true for the interbank forex market where trading slows or stops in the last 15 minutes before 17:00 EST, then restarts after 17:00.\r\n\r\nTo make sense of the timezones we would like to follow the day that begins after the NY and Chicago (-1hr) commodity markets restart their trading session. The NYSE trades within that period, so starting the world trading day at 5pm (17:00) EST is the solution that most trading professionals use.\r\n\r\nAs an example, when trading stops just before 17:00 EST on any Monday, that is the end of the full 24 hour *trading Monday* which started 24 hours earlier on Sunday. So the Sunday afternoon session is really just the beginning of Monday trading and the candlestick for Monday includes all trades from 17:00 EST Sunday until the end of the FX24 day in NY at 17:00 Monday. Now, instead of six trading days in the week, we have the standard five: Monday to Friday. They just don't quite coincide with the same five days you are used to. However that's exactly the same for all people living east or west of you. Humans deal with that level of complexity all the time so we are not going to let this stop us from seeing proper charts.\r\n\r\nThe rest of the details here about UTC and DST adjustments are mostly helpful for programmers who need to implement FX24. Skip ahead unless you have a particular interest in the inner workings of timezones.\r\n\r\nTo make the trading day start at 17:00 EST, we need a timezone exactly 7 hours ahead of NY, where locally the time would be 12 midnight. That would be true whether daylight saving time (DST) is applicable or not because the NY markets close by 17:00 at all times of the year. If DST is not in operation, that would be the timezone two hours ahead of Greenwich Mean Time (GMT, also known as UTC), or UTC+2, since London is five hours ahead of NY. FX24 falls in and out of DST at exactly the same time as New York.\r\n\r\nUnfortunately, DST complicates things immensely because UTC does not change when DST comes into effect. Also, the USA and Europe do not enter or leave DST on the same date. For this reason, we cannot define FX24 as being UTC+x, where x would be a fixed number of hours. We would need to define two timezones, one with and one without a DST adjustment. The DST transition times would simply borrow from ESDT.\r\n\r\n#### <a id=\"FX24\"></a>**FX24 - the 24 Hour Timezone for Traders**\r\n\r\nThe easiest solution is just to define FX24 as seven hours ahead of the time on the east coast of the USA so that 5pm in NY is 12 midnight in the FX24 timezone.\r\n\r\nThe first thing to note is that this timezone does not coincide with *any* other single timezone. Instead, it moves between Moscow, Athens to Nairobi and back again, depending on the phase of DST in each country. This is strangely a good thing as it prevents any one timezone from chauvinistically beating its breast. No one country owns FX24, and it's equally inconvenient for all.\r\n\r\nSecondly, it's within two to three hours of London time, close enough for one of the world's financial centers to try to ignore it. But ignoring FX24 results in six daily bars for the week, all of them different from traders located elsewhere.\r\n\r\nIf you want to see the same charts other traders are working from you need to adjust your trading timezone to the day starting seven hours ahead of the time in New York.\r\n\r\nIn some cases, the FX24 timezone is built into your trading software, such as the widely used MetaTrader (not all versions). In other cases the software may allow you to choose a timezone, but that only works if the FX24 timezone is available as a programmed in choice. Otherwise you will need to make adjustments to a suitable proxy timezone that lines up with FX24 at least two times a year, depending on DST in NY and DST locally in the proxy. That's a major pain. When all else fails, you can put pressure on the software providers to make them aware of the problem and fix their software.\r\n\r\nAs global markets become more and more intertwined there is no longer any excuse for trading software not to provide the FX24 timezone. It's just New York time plus seven hours.\r\n\r\nIf you prefer to see times of stories and posts displayed in FX24 here on PagooLABS, then simply go into the configuration menu and make your selection for FX24. The configuration menu is the little wheel icon on the top menu. You will need to be logged in of course, otherwise you will see UTC times. You can also choose any timezone you prefer if FX24 is too uncomfortable to use at this stage.\r\n\r\nSwap over to FX24 and start enjoying the same charts other traders use!\r\n\r\n</br>\r\n</br>\r\n</br>\r\n</br>\r\n</br>\r\n\r\nCopyright (C) PagooLABS 2017. All Rights Reserved.",
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