The Richard Donchian Rule Will Make You a Better Trader

The Richard Donchian 4-week theory is a time tested strategy that most professional traders use. Although I prefer to use automatic software to do my trading, the 4-week theory is one of those non-automated strategies that I use to make consistent profits.

After 30 years still going strong

The Donchian 4-week theory is a proven strategy that has been around for over 30 years. Due to its simplicity, many traders disregard it because they don’t believe it can be profitable. The reality of it, however, is that the 4-week rule has been making money since it was first introduced in the commodity market more than 30 years ago and it still makes tremendous profits today. This theory works well in any type of market whether is Forex, stocks, or commodities.

How does it work?

The Donchian theory goes against what most traders believe to be main rule of trading “buy low and sell high”. Although it is true that, if you can identify the highest point to sell and the lowest point to buy you will profit, the reality is that those points can escape even the most seasoned of traders. The Donchian theory uses a 4-week rule to determine when to enter a trade. By simply going long when the price of a trending currency pair goes higher than all the highs of the past 4 weeks and, conversely, by going short when the currency pair goes lower than all the lows of the past 4 weeks. If you learn how to apply this theory, you will NEVER miss any of the big trends which last for weeks or months again.

Why does it work?

The Donchian 4-week rule is a simple price action strategy that is based on breakout methodology. When you look at currency pair charts, you will see that long trends can last weeks, months, or even a year or longer. A closer look will clearly reveal how these trends start and continue by continually breaking to new highs if the market is bullish or by breaking to new lows if the market is bearish.

The methodology is really solid. Since it is only interested in 4 week highs and lows, the system will catch and hold long term trends. In terms of making money, long term trends are the ones that consistently make the big profits. The Forex market is not exception when applying the 4 week rule and is very profitable over the long term.

One disadvantage to the Donchian theory is that it doesn’t work on markets that are sideways or consolidating. As a matter of fact, on sideways markets the 4-week rule will lose money. A way to prevent these loses is to trade uncorrelated markets when using this rule.

Conclusion

The 4-week rule generates trades when the majority expect the opposite to occur. Although this may seem like a bad thing, it really isn’t. Keep in mind that 95% of Forex traders lose money so being in disagreement with the majority is probably a good indication that the trade taken is good. To date, I haven’t seen a single automated system that is based on the Richard Donchian theory and, since it is beautiful in its simplicity and proven to make profits consistently, you should include it in your trading toolbox.

Services Provided by an Accounting Firm

There are different types of services that are being offered by accounting firms. The scope of the services rendered by accounting firms varies in accordance with their knowledge, expertise and experiences. Some of the common services are the preparation of final accounts, external auditing, tax services, managerial advisory service, and accounting system design.

External Auditing:

External Auditing is one of the primary services offered by accounting firms. This primarily centers on the critical examination of financial statements by an independent CPA (Certified Public Accountant) for the purpose of expressing an opinion regarding the fairness of the contents of the financial statements. Instead, the CPA reviews samples of records statistically. Then, the CPA makes an audit report. This report is essentially a formal opinion or disclaimer, issued by the auditor as a result of the audit or evaluation he or she performed. It is to be noted however, that this does not include all of the accounting records being evaluated.

Independence must be maintained by the auditor. Hence, he or she should not be an employee of the client company. It is very important for the external auditor to know the different provisions concerning the independence of an auditor. Otherwise, the audit opinion will be questionable.

Tax Services:

Also, accounting firms handle various tax services. The accountant prepares the clients’ income tax return (ITR), business and transfer taxes. In this set up, the accountant represents the client in tax assessment and investigations. It is necessary that tax accountants are constantly aware of the dynamic tax laws, BIR regulations and local tax laws affecting their client, in order for the tax accountant to give sound advice regarding tax minimization. Also, knowledge on the tax provisions serves as a guide for tax accountants in preparing the income tax returns of their clients, and other information being submitted to the concerned offices like the Bureau of Internal Revenue.

Managerial Advisory Services:

Likewise, an accounting firm may also provide Managerial Advisory Services. Managerial Advisory Services help in providing assistance to the management. Generally, accountants provide industrial advice to their clients regarding finance, budgeting, business policies, and organization procedures, systems, product costs, distribution and other business activities.

Budgeting:

Budgeting covers the efficient management of cash by anticipating or predicting monetary objectives in the future periods. Periodically, the accountant reviews the actual flow of cash as compared to what it should have been. The differences then are analyzed carefully by the management to determine the possible causes, whether this is a favorable or unfavorable scenario, and how it can be controlled. The reason why such analysis is being done is to improve the accuracy of projections and to narrow the gap between the budgeted and actual performance.

Accounting System Design:

An accounting firm may also render Accounting System Design services. This includes the evaluation of the company’s control system to find out any area/s of improvement. An accountant who works as a system analyst is the one who also designs the accounting forms and installs accounting procedures for the accumulation of accounting data. It may also include the setting up of a customized computerized accounting system for the client’s firm.

How to Use Leading and Lagging Indicators to Drive Your Profits

Forex trading signals use raw market to identify where the entry and exit points of a trade are located. These signals are used in both, fundamental and technical analysis.

Fundamental analysis economic news that have a direct impact on the exchange rate for a specific currency. The news for fundamental analysis can be obtained by various government reports or by using a Forex economic news feed that keeps up with the economic news worldwide.

Technical analysis, however, uses current and historical data to forecast predictable trends to assist a Forex trader on whether to enter a trade or not. Traders us different types of charts such as line charts, bar charts and candlesticks charts to determine whether to enter a trade. The signals generated by these charts can be summarized in two categories: leading indicator or lagging indicators.

Leading indicators are the most common signals used by Forex traders. In essence, a leading indicator tries to predict trend changes before these changes actually occur. By having an indicator that forecasts market movement, in an uptrend forecast, a trader can enter a trade by getting a currency at the low point the signal indicates and sell at the high point when the indicator indicates a reversal of trend. Conversely, the same is true when the indicator shows the start of a downtrend, the trader sells high in hope that the price will drop allowing him to buy at a lower price. Some of the most common leading indicators used today are oscillators like the Parabolic SAR which helps identify whether a trend is bullish or bearish. Other indicators like RSI and Stochastics are used by traders to determine whether a currency is oversold or overbought. When one of these indicator show that a currency is overbought, you should be selling. The opposite is true if the indicators show that a currency is oversold, the logical conclusion is that the price of the currency is about to reverse itself and you should be buying.

Lagging indicators are the total opposite of leading indicators. Lagging indicators produce signals to indicate a change in a trend after the change occurred. Why use a lagging indicator if you already missed the trade? The lagging indicator should work as wake up call that the trend changed and to be alert for a reversal. This is specially useful when you are starting to trade because lagging indicators never give out wrong signals. They only show signals after the change of trend occurred and it can help you tune your skills by helping you determine where you missed the leading indicator signal which would have happened prior to the lagging indicator. An example of lagging indicators are momentum indicators.

Leading and lagging indicators provide signals to assist a trader on whether to enter or exit a trade, however, these two indicator types may provide conflicting signals at times. By using several indicators you increase your probability of succeeding in a trade. However, if you don’t feel comfortable reading charts, there are many products in the market today that provide signals that have been tested and proven to be successful and you should consider getting one of these products as you fine tune your chart skills.