Do you know about - Real Estate Tax Strategies And Forming An LLC

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The 1st step in doing any real estate investments is to start a business. There are different types of business entities: sole proprietorship, Limited Liability Company (LLC), Series LLC (only in certain states), Limited Liability Partnership (LLP), LLLP, S-Corp, C-Corp. Series LLC can be set up in following states: Delaware, Iowa, Oklahome, Tennesee, Utah, Wisconsin.

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Each of them has its advantages and disadvantages. The only true flow through taxation entity and the most beneficial in terms of holding real estate is Limited Liability Company. Limited Liability Company allows you to pay for business related expenses with pre-tax dollars. It is very important to understand that when you get paid and receive your paycheck, your taxes are already deducted and all your expenses whether they are real estate or business related are deducted on AFTER-TAX basis. When you have an LLC, you take all business expenses, deduct them, and pay income tax on what is left over. LLC does not require records and minutes of meetings. Filing paperwork is limited to articles of organization that lists LLC members. Tax Advantages: LLC is a pass through entity and if it is a single member the entity is considered disregarded by IRS. A corporation is subject to double taxation where not only the profits are taxes but also distribution in the form of dividends are taxed as well. The other advantage is flexibility in terms of LLC ownership transfer. LLC ownership is guided by Operating Agreement, which is an internal document. In order to change ownership all that needs to be done is the Operating Agreement and no filings are required besides updates with IRS for given tax ID number. LLC is the only entity that is NOT subject to loss limitation! It also has less filings than an S-Corp and very easy to maintain. If you have multiple properties, have them each in LLC and have one LLC to be your holding company that would own all the other LLCs. For tax purposes your main holding LLC will be a sole member LLC for the other ones and you will need to file only one tax return. In addition to the tax benefits LLC also allows you to have a basic level of asset protection. If your business owns the assets, they are separated from your personal assets and in case of a law suit they can not be touched. Please, note that LLC is a BASIC level of asset protection and if the opposing party has a good attorney there are many ways how your personal assets can become a part of a law suit. It is called piercing corporate veil. For example, you are required to have a separate bank account for an LLC. If your LLC owns your property, then all property relates income and expenses have to come out of that particular bank account. If this is not done, the LLC status can be disqualified and your personal assets become part of the lawsuit. Your LLC must be in good standing with the state and your must have adequate information on your article of organization. The purpose of the business must be clearly stated with no exclusions and you must file amendments when necessary. If you buy real estate, you should say that you buy, hold, rent or lease residential real estate; if you sell, you must state that you buy for the purpose of resale for profit, etc. In some states it is necessary to publish LLC in a local newspaper, and it can get very expensive; in other states like Maryland you need to pay annual fee, which is currently 0 a year. You need to check on your state requirements and guidelines and always be in good standing with the state.

Primary Residence. If you have an LLC, you might need an office and conveniently enough it could be in your personal residence. According to IRS Code 288G, you are allowed to deduct rent payments for your office space in your personal residence.

Depreciation. It is the most beneficial deduction in real estate! While your real estate is appreciating, you are allowed to depreciate it over the life of the building, which is 27.5 years and take the deduction against your income. However, depreciation is allowed only against the building, land can not be depreciated. For example, if you own a house thats worth 100,000, the value of the building might be only ,000 and the value of the land is ,000. Thus, you are allowed to take depreciation expense against the value of the building only.

Accelerated Depreciation. You might have heard from your accountant that accelerated depreciation is not allowed against real estate, and it is true, but there is a way to make improvements deducted in prior years and it all depends on how they are classified. For example land improvements such as curbs, sidewalk, and landscaping are depreciated over 15 years; personal property is depreciated over 5 years. Items that are considered personal property according to IRS code 1.48-1(c) must have one of the following features 1. accessory 2. function 3. movability. Basically everything that is an accessory, functions or movable is real property. If you are doing a rehab and can install movable walls, you can deduct the cost of improvements over 5 years. If they are not movable, then you will have to take 5-6 times less deduction for improvements in the next 5 years. Make everything you can either function, be an accessory or make it movable! One commercial developer built his office building with light weight movable walls and was able to deduct ,000 that same year.

DEALER status. When flipping properties it is important to avoid "DEALER" status. In some case it can be avoided by flipping properties through different entities, in some cases by doing a few transactions, but the easiest "investor friendly" way is to simply state your INVESTMENT INTENT. If you state that your investment intent is buy, hold, lease, and rent properties unless forced to sell under certain conditions like need for working capital, you can get away with not being considered a DEALER.

IRS Red Flags. There are also certain things you should not do that would raise red flags to IRS and you might get audited. First, do not report too much rental income loss, there are plenty of expenses you can find to reduce your pre-tax income. Second, do not over complicate your asset protection structure. Having too many business entities on top of each other, or having domicile headquarters in Las Vegas, NV, tax free state could be a red flag. Reporting losses for more than 2 years always raises red flags. The common sense behind it: "if you do not make money why are you still doing business?". Reporting excessive donations, high expenses vs high income can also cause an audit.

Property Taxes. Real Estate Investors are subject to a number of taxes including property taxes. Assessed value and market value of the property always have a gap. In 2007 assessed value was normally lower and in 2010 it is 99% of the time higher than market value of real estate. The taxes are not always reassessed depending on the market cycle and it is your responsibility to dispute them. In state of Maryland it is allowed to dispute personal property taxes within 60 days off settlement date or file before the end of the year for the next year hearing. Even though taxes are a deduction against income, they are not a tax credit, and the more you can minimize your expenses the more profit you will end up with. In order to successfully dispute your tax bill you would need to show the comparables and recent sales prices of real estate in your area. You will also need to compare the real estate that was recently sold to your property in terms of structure, number of bedrooms, bathrooms, square footage, amenities, etc.

Capital Gains Taxes. This type of tax is imposed only when you sell the property. The difference between purchase price and sales price is subject to this tax. There are exemptions to homeowners who lived in the property for at least 2 years and the amount of profit. There is a way to defer capital gains taxes by doing a 1031 Exchange. Make sure that you contact an escrow company and do everything within IRS guidelines. According to this IRS rule you can sell your property, find another property, make an offer within 45 days and settle on a new property within 6 month and defer paying capital gains taxes. According to the IRS tax rules, the property you are buying must be "likewise" property, meaning it does not matter if it is bigger as long as it is "investment" just like the one you just sold. So you can buy a single family house and buy an apartment building as long as both were investment properties.

What is essential to know before setting up an LLC?

The NAME. Your business should be in the name of your LLC. Most companies name LLC by the street address, for example 17 Lexington Ave LLC...I prefer to name them by the number and street name only without St..Ave..Ct.etc For example 17 Lexington LLC. It is just easier to remember and shorter to write. When you get a number of LLCs set up it starts getting confusing which one was St or Street or Ave, and the correct spelling of the LLC is essential in absolutely everything you do.

CHECKING NAME AVAILABILITY. Once you pick the name, you need to check the name availability with the Secretary of State Office. In many states in could be done online, and if you go to Secretary of State Office, they can check it there for you as well. I like to go in person to file all paperwork just because I can get everything done right there and get all paperwork in my hands the same day. In state of MD it costs extra for expediated service but it is worth paying because you need to get your bank account and everything else straightened out right away.

ARTICLES OF ORGANIZATION. Articles of Organization is the name documents that lists members and managers of the LLC. It does not have to be registered with the state, at least in MD and NY.

REGISTERED AGENT OR RESIDENT AGENT. An LLC requires a resident agent to serve on behalf of the LLC. It can be a business entity or individual that resides in the state where LLC was formed. For example, if you live in state of New York, you can list your name and address as a registered agent, or hire a company to represent the LLC. If the LLC is formed in another state, it is necessary to have a registered agent in that state.

LLC organizer. Members of LLC or somebody authorized to register LLC.

EXISTENCE of the LLC is perpetual and does not end with the death of its members.

WHAT MISTAKES TO AVOID WHEN SETTING UP LLC:

1. Start without a budget. It is necessary to incorporate budget for setting up LLC, which includes filing fees, fees to maintain LLC (in state of Maryland department of assessment and taxation required 0 annual payment just to maintain LLC in good standing), fees that accountant will charge extra at the end of the year to file taxes, some states require LLC to be published and it might be VERY costly (e.g. in New York it can cost a couple thousand dollars, but Maryland does not require publishing at all), initial contribution requirement needs to be met, annual fee to resident agent, separate bank fees might be charged for an business account like checks, monthly service fees.

2. Neglect to check the name availability. It is absolutely crucial to check the name availability for LLC before filing and paying the fee that might be non-refundable! Not only that, if you file paperwork, you wil probably have the same LLC name where the title is transferred to the property and it can become a problem.

3. Always hire an attorney. It is not true that only an attorney can file paperwork and write up documents. Anybody can be qualified to file on behalf of LLC, and in many cases it is unnecessary to pay attorney fees.

4. .Neglect the other paperwork. It needs to be checked what paperwork is required and needs to be filed in each state, and it is YOUR responsibility to check even if you hire a professional to do it for you.

5. Contribute lots of Caputal-might not be a good idea. Each state has a minimum amount required to be contributed to the LLC. Only this amount or what you need is necessary to contribute, because if you need to withdraw funds it becomes distribution of capital which is a taxable event in the eyes of IRS.

6. SKIP over BUY-SELL agreement. It is necessary to have an exit strategy, especially when LLC is a partnership because you never know what can go wrong and it is always better to have everything in writing.

7. Get tax ID later is not a good idea because it is better to get everything right away including a bank account. Without tax id you cant have a bank account and without a separate bank account IRS can disregard LLC as a business entity

8. Just ballpark the income tax. Never estimate what your income and expenses are and keep accurate records of everything. If you have a separate LLC account for the property, write checks from that account for all expenses including maintenance, state fees, property taxes, management fees, advertising fees, and all other expenses related to that property.

9. USING LLC account for personal benefit is absolutely unacceptable and can be VERY COSTLY. If you ever get in a lawsuit, the other party may sephina bank statements. If LLC account was not used solely for the purposes as stated in operating agreement and contain unrelated expenses, the status of the LLC can be disregarded and you can become personally liable for the law suit.

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There may be dozens of strategies in Forex trading. Let's just talk about the roots.

Every thing in the universe has its NATURE. So is Forex market. So is every currencies pair in this market. For example, GBP/JPY always moves faster, and its wave range is longer than other pairs, such as a hundred pips during a day or even a hour. EUR/GBP generally waves narrowly several pips only within a day. For American, EUR/USD and GBP/USD like to sleep in day and dance at night. AUD/USD and NZD/USD look like twin, they commonly act in the same style, if one of they goes north, another one does not like to go south. But EUR/USD and USD/CHF are doomed to be enemy, while one of them flies up like a hydrogen balloon, the counterpart mostly will drop like a lead ball. And so on, so on.

Cycle Trader

Once we find this kind of "Nature of Market", we can develop and figure out some strategies for particular currencies pairs, just follow their nature, predict their moving direction and range. Then we will get our own trading strategy and system.

In Forex market, many professional analysts like to use a kind of method to predict the future. It is so-called "Fundamental Analysis". Based on this method, they develop many kinds of strategies to trade Forex. These are strategies of forecasting the future price movements of currencies based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the foreign currencies.

If you like to try Fundamental Trading, you need learn and understand a lot of finance knowledge. Actually, not only finance knowledge, you need to be interested at many things of this world, including politics, economy, geography, culture, diplomacy, even military affairs. And you need to study the core underlying elements that influence the economy of a particular entity. For example, when the USA's GDP or employment report is strong, you begin to get a fairly clear picture: the general health of America's economy is good. So the US dollar should be stronger than other currencies. But how far can the US dollar go? Fundamental Trading may not answer this question very accurately. You may need to come up with other precise tools as to how best to translate this information into entry and exit points for a particular trading strategy.

In finance, a hedge is an investment that is taken out specifically to reduce the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity.

In FOREX, there are two kinds of similar "hedging" strategies:

1, Buy and Sell the same currencies pair, same lots, same timing. Then let it go. While one of those orders goes north, the counterpart will go south. After the winner takes profit, we can wait for the loser turning around. In a yo-yo market, this method works well.

For example, buy 2 lots GBP/USD at 2.0003, at the same time sell 2 lots GBP/USD at 1.9997. While the rate rises up to 2.0053, we close the buy order and take profit 50 pips. Now, the sell order will draw down around 50 pips. Let's wait for the rate falling down, it will fall down usually, especially in yo-yo market environment. If the rate drops down to 2.0037, close the sell order, the sell order will lose 40 pips. Does it hurt? No. Don't forget the 50 pips we have taken at the buy order. Totally, we can get 50-40=10 pips. Furthermore, if the rate keeps falling, let's say down to 2.0027, we can take 50-30=20 pips, etc.

Some people would doubt it... doesn't this "strategy" sound like hedging flat for nothing, just paying double spread? Why bother? Well, they are right, because we forgot mentioning the key point: timing of closing orders. When to close the winning order to set a foundation and when to close the losing order to lock the profit, there are some tricks inside. Experienced traders use technical analysis skills to decide this vital timing. Believe it or not, those experienced traders say that this method helps them screening false signals out.

This kind of "Yo-Yo Hedge" can work at any currencies pair.

2, Buy (or sell) unequal lots of special currencies pairs and buy unequal quantities of another kinds of currencies pairs which usually move in the opposite direction. This seems a "Semi-Hedge" trading strategy. It is created based on "Correlation" between some particular currencies pairs. So it is not suitable for every currencies pair.

Actually, this kind of hedge has another feature: earning SWAP! You earn interest daily on the held position which can yield up to 50% per year of your full account balance.

There are several pairs can do it. Such as EUR/USD Vs. USD /CHF, GBP/USD Vs. USD/CHF, AUD/USD Vs. NZD/USD, EUR/JPY Vs. CHF/JPY, GBP/JPY Vs. CHF/JPY.

Let's take the EUR/USD and the CHF/USD pairs.

These pairs are historically negatively correlative 93-98% of the time. That is when one pair goes up the other goes down, and vice versa, up to 98% of the time. In a high leverage account (as high as 400:1 or 500:1), you could earn 50% SWAP interest in a year. How? Let's say you have ,000 in your account and a 10% risk margin set. If the net interest we receive is 1.25% annually, this 1.25% interest will be enlarged to 50% per annum, by the 400:1 leverage.

And, this return does not include the buy low/sell high profits.

But, if the base of this kind of hedge collapses, it means the "Correlation" does not exist any more, for example the "Correlation" drops under 50% or lower, there will be a disaster.

Some people call "Arbitrage" as a risk free strategy. But other people call it as a trick which looks like the cat pawing chestnuts from a fire. But in theory, its risk is minimum in deed. We introduce three types of arbitrage strategies here:

1, Triangle Arbitrage: Searching for two highly fast-moving pairs (like EUR/USD and USD/JPY), the price of a not-so-fast moving pair like EURJPY should always be derived by multiplying (or dividing, etc) the fast-moving pairs. So for example, if EUR/USD is 1.4871 and USD/JPY is 108.24, the logical price of EUR/JPY should be 1.2 x 120 = 160.96. But at the same time, the real EUR/JPY rate is 160.90. The slower moving pair lags behind the logical price, then profit opportunity comes.

In practice currencies are quoted with a bid ask spread, so a trader should be careful that he is actually buying at the quoted ask price, and selling at the quoted bid price. Other transaction costs, such as commissions, might also invalidate the apparent free lunch.

More pairs:

AUD/CAD CAD/JPY AUD/JPY

AUD/CAD GBP/CAD GBP/AUD

AUD/CAD USD/CAD AUD/USD

AUD/CHF CHF/JPY AUD/JPY

AUD/CHF GBP/CHF GBP/AUD

AUD/CHF USD/CHF AUD/USD

AUD/JPY EUR/JPY EUR/AUD

AUD/JPY GBP/JPY GBP/AUD

AUD/JPY USD/JPY AUD/USD

AUD/USD GBP/USD GBP/AUD

AUD/USD USD/CAD AUD/CAD

AUD/USD USD/CHF AUD/CHF

AUD/USD USD/JPY AUD/JPY

CAD/JPY EUR/JPY EUR/CAD

CAD/JPY GBP/JPY GBP/CAD

CAD/JPY USD/JPY USD/CAD

CHF/JPY EUR/JPY EUR/CHF

CHF/JPY GBP/JPY GBP/CHF

EUR/AUD AUD/CHF EUR/CHF

EUR/AUD AUD/JPY EUR/JPY

EUR/AUD AUD/USD EUR/USD

EUR/AUD GBP/AUD EUR/GBP

EUR/CAD AUD/CAD EUR/AUD

EUR/CAD GBP/CAD EUR/CAD

EUR/CAD USD/CAD EUR/USD

EUR/CHF AUD/CHF EUR/AUD

EUR/CHF GBP/CHF EUR/GBP

EUR/CHF USD/CHF EUR/USD

EUR/GBP GBP/AUD EUR/AUD

EUR/GBP GBP/CAD EUR/CAD

EUR/GBP GBP/CHF EUR/CHF

EUR/GBP GBP/JPY EUR/JPY

EUR/GBP GBP/USD EUR/USD

EUR/JPY GBP/JPY EUR/GBP

EUR/JPY USD/JPY EUR/USD

EUR/USD GBP/USD EUR/GBP

EUR/USD USD/JPY EUR/JPY

GBP/JPY USD/JPY GBP/USD

2, Hedging Arbitrage:

This technique is the safest ever, and the most profitable of all hedging techniques while keeping minimal risks. This technique uses the arbitrage of roll over interest rates (SWAP) between two brokers.

One broker which pays or charges roll over interest at end of day, and the other should not charge or pay this kind of roll over SWAP interest. The main idea about this type of Hedge Arbitrage is to open a position of currency (Fore example, the highest SWAP GBP/JPY) at a broker which will pay you a high interest for every night the position is carried, and to open a reverse of that position for the same currency with the broker that does not charge interest for carrying the trade. This way you will gain the interest or SWAP that is credited to your account, risk-free.

3, Netting Arbitrage:

The main idea behind the strategy is, using differences between cross rates (such as EUR/USD, GBP/USD, and EUR/GBP) at different markets.

For example, suppose you had opened the following positions:

buy 1 lot EUR/USD at 1.4867;

sell 1 lot EUR/GBP at 0.7600;

and sell 0.76 lot GBP/USD at 1.9586.

The netting/clearing gives the following results:

Long EUR from the first pair and short EUR from the second pair gives zero exposure in EUR.

Long position in GBP from the second pair and short position from the third pair gives zero exposure in GBP.

Short position from the first pair (8,670.00) in USD and long position from the third pair (5,860.00*0.76) in USD gives you 3.60 profit without open positions and exposures.
Simple? Not really for small traders, may be for those "big brothers" only. Because it is really hard to play spread, slippage, stop loss hunting or so on games against brokers.

Carry trading is a well known trading strategy which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. Then this investor can make profit from the difference of these two interest rates.

JPY is currently considered to be the most popular currency to use as the low interest yielding currency in the carry trade, because its interest rate is the lowest of the world almost at 0. And GBP is currently considered to be the high yielding currency. So are NZD and AUD.

When we buy these currencies pairs: GBP/JPY, AUD/JPY, GBP/CHF, USD/JPY, or EUR/CHF;

Or sell: EUR/AUD, EUR/GBP, AUD/NZD;

Both actions can yield positive SWAP roll over interest. If combining with some kinds of hedge trading, we can make as high as 100% profit annually and keep the risk low.

The big risk in a carry trading is the uncertainty of exchange rates. Also, these transactions are generally done with a high leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.

Originally, martingale referred to a class of betting strategies popular in 18th century France. In Forex trading, the strategy let the trader double his/her order lots after every loss, so that the first win would recover all previous losses plus win a profit equal to the original investment. In the example below, you bought 1 lot EUR/USD at 1.4650. Unfortunately, the rate drops. You play it in martingale way, "double down", buy two lots, you need the EUR/USD to rally from 1.4630 to 1.4640 to break even. As the price moves lower and you add four lots, you only need it to rally to 1.4625 instead of 1.4640 to break even. The more lots you add, the lower your average entry price. Even though you may lose 100 pips on the first lot of the EUR/USD if the price hits 1.4550, you only need the currencies pair to rally to 1.4569 to break even on your entire holdings. Once the rate goes up one more pip, you will win a lot.

EUR/USD Lots Average or Breakeven Price

1.4650 1 1.4650

1.4630 2 1.4640

1.4610 4 1.4625

1.4590 8 1.4605

1.4570 16 1.4588

1.4550 32 1.4569

The Martingale strategy needs a very strict money management and you must understand that in the beginning money will be coming slowly, but if you lose the patience and raise risk level up to much, you may not hang on to the end to see the turn-around.

The anti-martingale strategy is the opposite of the better known martingale approach. This approach instead increases order lots after wins, while reducing them after a loss. Using an anti-martingale risk management scheme will increase profits during time periods when a trading approach is working well, while automatically decreasing exposure during portions of the cycle where trading is unprofitable. This is believed to decrease the risk of ruin for trading.

Basically the trader sets a series of entry limit orders X pips from the current price, for example 15 pips. Some experienced traders like to use the Fibonacci Series Numbers (0, 1, 1, 2, 3, 5, 8, 13, ...) or Golden Section Numbers to make this grid. Once price hits the level the limit order is executed. Then every 15 pips there is another order at limit price executed. And so on. In a yo-yo market, while the price moves up or down, there always be some limit orders executed. Once the order is taken profit, and the price moves to its original level again, a new limit order shall be executed again, then repeat the same process. Just open orders and take profits in a set of "grid". It is simple and easy, but hard to deal with when and how to close all orders, especially the Stop Loss. Some experts say we do not need stop loss, but will you take the chance to hold your all positions till "Margin Call?"

This refers to the practice of buying and selling currencies pairs such that all positions will usually be closed within the same Forex the trading day. The day trading idea comes from stock market. Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time. Under the rules of NYSE and NASD, customers who are deemed "pattern day traders" must have at least ,000 in their accounts and can only trade in margin accounts.

But in Forex market, every one can be a day trader to do day trading. Actually, more than day trading, they can do "scalping".

Scalping is a trading style where small price gaps created by the bid-ask spreads are exploited. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds. It means trying to get a few points (1~3 pips only, no greed, no long term) off the market every time. This strategy is based on a fact: approximately 70 to 80% of the time, the market is in a consolidation pattern. What this means is that for the majority of time the market is not making significant moves. For example, after the USA market is closed and before the Europe market is open, the Forex market tends to range in a consolidation channel for hours at a time before making another significant move in one direction. This kind of market behavior pattern is ideal for Forex scalping. Every time you enter the market, wait 10 or 20 minutes, once you have several pips gain then cash it and go.

Scalping has some features:

1, Lower exposure, lower risks. Scalpers are only exposed in a relatively short period.

2, Smaller moves, easier to obtain. The normal wave of the market will give you several pips easily.

3, Large volume, adding profits up. Since the profit obtained per share or contract is very small due to its target of spread, they need to trade large in order to add up the profits. Scalping is not suitable for small-capital traders.

But be careful, not every broker welcomes this kind of scalping strategy. If you scalp it too quick and thin, let's say you just hit 1 pip every 2 or 3 minutes then run, and repeat it again and again within a day, every day, you must feel high, eh? But the broker may be not happy and bans you. You will be kicked out because of your successful scalping!

Using the Bollinger Bands indicator on a chart, we will find every Forex currencies pair is waving in a "band", or a channel. By finding major support and resistance levels with technical analysis, a Break-Out strategy trader will buy this pair at the lower level of support (bottom of the band/channel) and sell them near resistance (top of the band/channel). Till now there is not a Break-Out yet.

Once the price breaks the upper range line with larger-than-average volume, or the opposite: the price breaks the lower range line with larger-than-average volume, the chance is coming. The idea of this strategy is that when a currencies pair breaks out of the channel, it usually experiences a large price movement in the direction of the breakout. So buy it at the price breaks the upper range line and continue to hold it until the rate has risen a distance comparable to the height of the range. If it goes down instead, stop losses as it penetrates the upper range line. Or, sell it at the price breaks the lower range line, and continue to hold it until the rate has fallen a distance comparable to the height of the range. If it goes up instead, stop losses as it penetrates the lower range line.

Besides Support and Resistance levels, many foreign exchange traders like to use another indicator to analyze and predict currency pairs' price changes, it is so-called: the Pivot Point. To calculate and analyze pivot is a subset of technical analysis, with this bench mark, traders can locate the rotation point of the trend, and this is very helpful for deciding when and where to buy or sell.

Classical Pivot Point, Support and Resistance Formulas are as follows:

Look at any one chart, the pivot is an average of the previous bar's high, low, and closing prices. In the following formula, "H" represents the previous bar's high, "L" represents the previous bar's low, and "C" represents the previous bar's closing price.

Current Bar's Pivot Point (P)=Previous Bar's (H+L+C)/3

First level of support and resistance can be calculated as follows:

First Resistance Level (R1)=(2*P)-L

First Support Level (S1)=(2*P)-H

Likewise, the second level of support and resistance:

Second Resistance Level (R2)=P+(R1-S1)

Second Support Level (S2)=P-(R1-S1)

Since many currency pairs tend to fluctuate between Support and Resistance levels, and these levels are calculated based on Pivot points, so when a trend or breakout trader knows where the pivot point is, it will enable him/her to find out key levels that need to be broken for a move to qualify as a breakout.

The system is developed based on economic news events from around the world. Nearly half of those announcements have moved the market significantly. Before a big news is coming, we can buy and sell some currencies pairs at the same time, same lots, set stop loss prices for them. After the news is released, especially for the big one, both sides of buy order and sell order will jump significantly. No matter which order is a winner, just let it go. And the loser will hit the Stop Loss, just let it be. The winner's gain minus the loser's loss, it is your news trading profit. For example, Non-Farm Payrolls/Employment Report - The NFP is the most influential news release of every month. It's announced on the first Friday of the month at 8:30am EST for the prior month. We can put a buy order and a sell order at market prices for GBP/USD, at 8:29 am EST. Don't forget, set 30 pips Stop Loss level for them. Wait 2 minutes only, the news is announced, it is a big one! Then the sell order jumps over 100 pips, and the buy order drops like a brick. The brick hits the Stop Loss and the pain is over. Totally, your gain could be 100-30=70 pips. Quick and easy, cool enough?

It is so simple, just follow the trend. Buy it is the most difficult strategy because no one can tell you 100% for sure what is the right TREND. Go to look at a weekly chat of USD/CAD, if you had shorted this pair in September 2001 and held it till September 2007, you know what the trend means.

The most famous trend analysis tool seems the Wave Principle. In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. Elliott isolated five such patterns, or "waves," that recur in market price data.

Another trend analysis guru should be W. D. Gann. In 1908, Gann discovered what he called the "market time factor", which made him one of the pioneers of technical analysis. To test his new strategy, he opened one account with 0 and one with 0. It turned out to be wildly successful: Gann was able to make ,000 profit with his 0 account in only three months; meanwhile, he made ,000 profit with his 0 account in only 30 days! After his results were verified, he became famous on Wall Street as one of the best forecasters of all time.

Back to the chat of USD/CAD, now, please tell me, how to follow the trend? Will USD/CAD continue the trend which is going south further to 0.6000, or, another trend going north reversely back to 1.6000?

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