Rick Wright
Online Trading Academy
Hello traders! Sooo…neither of us won the Powerball Jackpot of $1.5 billion dollars. Not that much of a surprise, is it? Knowing that the odds of winning were something like 1 in 292,000,000, we shouldn’t be shocked that we didn’t get the easy money. Now that the hype of the Powerball super- size jackpot has died down a bit, let’s discuss how we can increase the odds of success in trading, shall we?
Most people, when they first get into trading anything, end up reading a book about technical analysis or even perusing a few free websites trying to figure out how/when to enter and exit their trades. Very often they will use a set of “classic” technical indicators to make their decisions, such as a moving average crossover. In the following 240 minute AUDUSD chart, I’ve marked three moving averages crosses. Generally speaking, a new trader will buy when the faster moving average (in this case the 50 period) crosses upward through the slower moving average (the 200 in this example). This same trader will sell when the faster moving average crosses down through the slower. The “buy signals” are marked in blue, while the “sell signal” is marked in yellow.
Here is the huge problem. When looking at the chart, many new traders are looking at the price point where the moving averages CROSS, not where the price is when the moving averages cross. No, I’m not making this up. Having taught thousands of traders in my ten year tenure with Online Trading Academy, I’ve seen pretty much every mistake that exists in trading. (If you have a “new” mistake, one that hasn’t ever been done before, let me know!)
I’ve written on the chart what the prices of the crossovers were; the first buy in blue was .7081, the yellow sell was .7160, and the second blue buy was .7180. If you took these numbers as what you thought your entries were, you might have thought that you made about 80 pips on your first long trade (bought at .7081 and sold at .160). If you went short when you exited your long trade you would have lost only 20 pips (sold at .7160 and bought to cover at .7180) for a net gain of 60 pips. Not too bad, right? However, what were the prices of the actual CANDLES when the moving averages actually crossed? Uh oh, now we have a problem!
I’ve marked the actual prices on the chart as well. The first buy in the pink circle would have been at about .7250, the sell at .7135 (in the green circle), and the second buy at about .7230. Suddenly this technique looks terrible! So, the actual performance would have been a loss of about 115 pips on the first long trade; again, if you reversed your position when the moving averages crossed the short would have made a loss of about 95 pips! You can probably surmise what I think about moving average crossovers…
Here is another picture of the same pair and time frame, but instead I marked in a couple of demand zones and a supply zone. If you are new to Online Trading Academy, our core strategy tells us to buy in (what we believe is institutional) demand and to sell in (institutional) supply. Using our strategy, a short trade could have been taken at .7355 and covered at .7085-a gain of 270 pips. A long trade could have been taken at .7075, and exited at .7355, for a gain of 280 pips! A bit better performance, wouldn’t you say?
I want to mention one last tidbit to increase your odds in trading. Push back a bit from the screen you are reading this on. Now, notice how we have a relatively clear sideways channel over these couple of months of trading. Ever play the high-low game with a deck of cards, where you pull out a card and make a bet on if the next card will be higher or lower than the first? If you pull a 3, what are the odds that the next card will be higher than a 3? Pretty good, I would guess! If you pull a King, what are the odds that the next card will be lower than the King? Pretty good again! Now, if you pull a 9…now what? That’s pretty close to 50-50 odds that the next card could go either way. Using Online Trading Academy’s proprietary Odds Enhancers helps us to determine (figuratively speaking) what card we have pulled. Selling at the .7355 is like pulling a King…buying at the .7075 is like pulling a 3. Pretty high odds that the next card (trade!) will work out. To more fully understand how these Odds Enhancers can help you in your trading, see you in class!
This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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