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The party starts in December and continues in the early part of January with some hangover effect. October is the month in which the most famous crashes historically took place. So what is the January Effect?

The January Effect can be quite a rally but much depends on the strength of the economy, how good December was and is there any catalyst to move the markets. There is usually a significant rally in the early part of January that actually sets the tone for the rest of the month and sometimes for the rest of the year. The most profitable period as measure statistically has been found to start from December 31st and end around February 28th with an average rate of return of 6.6% on smaller stocks. So what is this January Effect? January Effect actually starts in the mid December and tends to favor small stocks.

Now, you must know this fact that the January Effect is not guaranteed every year. The best example is the year 2007 when the market became bearish and didnt start to look to bottom out until March 2008. Now January Effect may happen or may not happen but the turn of the month that is the last day of the month and first five days of the next month form a very good seasonal pattern.

Turn of the month is a very good seasonal pattern that actually holds up more often than not. So if you buy stocks at the last day of the month and hold them for the first five days for the next month, chances are you are going to make some profit. This can be a good swing trading strategy. At the end of the fifth day you move your money back into the money market funds.

Why the end of each month is good for trading? This system works because the pension funds tend to put new money to work during the holidays and the overall tendency of the market to rise improves. You can do the same on the holidays. Move your money in on the day before the holiday and sell it on the day after the holiday.

People start to feel happy when the holidays approach and buy stocks before they run off to celebrate Christmas, the fourth of July, the Labor Day and so on. After the party the reality sets in the stocks are usually sold off. The holidays and those times when people traditionally take vacations often lead to higher prices. Fewer traders lead to lower trading volume which in turn tends to exaggerate price moves.

Thats because these days fall within the most bullish time period of the year, winter! The three days before the New Year Eve and the first three days trading days after the New Year are your best holiday bet for making money.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This 1500 Pips A Day Forex Signal Service! Know These Candlestick Patterns!

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The day before the Presidents day is the worst day and the day after the Easter is the worst day after. However, you should keep in mind that a lot of other factors also come into play and you have a lot of room for error. The next best holiday bets are the Labor Day and the Memorial Day because they fall before the first day of trading in September and June respectively.

Children love Santa Claus. Do the markets love Santa Claus? You must have heard about the Santa Claus Rally? Most of the folks usually feel fairly good about themselves around this time of the year. The best time of the year to own stocks is the Santa Claus rally which for all practical purposes is the 17 day stretch from December 21 to January 7. This is the best time of the year. People are happy and the markets are happy.

There is a low trading volume which tends to exaggerate the trend. If the economy is not doing good and is slowing down, FED tends to lower interest rates during holidays in order to go into the new year with less of a worry. However, when you are dealing with seasonality, you should keep these facts in your mind:

1) More and more people have real time access to information and larger amounts of capital than at any time in the past. The market is not longer static. The seasonal effect may get interrupted by other events.

2) End of the year is special. Companies want to show good performance at the end of the year. At the end of the year, institutional investors want to make their results look as good as possible to their shareholders and tend to buy the stocks and so on. Institutional investors like mutual funds, hedge funds and insurance companies have become important players in the markets. So in case of an event free environment, seasonal tendencies may hold up fairly well.

3) These are the times for day traders and swing traders. With fewer people willing to hold stocks for longer periods, it is very difficult to predict seasonality. The days of long term investing or what you call buy and hold are dead! Frequent market crashes have taught the investing public that investing for the long term is fairly risky. So there is more short term trading going on.

4) A lot will be written about the recent stock market crash. What were the actual causes of the recent stock market crash? Why so many big banks went belly up in matter of days. What was so special that made this liquidity problem contagious with banks all over the world? The recent market crash was the result of CMO and Default Swaps bringing down the banks and Insurance companies in ways that had not been anticipated or foreseen by the analysts. Many had assumed that derivate securities are safe. Infact they have highly unpredictable tendencies. Derivates and outside the market trading activities can result in highly unpredictable patterns.

So with everyone talking about the seasonal tendencies in the market, it reliability becomes less diminished. Then there is a change in demographics also taking place. With the aging of the population, the overall trend will be towards more income producing investments.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This 1500 Pips A Day Forex Signal Service! Know These Candlestick Patterns!

The stock market is full of sayings like, Sell in May and go away, as well as the conventional wisdom about the, summer rally, the Santa Claus rally, the dark days of autumn, the presidential cycle, and so on. So the first question that comes to your mind is that are these seasonal cycles real in the markets and how you can time your trading with these cycles?

Markets are always changing; money keeps on moving in and out of stocks, bonds, currencies, commodities and so on with the stroke of a mouse and speed of electron thousands of times every day. Markets are about big banks, insurance companies, hedge funds, sovereign wealth funds, governments, mutual funds and individual investors creating a very diverse and dynamic environment.

In 1960s when big Wall Street players would go on summer off, volume dried up and the market tended to have a slight upward bias. Now, with the high speed internet connection and satellites, any money manager can stay in touch with the market on his laptop or mobile phone even on family vacations in a remote island of Pacific! Still such fast action, there is some seasonality in the markets that you should know if you are trading these markets.

With globalization and the ability to communicate in real time, money has started to move in a less predictable fashion. This has altered the trading patterns. What used to work yesterday does not work today. In the past markets were a whole lot less complicated. Most of the money moved between US and Europe.

At the same time, you should be aware that there are times when the markets do tend to follow these seasonal patterns. You shouldnt rely on seasonal analysis as your main method of trading stocks, bonds, currencies or commodities.

September tends to be the toughest month of the year. For the past 50 years, the average return on S…P 500 for the month of September has been around 0.6%. Dow Jones Industrial Average has even preformed worse with return of -1%. Now stock markets have a certain tendency to move in certain directions during certain months of the year. This general seasonal trend is a good one to keep in the background of your mind.

Holidays means investors are in a cheerful and exuberant mood and the money managers want to show a good performance at the end of the month. September has been traditionally a bad month and November has been a good month for the bulls. The S…P 500 Index has the general tendency to rise in the month of November. December is another typically strong month. December is the month of holidays and the end of the year.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This 1500 Pips A Day Forex Signal Service! Know These Candlestick Patterns!

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Pattern trading may be considered one form of breakout trading. There are basically two types of chart patterns. One are the chart patterns that generally represent price consolidation and include patterns like triangles, flags, pennants, wedges, rectangles and the head and shoulder pattern among others.

These chart patterns are mostly a signal for a breakout or a continuation of the existing trend. For the most part these chart patterns are traded when a breakout of one or another kind occurs. There is a famous head and shoulder shampoo also in the market. You might be using one. Dont confuse the head and shoulder with the name of a shampoo. It is a chart pattern that you must be familiar with if you want to continue reading this article otherwise first make yourself clear about these chart patterns and then continue reading this article.

Now when we talk of pattern breakouts it should be clear which chart patterns constitute a continuation pattern and which chart patterns are considered reversal patterns. The second type of chart patterns that are the Japanese Candlestick patterns! Candlestick patterns are not tied as closely with breakout trading.

What chart patterns constitute a trend reversal? The most common chart patterns found on the currency charts that are generally considered to be reversal formations include double tops/bottoms, triple tops/bottoms and head and shoulder tops and bottoms.

When a continuation pattern approaches breakout on the side of the pattern that would denote a continuation, technical traders patiently wait for a breakout. The most common chart patterns that are generally considered to be continuation patterns include flags, pennants, triangles, wedges, rectangles and others.

This type of trade is treated as a breakout trade with similar type of entry and stop loss placement as with standard support/resistance breakout trades. One benefit of pattern trading lies in the precise profit targets.

The traditional signal for the trade in the head and shoulder pattern is after that price breaks the neckline. Profit target is derived by measuring the height from the top of the head to the neckline then projecting that height from the neckline breakdown for the profit target. So a good example of a precise profit target is that of the head and shoulder pattern.

Similarly in case of the rectangle consolidation pattern, the height of the rectangle is projected up or down to derive the profit target after the breakout. Triangles, flags, pennants and other chart patterns also have convenient build in profit targets.

Japanese candlesticks have recently become popular among the western trading circles. Steve Nison is considered to be the authority on Candlestick Charting. Candlestick patterns are most often used as important trade confirmation tools in conjunction with other technical indicators. Candlestick patterns in themselves are not usually considered as sufficient trading signals.

For example, the hammer candlestick pattern occurs after a steep well defined down trend. But it should not be taken as a reversal signal to buy low. However, if this hammer candlestick pattern occurs right at a well established support level, the hammer candle may be taken as a strong signal that a potential long trade may be profitable.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This 1500 Pips A Day Forex Signal Service from heaven! Learn These Candlestick Patterns!

You need to lean how to position your stop loss in relation to the market activity. Placing arbitrary stops is not a good idea. Many traders incorrectly choose a stop so their loss is the same amount each time they are stopped out. Dont pick an arbitrary place to put your stop loss.

But by doing this they are completely disregarding the meaningful market support and resistance levels where the stops should be placed.

Where to place your initial stop loss? Try to set your initial stop 3% below the support level. The important thing in this method is to correctly identify the support area. Test this method and see if it works for you.

Support and resistance is a concept that every trader should understand. Knowing correct support and resistance is very important for a trader. This you will learn with experience. For example, suppose you have a trading system that can determine an entry point. However, your trading system does not provide an exit based on the market dynamics. First you need to identify the support area. Set your stop loss 3% below the support area.

For example, suppose that the support level in a bullish trend is $30. You should set the stop loss at 3% below the support level in a bullish trend if you have an area of support at $30. The formula that you will use is $30 (support price)*0.97 (3 percent less) = $29.1 (Initial Stop Loss Level).

For example to say that you are willing to lose $200 in a trade is to disregard the current market conditions. Do not use arbitrary stops based on flat dollar amounts that you are willing to lose.

You are inviting failure if you do not use stops at all. Another good approach to place stop loss can be to set your stop loss one tick below the support in a bullish trend or one tick above the support in a bearish trend.

For example in trading stocks, if you do not use stops and hang on to a losing trade to the point that you emotionally feel that the loss is so large that you cannot exit the trade, you are in trouble.

In the currency market it is better not to put the stop actually in the market when you have the position on. Some professional traders use mental stops only. Your broker will see your stop and if there are enough similar stops, the broker may try and hit your stop. This way the broker makes money and you do not.

You need to become a disciplined trader. Using a mental stop will need psychological toughness and discipline to get out when you are supposed to get out. You can set a mental stop and get out quickly if you are hit in such a market like the currency market.

Never move your stop for emotional reasons especially when it is your initial stop. As new trailing stops are determined, you can move your stops to lock in profits. In case you add on to your winning trade by increasing your trade size, you must adjust your stops to keep your risk in relation to your trade size.

When adjusting your stop due to an increase in trade size, always move the stop closer to the current position to lower the risk in relation to your larger trade size.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This 1500 Pips A Day Forex Signal Service from heaven! Learn These Candlestick Patterns!

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Risk management is an important part of any trading decision. One important way to control your trading risk is by setting stop loss exits. A stop loss exit is a practical tool used in risk management. However, there is an art of developing the right stop loss exit strategy.

Placing your stop loss requires fine tuning on your part. On the one hand, you dont want to get too liberal with your stops that you never lock in a profit. On the other hand, you dont want to set too tight stops that you constantly get bumped out of the market.

Your exits must be carefully coordinated with your entries. The topic of setting stop loss exits generally falls under the heading of trading systems. This is a trading skill that you can only learn with experience.

Setting a proper stop loss is going to make a lot of difference in your trading system success or failure. How many stop loss types you can use in trading? There are a variety of stops that you can incorporate into your trading system. The following sevens are the most valuable:

1. Initial Stop: Whenever you enter a trade, put a stop loss first. It is the largest loss that you are going to take in the current trade. This stop is identified before you enter the market. This is the first stop set at the very beginning of the trade. The initial stop is also used to calculate your position size.

2. Trailing Stop: This stop trails the price action and locks in when the price action is reversed. Trailing stops develop as the market develops. The trailing stop lets you lock in profit as the market moves in your favor.

3. Resistance Stop: This is a form of a trailing stop used in trends. A resistance stop is placed just under the countertrend pullbacks in a trend.

4. Three Bar Trailing Stop: Many traders cant anticipate a trend reversal and lose the unrealized gains when there is a sudden trend reversal. This stop is used in a trend when the market seems to be losing momentum and you anticipate a reversal in trend.

5. One Bar Trailing Stop: When the prices have reached your profit target zone, use this stop after three to five bars move strongly in your favor. This stop is used when there is a breakaway market and you want to lock in profits.

6. Trendline Stop: Use a Trendline Stop placed under the lows in an uptrend or on top of highs in a downtrend. You always want to get out when the prices close on the opposite side of the trendline.

7. Regression Channel Stop: Stops are placed on the outside of the lows of the channel on uptrends and outside the highs of the channel in downtrends. A regression channel forms a channel between the highs and lows of the trend and usually represents the width of the trend channel. Prices should close outside the channel for the stop to be taken.

Try to overcome your fear and place your stops at reasonable places in the market. If you find yourself being stopped out too frequently or if you seem to be getting out of the trend too early then most probably you are trading with a fearful mindset.

Mr. Ahmad Hassam has done Masters from Harvard University. Learn These Candlestick Patterns. Try These 1500 Pips A Day Forex Signals from heaven!

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There is a relationship between the trade size and the stop loss. Always move the stops closer to your current position when adjusting your stops due to an increase in trade size. An increase in trade size is usually caused by adding on or scaling in to a winning position. This lowers the risk in relation to your larger trade size.

Many traders want to know about moving stops based on different time frames. As a rule, always set your stops on the same time frame as you entered your trade. For example, if you had used a daily chart to enter your trade, use the daily chart to set your initial stop.

Day traders dont trade overnight. Each day is full of action but when the night comes peace prevails. For day traders there is a risk when holding a trade overnight. In day trading, you are supposed to close your position at the end of the day. Sometimes an opportunity arises and you decide to continue the trade overnight. There is always a possibility of unforeseen event occurring during the night.

In stock trading, unexpected event may create a gap open. This may adversely affect your account value. Suppose you are trading a 15 minute time frame. Therefore your stop loss and position size are based on the 15 minute time frame.

5 minutes before the close of the day, your trade is profitable and you see much more profits if you hold the position overnight based on your 15 minute chart. How do you decide to take the decision to let the trade continue overnight?

Consider the following 5 rules. 1) The trade must currently be profitable. 2) The 15 minute chart must indicate a solid trend in place. 3) You should place a new stop loss based on your daily chart. 4) Your risk should be no more than 2% of your trading account based on your new adjusted stop from the daily chart. Reduce your trade size. 5) When the market opens the next day, be sure to monitor your trade.

The better your stop strategy is, the more profitable you will be. So it is crucial from the profit point of view to refine your strategy. The most common thing that can happen in case of a poorly placed stop loss is that you will get stopped out on a correction. After being stopped out, the market will race back in the direction you were initially betting on.

Dont forget, repeated stops will add to your commission fees and spreads making your trading cost higher. Now you should keep this in your mind that there are no perfect stops. There is also no way to time the market perfectly. Your goal should be to get the probabilities in your favor by choosing a risk/reward ratio of at least “. This risk to reward ratio will also tell you about the placement of your initial stop loss.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This 1500 Pips A Day Forex Signal Service from heaven! Learn These Candlestick Patterns!

When selecting a trading system, first try to paper trade it. You need to paper trade your trading system to get the bugs out. Paper trading is not a substitute for live trading but still you can assume that 75% of the results that you achieve in demo trading can be replicated in live trading.

Win ratio and the payoff ration are two highly important figures to know for any trading system. Use the results of these paper trades to calculate your win ratio and payoff ratio. Determine what your personal win ratio and payoff ratio are in using that trading system over time.

The trading system, your money management system and you yourself, all three of you have to gel together. Now in the case of a successful trader, it takes three to tango here. The more profitable you will be over time, the stronger and more developed the relationship is between the three of you. So you have to develop not only a trading system but also a money management plan that suits your personality.

These numbers are required in developing a sound money management plan that will work hand in hand with that trading system. What can be the best parameters to selecting your trading system? When selecting your trading system, use these five parameters:

1) The trading system is analytical. Trade entries in the trading system are defined by market price activity, key support and resistance levels, volume and volatility dynamics and not on random and spontaneous decisions.

2) The initial stop loss exit is determined before entering your trade.

3) Trade exits are determined by market price activity, key support and resistance levels, volume and volatility dynamics and fundamental rules, not on any arbitrary dollar loss that you feel comfortable with.

4) A new trader should always paper trade in the beginning. But the importance of paper trading for experienced traders does not diminish in any way either. You must not underestimate the importance of paper trading though it is not a substitute for live trading. Your trading system has been adequately paper traded or live traded and you have determined your personal statistical performance. You need to know your win ratio and the payoff ratio.

Win ratio and the payoff ratios are two number that are personal to you and your trading system. Some traders would like to use the win ratio and the payoff ratio achieved by the other traders. Do not rely on the results that the other got with that trading system. Use the actual results that you attained while using that trading system in calculating your win ratio and the payoff ratio.

You can use a computer in testing the performance of a trading system. Again do not delude yourself by thinking that computer back testing can give you your win ratio or payoff ratio. Do not try to rely on computer back tested results. Your personal performance results are the real results that matter. You cannot depend on computer results and other traders results.

5) This is very important. Your trading rules should be written out step by step in sequence so that the entries and exits are consistent, clear and above all quantifiable. This makes your trading mechanical and emotions free.

One perfect example of a rule based trading system is the Turtle Trading System. Have you ever heard of the Turtle Trading System? You must read the story of the Turtle Trading Experiment. Turtle Trading System was developed for the commodities futures market.

You must know the story of Turtle Trading Rules. The story of Turtle trading rules is very interesting. The creators of that trading system had a discussion one day. One was of the opinion that great traders are born. The other said great traders can be made.

So a number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with this trading system and became highly successful traders.

Mr. Ahmad Hassam has done Masters from Harvard University. Know Forex Charts! Try This 1500 Pips A Day Forex Signal Service!

Forex market participants widely watch the comments by the members of the Governing Council of ECB. These comments frequently tend to move the Euro. ECB publishes monthly bulletin detailing analysis of economic conditions. This bulletin can give important signals to changes in the monetary policy.

Euro has become the second major global currency. All major euro crosses are highly liquid and heavily traded. Now EUR/USD cross is the most liquid currency. The movements of EUR/USD currency pair are used as the primary gauge to judge the health of both European and the United States health. Since it is the US Dollar fundamentals that have dictated the movements in the EUR/USD pair from 2003-2008, Euro is also known as the anti-dollar.

EUR/JPY and EUR/CHF are very liquid pairs too and are used to judge the health of the Japanese and Swiss economies. EUR/USD and EUR/GBP are great trading currencies as they have tight spreads, make orderly moves and rarely gap.

However, Euro has unique risks. Euro was launched in 1999. It is still a new currency. There are number of risks unique to the Euro. The most important is the exposure to the economic, political and social development of 15 member countries.

It could affect the stability of the entire region although more countries are expected to join EMU if a member country drops Euro and reverts back to its original national currency because it believes that ECB actions are not in its best interests.

ECB has the power to determine monetary policy for its 15 member countries. However, we can say Euro is a currency without a country. With that comes the political pressure of 15 governments. This political pressure frequently tests the actions of ECB.

The present global financial crisis is unlike any in the past. However, the rapid response of ECB to the present global financial crisis in the shape of deep liquidity injections has transformed its reputation. The spread between 10 year US Treasuries and 10 year bunds can indicate Euro sentiment.

Another important interest rate is the Euro Interbank Offer Rate (Euribor). This is the rate offered from one large bank to another on interbank term deposits. Traders tend to compare the Euribor futures rate with the Eurodollars futures rate.

Lower spreads make the European assets less attractive. Higher spreads between the two rates makes the European fixed income assets more attractive. Merger and Acquisition activities between US and European multinationals have important implications for EUR/USD pair. Large deals if in cash have often significant short term impact on EUR/USD.

Important indicators for Euro are Harmonized Index of Consumer prices (HICP), M3, German Unemployment, Preliminary GDP that includes France, Germany and Netherlands, German Industrial Production, Individual country budget deficit. The largest countries in EMU are Germany, France and Italy. Study of the economic data of these three large countries is also important.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

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There are four style of trading: Scalping, Day Trading, Swing Trading and Position Trading. Position trading is all about taking a directional market position and holding it as long as the trade makes sense from the trend standpoint. This means that positions are held for longer term.

Most individual and retail traders do not have the patience for position trading. Retail traders dont have the stamina to stay longer than a few weeks in a trade. Position trading may mean keeping a trade open from one week to a month to as long as a year or possibly more in the fast moving world of forex trading.

This is somewhat unfortunate as most retail traders dont have that patience to become successful position traders. Only those position traders who have the patience to stick with the trend and let their profits run are generally able to capitalize on these longer term price moves. Position trading can be one of the most profitable styles of trading due to the fact that many currencies tend to trend well on long term basis.

Due to its long term time frame, position trading tends to rely heavily on fundamental analysis along with longer term technical analysis. This is unlike day trading or swing trading that relies almost exclusively on technical analysis due to the short time frames.

As a forex trader, you must be aware that there are two type of analysis that is done to analyze the market forces, fundamental and technical. Fundamental analysis concerns itself with the economic forces that drive the major market movements. Fundamental analysis is geared towards longer term price forecasts rather than the swing to swing movements that are primarily the focus of technical analysis.

The general direction of change in the currency value over the long run is what interests the position traders. The economic forces that determine the long term trend of a currency include interest rates, inflation, GDP, unemployment and help to determine the value of the national currency overtime.

Position trading and trend trading both follow almost similar approaches. However, position traders often rely on fundamentals along with the technicals; trend traders are almost exclusively technical in nature.

Carry trading can be considered a form of position trading as carry traders hold interest positive positions to benefit from both regular interest payments and exchange rate profits. How do position traders decide which position to take?

Position traders establish positions on currency pairs according to their views and experience. Forex position traders weigh strength and weaknesses in currencies by taking various fundamental and technical factors into account.

Lets take an example. Suppose that a position trader has performed fundamental analysis on economic conditions surrounding the major currency pairs that involve the US Dollar on either side of the pair. The position trader is of the opinion keeping in view the present recession in the US economy that the US Dollar is indicating fundamental weakness going forward.

At the same time, the position trader thinks that the Euro is showing significant fundamental strength going forward. This opinion may have been formed on the state of inflationary pressure in the economy, the recent rate of economic growth, comments by the Federal Reserve Board (FED) Chairman or the President of European Central Bank (ECB), the state of ongoing recession and so on.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!