Advanced Techniques in Forex Trading with Metatrader
Advanced Techniques in Forex Trading with Metatrader
1. Introduction to Forex Trading
FxPremiere.com FX Signals — Forex market is a decentralized, over-the-counter market for trading in different currencies. This market determines the foreign exchange rates for every currency. It includes all aspects of buying, selling, and exchanging various currencies at an agreed price. Forex is the world’s largest financial market with its average daily trading volume of over $5 trillion. Traders can sell or buy currency pairs when trading forex. The forex market is open 24 hours from Monday to Friday and it starts in Sydney and ends in New York. Popular trading styles often include day trading, scalping, and swing trading. Among various trading styles, technological or indicator-based trading is known as one of the most popular and successful types of trading. In this style of trading or investing, an indicator is a tool that gives potential buying or selling opportunities. As a trading platform, MetaTrader is now widely used in forex trading around the world.
The Importance of Forex Money Management
The exchange rate regime between the two countries’ currencies is one of the significant determinants of market conditions. These determinants are sometimes an economist’s market condition indicator because they provide information about the two countries’ international relations. Among market conditions, the term country-specific factor refers to each nation’s individual characteristics to explain the forex market with country-specific economic announcement analysis. In this content, the authors discussed several machine learning (ML) techniques for forex trading in the MetaTrader platform Forex market. For the robot operation, the indicator-based approach is an essential factor and an essential piece for developing ML-driven trading in Figure 1. In the rest of this article, we will discuss the necessary steps for moving to advanced trading techniques in forex trading.
1.1. Basic Concepts and Terminology
Forex trading involves the exchange of two currencies where one currency is sold for the other. All transactions in the forex market involve the simultaneous purchase and sale of two currencies. The forex market is the world’s biggest market and is also the most liquid market, with a trading volume of over $5 trillion in a single day reported. Here we will discuss the forex market terms and concepts you need to know before you start trading.
How to Use MetaTrader 4: A Guide for Beginners
What is Currency?
Currency is the money in circulation in any country in the form of coins or banknotes. The currency is issued by the government or the central bank of the country the currency belongs to. Every currency is then traded in the forex market. Some examples of fiat money or currency in circulation today include the US Dollar (USD), Euro (EUR), British Pound (GBP), Swiss Franc (CHF), Australian Dollar (AUD), New Zealand Dollar (NZD), Canadian Dollar (CAD), Japanese Yen (JPY), Chinese Yuan (CNY), etc. metatrader platform
Currency Symbol and Code / metatrader 4 signals
The currency is represented by an internationally accepted three-letter code. For example, the US Dollar is represented with “USD”, Euro is represented with “EUR”, British Pound is represented with “GBP”, and so on. Every currency has its own code. There are more than 180 recognized currencies in the world and hence there are 180 recognized currency codes. What’s even more, in the forex market, every currency has a unique symbol to represent it. The most commonly used USD and EUR symbols use the first two letters of the code: USD (US Dollar) and EUR (Euro). The GBP (British Pound) uses the first two letters of the country name where the currency comes from. Every currency has its unique symbols.Metatrader 4
2. Metatrader Platform Overview
The MetaTrader platform (MT4 and MT5) is one of the most common types of software used today by some of the major brokers. The majority of forex traders would have encountered this type of platform at some point. To trade forex effectively, it is important for you to be aware of the features included and how they can enhance the services they provide to their clients. When carrying out advanced FX trading strategies, traders use a number of complex tools and methods that the right trading platforms can offer. Below is a comprehensive look at MetaTrader and advanced trading tools that would enable investors to utilize sophisticated FX trading strategies.
Some of the default features investors can count with the trading MetaTrader platforms are the following: Graph Analysis and Advanced Charting — This is one of the basic characteristics. The chart will be fully popular and updates can be made in real time. A range of graphs, indicators, and statistical instruments needed for financial chart analysis are also included. Customization — Different templates and graph settings are available, thus delivering a set of invaluable tools and customizing the platform to suit a particular trading strategy. Instant Trade Execution — According to some indicators, market prices shift in the space of a couple of seconds. If traders do not trade instantly, they can lose the trade profit. Some of the characteristics of the MetaTrader platform include: MetaEditor — Language MQL. The MetaTrader platform allows for the production, modification, and execution of personalized or custom technical indicators or even scripts. Besides, the importing of programming files kept in a different compiler or platform.
2.1. Features and Tools
Advanced techniques in forex trading require traders to use a powerful and reliable order execution system. When discussing MetaTrader, we covered the system’s many features, such as currency pair formats, order execution systems, its strong community, and the ability to trade via raw spreads. However, there are also many tools available on the MetaTrader platform. There are 50 built-in technical indicators, the ability to insert trend lines, candlesticks, and create Fibonacci retracements. You can overlay several technical indicators on a chart to obtain a better feel of the market. Expert advisors can also be implemented, which can trade for you.
The MetaEditor editor can be used to code your own expert advisors. Finally, MetaTrader runs on all kinds of devices, including mobile phones, tablets, and operating systems such as Windows or macOS. The ability to access MetaTrader from multiple devices and operating systems is somewhat of a safety net. If due to some unexpected event, one of them fails, you can still access the forex market from another device. If the technical limit to manually place trades occurs, such as a power outage, there are automatic systems in place to keep your daily trading activity consistent. Instead of fearing these events, you can plan your day around these devices and not worry about operating the MetaTrader platform. All of these tools and features will allow you to successfully implement advanced forex trading techniques.
3. Technical Analysis in Forex Trading
In forex trading, technical analysis is the primary tool used by traders to predict future price movements. Proper analysis assists in deciding the trading strategy that needs to be selected. Additionally, support is derived from it to take entry and exit from trades.
In forex trading, two types of analyses are done: technical and fundamental. In technical analysis, price action is studied to decide entry and exit. The result of any economic and geopolitical events is revealed in the chart. An indicator is a statistical tool used to display previous price behavior on the chart. Normally, it is shown in a separate window in the chart. There are two types of indicators: trend-following and oscillators. These are explained as follows:
i) Trend-following: Trend-following indicators are used to spot and decide the ongoing direction of the market. Popular trend-following indicators are Simple Moving Average (SMA), Exponential Moving Average (EMA), Parabolic SAR, Moving Average Convergence Divergence (MACD), Moving Average of Oscillator (OsMA), Envelope, and Bollinger Bands. Exponential Moving Average is a variation of an SMA, added to reduce the lag of a normal SMA. A MACD plots the difference between two exponential moving averages. Bollinger Bands use the standard deviation to create two bands around the SMA. As a price approaches the Bollinger Band, it is in an overbought (divergence) area — a good opportunity to sell. As a price moves away from the mean, the Bollinger Bands expand, showing a market that is trending. This is a sign to buy. Envelopes actually have two lines: one is the SMA, and the other is an SMA that is shifted up by a specified percentage. When prices cross the upwards shifted SMA by 1% or so, it indicates an upward trend and the opportunity to buy.
3.1. Common Indicators and Oscillators
Indicators and oscillators are used every day by traders to determine the trend, possible trend reversals, and potential overbought or oversold levels. Knowing the major indicators in use today is important when trying to understand the advanced trading techniques later on in this essay. All of these indicators can easily be placed on a MetaTrader Chart with just a few clicks. Here are some of the most common.
1. Moving Averages — Moving averages (MA) simply average the price over a pre-defined period of time. For example, over 10 periods, the MA will average the close of the previous 10 candles and place the line on the chart. These averages can be simple or exponential, front-weighted or back-weighted with any time frame. The first step in trading using moving averages is choosing to trade them in the direction of or against the trend of the market. Then, traders will look for potential indications of a reduction in the trend momentum. Alternatively, moving averages can be complex analysis techniques to identify good places to buy or sell. Moving averages also work well with forex technical analysis techniques such as Fibonacci retracement levels and Elliot Wave theory.
2. Relative Strength Index (RSI) — The RSI is a momentum oscillator developed by J. Welles Wilder, which compares the magnitude of a security’s recent losses with the magnitude of its recent gains and normalizes the calculation universally denominator of the RSI formula. That is, the price analysis becomes number-based and can create objective trading scenarios.
4. Advanced Charting Techniques
Reading price action is crucial in forex trading. Practitioners read price action through charts, which are graphically presented. Charts display price in relation to time and are repeated over defined periods, usually anything from one minute to one month. Higher time frames reproduce lower time frames. Essentially, charts are block or line graphs and display price, the direction it is moving, and the duration. They also show areas of price congestion and common price targets. The most advanced security charts are candlestick charts. Candlesticks are colored, rectangle-shaped blocks, divided at the top and bottom by lines called shadows. Their length and distance from each other provide the forex trader with other valuable, easily interpreted insights into the market.
Engulfing Patterns are two candles in sequence, where the second candle completely covers the prior white or black line. A Bearish Engulfing Pattern (BEP) occurs in an uptrending market. It signals the likelihood of the “end” of the trend and the beginning of a decline. This is one of the more reliable of the engulfing patterns, but it can still produce erroneous signals. In a perfect BEP, the second candlestick’s body also penetrates the midpoint of the first candle’s body. A Bullish Engulfing Pattern (BEP) describes a market in a downtrend where the second candle “swallows” the first candle. Bulls then gain control of the market and prices tend upwards. This is a very reliable signal of a trend’s end and is usually associated with more significant market movement.
4.1. Candlestick Patterns
A candlestick shows the opening, the highest, the lowest, and the closing price of a trading session. The Japanese names for the candlesticks are doji, marubozu, hammer, hanged man, shooting star, etc. There are many different candlestick patterns, but traders usually follow a few important ones. Here are some of them.
Engulfing Patterns: Bullish engulfing pattern is formed when a big white candlestick encases a smaller black candlestick at the last day of a downtrend. This is an indication of trend reversal and hence a buy signal. The bearish engulfing pattern is opposite to this. There are 10 different patterns in the engulfing category.
There are 14 different doji patterns. In the evening star pattern, the first day is typically a large white body candlestick followed by a doji candlestick. Shoot star candlestick pattern is opposite to this. The Doji and shooting star pattern are representing a situation of indecision and reversal signals respectively. The entrance should take place on the next trading day if they confirm.
Morning and Evening Stars: Morning stars appear in a downtrend, and evening stars appear in an uptrend. Morning star is formed in 3 steps. First day a white body candle appears. The second day, the closing price is lower than the previous day’s body. The third day closes higher than the previous day’s body. This is a buy signal. A bearish Harami is formed of two candlesticks. The first is a big up black or white candle, and the second day has a small body and is completely inside the range of the prior day’s body.
A Bullish Kicker pattern is formed in a downtrend. In the first day, the security trades down sharply, and on the second day, it trades up sharply. The entrance should be on the third trading day. If the security opens sharply higher on the third day, it can be bought immediately. If the security opens a little higher or unchanged, it can be bought once it trades above the high of the prior day. The Bearish Kicker pattern is the opposite of the bullish kicker pattern.
5. Risk Management Strategies
Most traders believe that their trading edge will protect them from adverse price actions. Traders holding this belief are likely to be taking unmanaged risks, however. They are likely to be committing a high percentage of their trading account equity to any single forex trading position. Consequently, these traders will very often experience large losing trades and perhaps complete losses of their trading account. Risk management strategies allow forex traders to reduce the amount of their trading account that is exposed to potential losing trades. Risk management strategies involve defining the trading account to specify how much of the account is to be exposed to any single trade, and where losses are cut by using stop losses. There are two parts to defining a position size: determining the lot size and where the stop loss will be placed.
The lot size can be set as a fixed amount of money, a fixed percentage of the trading account, or a variable percentage of the value of the trade. Setting the lot size as a fixed percentage of the trading account allows a trader to increase or decrease the position size in accordance with capital growth or shrinkage. Also, every position taken by a trader should have a stop-loss order. A stop loss is effectively a sell order. It is instructing the trading platform to close part or all of an open position at the current market price if the price falls beneath a predefined level. Stop-loss orders are used by traders to cut losses and give them some protection from keeping a trade open when price is moving against them. It is particularly important to place a stop-loss order for every open position when a trader is not in front of the computer and unable to see what is happening in real-time.
5.1. Position Sizing and Stop Losses
The second managerial skill is the ability to “position size” or determine how many shares to buy. Position sizing has less to do with market risk and much to do with the total risk to a trading account. That said, a trader must say “I will risk (insert amount of money) this trade”. Deciding what “to risk” could be as advanced as computing the volatility of a symbol and then arriving at an adequate dollar value, or a trader might simply decide on a “set” percentage amount to risk in every single trade. Perhaps a sum of risk from 1% — 2% per trade would work.
In terms of position sizing, a stop order should be used in every trade in order to limit risk. Not every signal a trading system will generate will be a winner. In fact, most will lose more than they gain. Since loss is part of trading, traders have to provide for that loss. The first thing a trader can do is set a stop order below the entry point in a long position, and above the entry point in a short position. This is called a stop-loss order. Pride must be thrown out the window if you are trading. Traders aren’t right 100% of the time. They are wrong in a lot of their positions, and they limit their own risk by setting a stop. For example, if a trader decides to go long wheat at 1550 or better, they might set a mental stop at 1535. What the trader did was decide on how much they are willing to lose in the trade.
These entries were described on a point and figure chart. That type of charting is horizontal. When a decision to place an entry has been made, the trader then needs to decide when the trade has failed, and that occurs when a commodity displays the death of trend (on point and figure charts, a new signal in the opposition direction is the very first sign of a stop). Should the trader place a stop? Absolutely. The dollar amount a trader is willing to lose in a new position should translate into the number of contracts, options or electronic futures contracts that they buy. The initial decision to go long was based on point and figure charts, which generates a target. A commodity may or may not reach the desired target. Most traders trade the middle part of the price move; they use small ranges to make a quick profit. Traders often take profits too quickly and experience small profit factors due to this habit. Traders do not allow their trade to go far enough to reach what they are focused on, and that is risk to reward on their trades. Traders today must be more in tune with the price action and know when to exit in order to enter new options.
6. Algorithmic Trading
Thus far, traders have learned the basic topics in Forex (FX) trading, and more notably strategies to devise strategies for potentially making money using the Metatrader (MT4) platform. One of the advantages of trading FX is that technology is fully leveraged by market participants in order to automate trading. This is referred to as algorithmic trading. The prior topics in this guide were more focused on making money for a two-year trading competition. Algorithmic trading applies to retail traders as well. Many retail traders only have limited time to understand a complex market. For a growing number of these more advanced traders, using an automated strategy makes sense. For instance, I might have access to a newspaper that provides timely tips from a well-known analyst, which could be used to develop a suitable model using my trading robot. The robot can then place trades based on the model’s output while an alert is sent to me.
Automated trading in the industry is typically known as algorithmic trading or simply algorithmic, for short. Automated trading is a general term that refers to other kinds of automation used to determine things such as prices or position, but in this case, we take it to refer simply to trading. In the remainder of this guide, we will refer to algorithmic trading simply as algorithms or algos, for short. The advantage of the algos is the following: they can place and manage trades with high timing and input efficiency that a human cannot reach; they can make calculations and manage trades with high and constant edges; and they can increase the number of trades taken. The number of trades taken = probability of drawdown, as long as the trader can absorb and manage the valid factors which encourage the drawdown. For the purpose of this document, we will concern professionals. A professional is a person who has not only a general idea about the industry of trading in Forex trading or OTC trading but also an understanding of algorithms and their use in this trading. In general, you will view the industry from the past to acquire the most relevant information, regardless of your current familiarity with the industry.
6.1. Creating and Testing Expert Advisors
In this section, you will get the first glance of an MQL4 Expert Advisor template. An expert advisor is a piece of software coded in MQL4. The template allows you to copy two buffer data arrays into MetaTrader’s standard time, open value, high value, low value, close value format with the popular command “iMA”. Also, you can customize the advisor template, choosing the value of the buffer variables, the type of moving average used for the analysis, and the period to be calculated. In the last line, the value of the moving average, which is coded into the name of the study, is displayed on the chart. Aegidis points out that MQL can be used to create scripts for sending orders, expert advisors to carry out forex trading automatically, and custom indicators. Before using any expert advisor, it is important to test it thoroughly. Metatraders motto is “Code once, Trade for whom”. That is, don’t just trade your own money. Also trade for people who might want to use your techniques to make more money than you have. Most people who wish to trade in forex themselves won’t use expert advisors themselves, but they still appreciate having the option to do so, just in case they suddenly become too busy to trade.
There is one significant issue with testing algorithms that doesn’t exist when you trade manually: Since the only tool we have to vary the conditions of a test instrument is a demo account, the only variables that we can control are the ones we can feel comfortable with. It’s pretty hard to change the broker that arranges demo accounts for us unless we write and do the test using our own trading parameters, but then we run the risk of building a platform optimized to us that won’t provide good results to anyone else.
7. Psychology of Trading
Going into trading psychology is mandatory when discussing advanced techniques. When one is aware of the fact that trading is largely psychological, it is easier to understand why seasoned traders do not trade the chart patterns, but rather the people who create those patterns. It comes down to being under control of your emotions all the time. This means no excitement when you win, and no sadness when you lose. When you make decisions or implement tactics, you may not be influenced by anything. You should always stay on the realist and self-critical path and use your trading journal for self-improvement. It is easy to say, but very difficult to master. The key to achieving Nirvana in your trading is to be consistent. This means you should always stick to what your trading plan says and never switch strategies or stop loss levels during a trade. It increases your plan’s efficiency by making trading more methodical and free from unwanted surprises.
It is equally important to go out and meet other traders either in your area or on trading forums. This way you will get first-hand advice that is usually ‘first-hand’ because someone had their hands burnt in the process and does not want you to make the same mistakes he/she did. A good piece of advice every now and then can really improve your investment. Following the trend, taking full advantage of false breakouts, breaking even by staying focused, not being influenced by media analysis, and using healthy practice strategies are also a few of the recommendations from the pen of experienced traders.
7.1. Emotional Control and Discipline
Control the losses. The most successful traders are those who know how to control their losses in order to capitalize on winning trades and gain valuable experience. Always start with a small capital that you can accept to lose, given that there is a high chance of losing the initial capital. Accept it as a business. A company never breaks down, they always have a backup plan even though it’s as bad as it is. In other words, always remember that in the world of trading, you never know what’s going to happen, so no portfolio manager will be able to guarantee 100% of the time that you’ll make your target.
Fear is a necessary component of trading. The activities of successful traders are not only based on a glamorous society but also on despair at the cost of experiencing failure, fear is what every trader should experience in order to be successful in transactions. Fear fact of making mistakes in trades can prevent proper trading, so it is vital to keep a rational mind in the light of your worst fear. The old adage, ‘Don’t get mad, get even’ can be modified to say, ‘Don’t feel good, get good.’ A situation to get into, the withdrawal, has no place in trading. A successful forex market trader shows all the negativities and doubts of his trading system. Remember, fear, greed, stubbornness and ignorance are the only causes of failure. Trading is like running your own business or having a role in the business. It is not a way to earn an employee’s income. In all cases, those who have adopted practices of management with consistency and backward control are relatively successful.
8. Case Studies and Real-World Examples
In this section, let’s go over some case studies and examples of successful and profitable strategies using advanced techniques in different types of markets. All the given results are for real and live trading, and there is no faking of results or backtest results here. As always, all the data and trading strategies are executed and monitored with the Metatrader 4 platform.
- Advanced Trading Strategy for USDMXN Pair: Results: The results include the trades with the exact entry price, stop-loss, take-profit, type, and date/time of the trades. This case study starts with a capital of $10,000 (0.1 lots or 10,000 units traded) and 0.50% risk per trade. Choose the % risk per trade and scale the results according to your account size (1.00% per trade equals 5,000 units or 0.05 lots). I can show a $10k-into-2M case study for this system, but for commercial reasons, I chose to release a more modest case study. Results are in pips and %. How to convert pips to $ or any currency: download the complete account statement above, and copy/paste your results into an Excel sheet and use: [cell] = ($A$5/$A$3)*-100 for short trade profits, and [cell] = ($B$5/$B$3)*-100 for long trade results. Replace the ‘5’ with the corresponding line instead of the cell number.
- Advanced Divergence Trading Strategy with Heiken Ashi: New trading strategy coming soon…
You can use the Divergence Indicator with other trading strategies like the Pivot CID Method, SAC and EXC. I will post a quality article on Divergence trading in the coming weeks.
8.1. Successful Trading Strategies
Successful trading strategies are based on the traders’ analysis of market events. Never trade based on other people’s analysis without doing your own first. To develop a trading strategy, you will need price charts and a linear or ternary algebra calculator. The latter is more reliable. The following information provides some examples of trading based on various techniques, each has a brief case study and real-world example.
Case Study: When AO is near 0, it is neither red nor green and has the absolute lowest volatility. When moving from a green to red bar, it forecasts an increase in underlying volatility, which can be a signal to buy options or exit a position before a large move in the opposite direction. Tim’s AO Crossover System, p. 42, Middle-End of Trend Trading System, p. 169. The midpoints of currency prices so far seem to mirror the future possible midpoints. Tim’s TPI (Tick Pattern Indicator), p. 72; also revised in The Middle-End System II, p. 128. The Highs and Lows, TPI I and II, were revised to form a new trading indicator on the MBFX System page 139–49.
Advanced Techniques in Forex Trading with Metatrader
Advanced Techniques in Forex Trading with Metatrader
