This is a video summary of the Live Forex Trading Room session on September 28, 2007.

Today’s Summary, by Sunil Mangwani:

Before we get into the trade setups, I want to go over a couple of very important points. We had covered several important topics this week - Money Management, Risk Management, Correct Use of Stops, Position Sizing, how much to risk in your trades, and other topics - all of these topics are designed to encourage our members to follow a trading plan and money management policies, incorporating both risk management and money management together in their trading. Without it, your trading plan is incomplete.

Incorporating money management into technical analysis and day to day trading requires taking advantage of technical systems and strategies which enable us to follow these principles. Before you take the trade, you are in control - once you pull the trigger, however, the market takes over and you are no longer in control of the outcome. Trading a game of probabilities - so you should control whatever factors you can. The only factors still in our hands after a trade is initiated are Risk Management and Money Management.

If you have watched our recaps in the past, you will find that we do not place too much emphasis on our indicators. We believe indicators are just that - indications of price behavior, and not an ultimate confirmation. We take advantage of particular characteristics of certain indicators and put them to work on particular pairs, while keeping our various Rules of Thumb in mind.

On the intraday basis, USD/JPY had a Bearish Divergence on the 1h timeframe. Price was making higher highs, stochastics giving lower highs. Use of indicators in this case is restricted only to the Stochastic Oscillator - we use it for determining the presence of Divergence. Beyond this, we do not refer to the Stochastics in this case and limit ourselves to Fibonacci numbers.

We are very big followers of Fibonacci-based tools, and price has an uncanny way of respecting these Fibonacci numbers. Believe me, it would be worth your while to study Fibonaccis. We were anticipating a movement down to the confluence of the Fibonacci Fans and Fibonacci Retracements. Price came down in an A-B-C Correction, and stopped precisely at the confluence level.

Using such technical tools gives traders the confidence that you are getting maximum profit from your trades. You are also well aware of the steps a trade is taking, enabling you to lock in your profits each step, by following your price with trailing stop.

Lets have a look at another example. On the AUD/USD we had a bullish move, triggered by a Bullish Hidden Divergence on 15m. If you are not sure what a Hidden Divergence is, I strongly suggest you study it - join us in our Live Forex Trading Room, and we will show you how to use this powerful tool.

We had a higher low, stochastics pulling down to the same level. The setup was ultimately confirmed by Fibonacci Fans, and we determined our target levels using the Fibonacci Expansions. Price stopped precisely at the 127% Fibonacci Expansion level - Fibonacci numbers really do work, and the charts speak for themselves.

On the GBP/USD, 4h charts, based on Fibonacci Fans, we were anticipating an uptrend. We were expecting Longs, and though we did not capture the entire move, we did capture a large part of the uptrend. We use the CCI in this setup only for a specific purpose - if you used the Stochastics here, you would have seen a completely overbought situation, but with CCI you can see that there is still room for further upwards momentum. Price has stopped precisely at the 161.8% Fibonacci Retracement level.

So you see, you use your indicators only as a first step. Use your Fibonacci numbers, determine the trend, wait for price to give you a confirmation, get into the trend, and believe me, you will walk away with profits.

Next let us look at a trade that did not go as anticipated. It is important to know that not all systems work all the time. There will be times when the market will move against you. We were looking at USD/CAD, anticipating some pullbacks and moves up, an uptrend channel. We did not enter as we were using our Fibonacci Fans as confirmation - if price remains within the fan levels, we would have gone long, but it has broken out and not given us the expected bullish movements, instead conforming to a bearish mode again.

Do you think we would have lost out on a Short trade waiting for a Long to happen? Possibly. But as I always say, I would rather be out of a trade wishing I was in it, than being in a trade wishing I was out of it! Staying out is also a position.

What I have covered today are the basics - the fundamental stepping stones of what we follow here in our Live Forex Trading Room - and next week we will return to cover more trades based on our techniques, more setups, and more interesting discussions.

Enjoy the video!

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