How To Find Out If You Are Paying Forex Chart Tax

Using the wrong Forex chart can cost you money. Most traders are not aware that there can be a chart “tax” associated with using different charts at the same time. This post will show you how it works and why you may not even be aware that you are paying it.

The “tax” that I’m talking about is not a tax that is imposed by any government or your Forex broker. It is actually self-imposed by individual traders.

Luckily, if you are aware of this, you can also eliminate it altogether. Let me show you specific examples of how you might be taxing yourself unnecessarily.

The Cause of Forex Chart Tax

The bottom line is that if you use Forex charts on several different devices and charting platforms, there can be differences between them that can add up to a lot of lost profits, over time.  If you take signals on one platform, but exit on another, you may not realize your mistake.

I will show you examples from three platforms that I use personally, Trade Interceptor, Metatrader 4 and Oanda FxTrade.  There are three basic variations of the chart tax. You may be paying for one or all of them, so be sure to review them carefully.

Different Quotes

The charts you use might have significantly different quotes.  Here is one example from Trade Interceptor and Metatrader 4.

When I took this screenshot it was after the New York close, so the difference was only half a pip. But during more active times, this difference can be a lot more.  Be sure that there aren’t big differences between the platforms that you are using and monitor them during both active and quiet periods.

Another way that the quotes can vary between platforms is if one uses the bid and one uses the ask price. This is rare, but it can happen. Again, during high volatility periods, the spread can be huge.

Different Market Open Times

You also want to check to see when the day starts on your charts. Different open times can result in completely different looking charts. When you right-click on a Trade Interceptor screen, you can easily adjust the times from a drop-down menu.

Find out the open time that your broker uses.  Then compare the charts to see that they display the same information.

Different Indicator Settings or Calculations

Finally, if you use indicators, be sure to check that your indicators display the same values across all the platforms that you use.  There can be several reasons why your indicators might give you different readings.

The price data could be different, the formula for the indicator could be different or they could be set to different default settings.  So be sure to double check your indicator values before you place any more trades.

Conclusion

If you really care about eliminating the chart tax from your trading, then your assignment is to go back through your trading journal or account statement right now. Yes right now, before you forget.

Think about how you actually entered and exited each trade. Write down some notes on each trade.

Then go back to the chart for each trade where you entered and exited on two different platforms and find out if your exit was less than optimal. For this exercise, do not worry about the entry.

Only compare the exit signal from the platform that you used to enter the trade to the exit signal that you used to exit the trade. Find out how much the alternate chart cost you.

You might even find that exiting on another platform was more profitable. Do not jump to conclusions, be sure to check several winning and losing trades. The difference can go against you for losing trades.

How To Read A Chart And Act Effectively

This is a guide that tells you, in simple understandable language, how to choose the right charts, read them correctly, and act effectively in the market from what you see on them. Probably most of you have taken a course or studied the use of charts in the past. This should add to that knowledge.

Using charts effectively

The default number of periods on these charts is 300. This is a good starting point;

• Hourly chart that’s about 12 days of data.
• 15 minute chart its 3 days of data.
• 5-minute chart it’s slightly more than 24 hours of data.

You can create multiple “tabs” or “layouts” so that it’s easy to quickly switch between charts or sets of charts.

What to look at first

1. Glance at hourly chart to see the big picture. Note significant support and resistance levels within 2% of today’s opening rate.

2. Study the 15 minute chart in great detail noting the following:

• Prevailing trend
• Current price in relation to the 60 period simple moving average.
• High and low since GMT 00:00
• Tops and bottoms during full 3 day time period.

How to use the information gathered so far

1. Determine the big picture (for intraday trading).

Glancing at the hourly chart will give you the big picture – up or down. If it’s not clear immediately then you’re in a trading range. Lets assume the trend is down.

2. Determine if the 15 minute chart confirms the downtrend indicated by big picture:

Current price on 15-minute chart should be below 60 period moving average and the moving average line should be sloping down. If this is so then you have established the direction of the prevailing trend to be down.

There are always two trends – a prevailing (major) trend and a minor trend. The minor trend is a reversal of the main trend, which lasts for a short period of time. Minor trends are clearly spotted on 5-minute charts.

3. Determine the current trend (major or minor) from the 5 minute chart:

Current price on 5-minute chart is below 60 period moving average and the moving average line is sloping downward – major trend.

Current price on 5-minute chart is above 60 period moving average and the moving average line is sloping upward – minor trend.

How to trade the information gathered so far

• At this point you know the following:
• Direction of the prevailing trend.
  Whether we are currently trading in the direction of the prevailing (major) trend or experiencing a minor trend (reaction to major trend).

Possible trade scenarios:

1) Lets assume prevailing (major) trend is down and we are in a minor up-trend. Strategy would be to sell when the current price on 5-minute chart falls below the 60 period moving average and the 60 period moving average line is sloping downward. Why? Because the prevailing trend is reasserting itself and the next move is likely to be down. Is there more we can do? Yes. Look for further confirmation. For example, if the minor trend had stalled for a while and the lows of the past half hour or hour are very close to the 5 minute moving average then selling just below the lows of the past half hour is a better place to enter the market then just below the moving average line.

2) Lets assume prevailing (major) trend is down and 5-minute chart confirms downtrend. Strategy would be to wait for a minor (up trend) trend to appear and reverse before entering the market. The reason for this is that the move is too “mature” at this point and a correction is likely. Since you trade with tight stops you will be stopped out on a reaction. Exception: If market trades through today’s low and/ or low of past three days (these levels will be apparent on the 15 minute chart) further quick downward price action is likely and a short position would be correct.

3) A better strategy assuming prevailing trend down, 5-minute chart down, and just above days lows is to BUY with a tight stop below the day’s low. Your risk is limited and defined and the technical condition (overdone?) is in your favor. Confirmation would be if today’s low was a bit higher than yesterday’s low and the price action indicated a very short-term trading range (1 minute chart) just above today’s low. The thinking here is that buyers are not waiting for a break of today’s or yesterday’s low to buy cheaper; they are concerned they may not see the level.

4) Generally speaking, the safest place to buy is after a sustained significant decline when the bottoms are getting higher. Preferably these bottoms will be hours apart. By the third or forth higher bottom it is clear a bottom is in place and an up-move is coming. As in the example above your risk is limited and defined – a low lower than the last low.

5) The reverse is true in major up-trends.

Other chart ideas

• There are always two trends to consider – a major trend and a minor trend. The minor trend is a reversal of the major trend, which generally lasts for a short period of time.
• Buying above old tops and selling below old bottoms can be excellent entry levels; assuming the move is not overly mature and a nearby reaction unlikely.
• When a strong up move is occurring the market should make both higher tops and higher bottoms. The reverse is true for down moves- lower bottoms and lower tops.
• Reactions (minor reversals) are smaller when a strong move is occurring. As the reactions begin to increase that is a clear warning signal that the move is losing momentum. When the last reaction exceeds the prior reaction you can assume the trend has changed, at least temporarily.
• Higher bottoms always indicate strength, and an up move usually starts from the third or fourth higher bottom. Reverse this rule in a rising market; lower tops…
• You will always make the most money by following the major trend although to say you will never trade against the trend means that you will miss a lot of opportunities to make big profits. The rule is: When you are trading against the trend wait until you have a definite indication of a selling or buying point near the top or bottom, where you can place a close stop loss order (risk small amount of capital). The profit target can be a short-term gain to nearby resistance or more.
• Consider the normal or average daily range, average price change from open to high and average price change from open to low, in determining your intra-day price targets.
• Do not overlook the fact that it requires time for a market to get ready at the bottom before it advances and for selling pressure to work it’s way through at top before a decline. Smaller loses and sideways trading are a sign the trend may be waning in a downtrend. Smaller gains and sideways trading in an up trend.
• Fourth time at bottom or top is crucial; next phase of move will soon become clear… be ready.
• Oftentimes, when an important support or resistance level is broken a quick move occurs followed by a reaction back to or slightly above support or below resistance. This is a great opportunity to play the break on the “rebound”. Your stop can be super tight. For example, EURUSD important resistance 1.0840 is broken and a quick move to 1.0860, followed by a decline to 1.0835. Buy with a 1.0820 stop. The move back down is natural and takes nothing away from the importance of the breakout. However, EURUSD should not decline significantly below the breakout (breakout 1.0840; EURUSD should not go below 1.0825.
• After a prolonged up move when a top has been made there is usually a trading range, followed by a sharp decline. After that, a secondary reaction back near the old highs often occurs. This is because the market gets ahead of itself and a short squeeze occurs. Selling near the old top with a stop above the old top is the safest place to sell.
• The third lower top is also a great place to sell.
• The same is true in reverse for down moves.
• Be careful not to buy near top or sell near bottom within trading ranges. Wait for breakaway (huge profit potential) or play the range.
• Whether the market is very active or in a trading range, all indications are more accurate and trustworthier when the market is actively trading.

A Forex Point & Figure Chart Tutorial

Point and figure charts, unlike just about any other type of chart used in forex analysis, are not based on the exchange rate's action over time but are drawn exclusively based on the exchange rate of a currency pair.

Orbex eBook covers the following aspects of point and figure charts:

• History
• Point and Figure Basics
• Using Point and Figure Charts
• Double and Triple Tops and Bottoms
• Trend lines and Triangles
• Areas of Support and Resistance
• Point and Figure Patterns