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Forex traders often look at indicators such as Bollinger Bands, Pivot Points, MACD, Moving Averages and the such to help them determine where to enter or exit trades. Using technical indicators is fine, however many traders overemphasize their importance or just plain misunderstand them.
Many forex traders think that they can simply download an indicator and then mechanically apply it into their trading and do so profitably. This is just a plain illusion. Successful traders realize that there is a lot more to using indicators than just asking them to generate buy/sell signals or pin-point exact entry points. Technical indicators for them represent just one part of their trading strategy.
Wednesday, March 10, 2010
Lines of trends, support and resistance
The trendline. A trendline is a main initial element for the price chart analysis. While the market moves in any direction not along a straight line but along a zigzag, the mutual placement of upper and bottom points of those zigzags permits to plot a line connecting the significant highs (peaks) or the significant lows (troughs) of an appropriate zigzag using technical tools of the computer program.
Lines of support and resistance. The upper and the bottom borders of trade channels are called accordingly support and resistance lines. The peaks represent the price levels at which the selling pressure exceeds the buying pressure. They are known as resistance levels. The troughs, on the other hand, represent the levels at which the selling pressure succumbs to the buying pressure. They are called support levels. In an uptrend, the consecutive support and resistance levels must exceed each other respectively. The reverse is true in a downtrend. Although minor exceptions are acceptable, these failures should be considered as warning signals for trend changing.
The significance of trends is a function of time and volume. The longer the prices bounce off the support and resistance levels, the more significant the trend becomes. Trading volume is also very important, especially at the critical support and resistance levels. When the currency bounces off these levels under heavy volume, the significance of the trend increases.
The importance of support and resistance levels goes beyond their original functions. If these levels are convincingly penetrated, they tend to turn into just the opposite. A firm support level, once it is penetrated on heavy volume, will likely turn into a strong resistance level. Conversely, a strong resistance turns into a firm support after being penetrated. In general, to evaluate the reliability (that is the possibility of a break) of the trade channel borders taking a decision to close or to save an existing position one should govern himself with following rules:
1. A channel is the more reliable the longer it exists. Hence, the solidity of very old channels (e.g. existing more than 1 year) decreased sharply.
2. A channel is the more reliable the more is his width.
3. The resistance may be broken if it is bounced on the background of a growing volume.
4. A steep channel is less reliable in compare to a gentle one.
5. The support may be broken independent on the volume.
Lines of support and resistance. The upper and the bottom borders of trade channels are called accordingly support and resistance lines. The peaks represent the price levels at which the selling pressure exceeds the buying pressure. They are known as resistance levels. The troughs, on the other hand, represent the levels at which the selling pressure succumbs to the buying pressure. They are called support levels. In an uptrend, the consecutive support and resistance levels must exceed each other respectively. The reverse is true in a downtrend. Although minor exceptions are acceptable, these failures should be considered as warning signals for trend changing.
The significance of trends is a function of time and volume. The longer the prices bounce off the support and resistance levels, the more significant the trend becomes. Trading volume is also very important, especially at the critical support and resistance levels. When the currency bounces off these levels under heavy volume, the significance of the trend increases.
The importance of support and resistance levels goes beyond their original functions. If these levels are convincingly penetrated, they tend to turn into just the opposite. A firm support level, once it is penetrated on heavy volume, will likely turn into a strong resistance level. Conversely, a strong resistance turns into a firm support after being penetrated. In general, to evaluate the reliability (that is the possibility of a break) of the trade channel borders taking a decision to close or to save an existing position one should govern himself with following rules:
1. A channel is the more reliable the longer it exists. Hence, the solidity of very old channels (e.g. existing more than 1 year) decreased sharply.
2. A channel is the more reliable the more is his width.
3. The resistance may be broken if it is bounced on the background of a growing volume.
4. A steep channel is less reliable in compare to a gentle one.
5. The support may be broken independent on the volume.
Simple Successful FOREX Technical Analysis Basics
What are the most simple things you studied or knew in technical analysis that you can use in FOREX trading?, of course most will answer this without even thinking about it, trend lines, resistance and support points and moving averages. The more professional traders will think more about it and would answer Yes, trend lines, resistance and support points and moving averages but who can use them alone successfully in trading FOREX?". Here it is my turn to answer, trend lines, resistance and support points and moving averages are the best simplest ways to achieve success trading FOREX and keep in the positive area always. Just to make it simple we need first to state the definition of these tools and later to know how to use and apply them to our chart in order to succeed and build a real FOREX fortune. 1. Trend Line : Trend line is the line that we can draw between two or more price tops or bottoms on a chart whatever was the type of the chart linear, bars or candlesticks", this line itself which could be an uptrend line which is being drawn between bottoms in a bullish market and it becomes a good support if the price goes south again or a downtrend line which is being drawn between price tops on the chart when market is down and it considered as a resistance when the price turns to up direction. Note: The line which touches more tops or bottoms is more stronger and the signal produced by it is more reliable. 2. Trend Channel : A trend channel is the space between two lines, the trend line and a parallel line to it which is always drawn on the opposite side of the trend line so it is drawn between tops in an up trend direction or through bottoms in a bearish price movement. The trend channel requires some conditions to give an accurate signal, the most important are: to be a wide channel, more wider more reliable and to last more longer. 3. Moving Average : Moving average is a mathematical average of set of prices we can say that a simple moving average (SMA) with value of 5 and applied to close is the sum of close prices for 5 moving bars on the chart divided to 5 (eg. the average of Friday is the sum of the previous 5 days week" on a daily chart divided to 5, while Thursday's average is the sum of the 5 days before divided to 5 and so, the moving average is the line which passes through these averages points", the most important condition for its reliability is its value, more greater value more reliable moving average. Note: I suggest using more than one moving average, 2 or 3 are acceptable. 4. Support And Resistance Points : Support points are the price points were tested more than two times when price was going south and it could not pass it, support points are completely the opposite. These points are being used to measure the probability of price turning at mean points, these points can be decided by using pivot points, fibonacci rates....etc." Note : The more times price touches a point and turn its direction the more stronger it is. How can we apply this to chart and get money, I'll summarize this in the following chart image, it explains itself, it's a chart for GBP/JPY, signal return was 1000+ pips in 2 days: Three moving averages were going south, trend line was broken price in green circle" a good support point 23.6% fibonacci was nearly broken", strong signal, yes? For the chart please visit MoneyTec The best resource for FOREX trading is MoneyTec, - Active Traders Community Forum, Chat. MoneyTec is an online trading community that promotes mature, intelligent & respectful discussion in a positive & safe environment for everyone.
Forex Charts - Make Bigger Profits by Following These Key Points
Forex charts are a great, time efficient and proven way to make bigger profits but most traders don't use them correctly and here we will give you some key points to help you make bigger profits...
Let's look at some key points for more profitable technical analysis with forex charts.
If you look at any forex chart you will see big trends that can last for many months and trend following these can be very profitable and if you want to make money out of them you must understand this key fact:
Most big trends start and continue from breakouts to new highs and lows on the chart and you must go with these breaks - most traders don't. They want to wait for the pullback and of course it never comes and they are left behind. While it appears like you have missed the first part of the move, the odds of continuation are high so go with them.
Always be patient when using forex charts. You don't get rewarded for your efforts or how many times you trade but being right with your trading signal. I know traders who trade just a few times a month yet make triple digit gains - so wait for the right opportunities.
When you have a trend you want to hit always check price momentum is on your side and make sure that you use momentum indicators that show price acceleration in the direction you wish to trade. Two great ones, you can learn, in about 30 minutes are - the stochastic and RSI. These two combined will increase your odds of success by getting the odds more on your side.
Never believe anyone who tells you there is a mathematical formula for market movement - there isn't. If of course there was, we would all know the price in advance and there would be no market. So forget trying to predict and only trade the reality of price.
Its probabilities that you need to understand and like a successful poker player, you won't win every hand - but if you keep trading the odds, you will win long term. When using forex charts, the simpler your forex trading method the better, as simple systems tend to be very robust and have fewer elements to break, than complicated ones.
I have used a simple breakout method which uses trend lines, RSI and the stochastic and made money with it for over 20 years sure, it's simple but it works. Forex charts give you the reality of price before your eyes and you can spot areas of over valuation and under valuation. Humans create trends and they also (due to their emotions) push trends to far up or down in either direction.
You can of course ride trends - but you will also see big price spikes and history tells you they don't last long and taking trades contrary to the majority can be very profitable. Charting is an art not a science and you need to practice your art. The successful captain of a ship uses charts to navigate safely, but he also knows that use them wrongly and he will drown and it's a very similar situation in forex.
The Good News
You can learn forex charting in around 2 weeks and soon be piling up big profits in around 30 minutes a day spotting and hitting high odds trades and enjoying great profits. The good news is forex trading and using technical analysis is a learned skill and one you can master with a little practice.
Let's look at some key points for more profitable technical analysis with forex charts.
If you look at any forex chart you will see big trends that can last for many months and trend following these can be very profitable and if you want to make money out of them you must understand this key fact:
Most big trends start and continue from breakouts to new highs and lows on the chart and you must go with these breaks - most traders don't. They want to wait for the pullback and of course it never comes and they are left behind. While it appears like you have missed the first part of the move, the odds of continuation are high so go with them.
Always be patient when using forex charts. You don't get rewarded for your efforts or how many times you trade but being right with your trading signal. I know traders who trade just a few times a month yet make triple digit gains - so wait for the right opportunities.
When you have a trend you want to hit always check price momentum is on your side and make sure that you use momentum indicators that show price acceleration in the direction you wish to trade. Two great ones, you can learn, in about 30 minutes are - the stochastic and RSI. These two combined will increase your odds of success by getting the odds more on your side.
Never believe anyone who tells you there is a mathematical formula for market movement - there isn't. If of course there was, we would all know the price in advance and there would be no market. So forget trying to predict and only trade the reality of price.
Its probabilities that you need to understand and like a successful poker player, you won't win every hand - but if you keep trading the odds, you will win long term. When using forex charts, the simpler your forex trading method the better, as simple systems tend to be very robust and have fewer elements to break, than complicated ones.
I have used a simple breakout method which uses trend lines, RSI and the stochastic and made money with it for over 20 years sure, it's simple but it works. Forex charts give you the reality of price before your eyes and you can spot areas of over valuation and under valuation. Humans create trends and they also (due to their emotions) push trends to far up or down in either direction.
You can of course ride trends - but you will also see big price spikes and history tells you they don't last long and taking trades contrary to the majority can be very profitable. Charting is an art not a science and you need to practice your art. The successful captain of a ship uses charts to navigate safely, but he also knows that use them wrongly and he will drown and it's a very similar situation in forex.
The Good News
You can learn forex charting in around 2 weeks and soon be piling up big profits in around 30 minutes a day spotting and hitting high odds trades and enjoying great profits. The good news is forex trading and using technical analysis is a learned skill and one you can master with a little practice.
Monday, February 1, 2010
FOREX Trading Strategy - The Secret of Timing
Once you¡¯ve identified a trading opportunity, the next step is to decide EXACTLY when to buy - and this is where many traders go wrong.
Here we explain how to incorporate better market timing into your FOREX strategy - so that you can make bigger profits.
Most traders time their entry levels incorrectly, so here¡¯s the right way to do it:
Using Support and Resistance Correctly
A basic wisdom of market timing is ¡°buy low, sell high¡± - well, the reality is, if you try this in FOREX trading, you¡¯ll end up losing money. First, let¡¯s define what support and resistance means
A support level is a historical price that traders come in, and buy to ¡°support the market¡± ¨C and the more times it¡¯s tested, the more valid the support will be.
Conversely, a resistance level is a level on the charts that ¡°resisted prices from moving higher¡±- again the more times it¡¯s tested, the more significant it becomes.
Why Buy Low and Sell High doesn¡¯t Work
¡°Buy low, sell high¡± is accepted wisdom by the majority of traders - but this logic is fundamentally flawed - use it in FOREX trading, and you¡¯re asking for trouble. Why? - If you wait for a pullback, you¡¯re going to miss some of the biggest moves.
Think about it - what if a currency starts to trend and doesn¡¯t pullback? (How often have you seen this?) If you¡¯re waiting for a pullback that never comes, you¡¯ll never get in on the trade ¨C and you¡¯ll miss a major opportunity.
You Need to Feel Uncomfortable
When Trading in the FOREX market, you should usually feel uncomfortable (and that¡¯s why most traders don¡¯t make these trades) - as no one likes to buy or sell after the market has started trending - but doing this will make you money.
The fact is, the more comfortable you feel when entering a trade at support, the less likely the trade will be a big winner.
During any given year, most of the big moves in currencies, take place from new MARKET HIGHS with NO pullback.
If you base your FOREX Trading strategy around waiting for a warm comfy entry, at key support, you¡¯re going to miss the biggest and most profitable trades ¨C so step away from the losing majority of traders.
Your FOREX trading strategy should give you a different mindset - most traders ¡°buy low and sell high¡± - so you should ¡°buy high and sell higher¡± ¨C i.e. you should be doing the opposite of what the crowd are doing.
Don¡¯t worry - most traders lose money, and their FOREX Trading strategy is based on the flawed logic we have just discussed - so not doing what they do makes total sense. Therefore, look for breakouts through support and resistance - and sell and buy respectively.
Its Tough Mentally - But it Makes Money!
Sure, it¡¯s hard to do - the majority don¡¯t agree with you - and no one likes to go against the majority. However, it¡¯s the right thing to do, to make your FOREX trading successful. Think about what we¡¯ve just said, and you¡¯ll see it makes logical sense.
Has this Happened to You?
How many times do traders buy into support, and the market breaks support, stops them out and continues to decline. On the other hand, another common scenario is, price never get to support - it simply goes higher - and the trader misses the chance to get in on the trend.
This type of trading is tough mentally - that¡¯s why 90% of traders don¡¯t do it - they want to be comfortable - well being comfortable is great, but you¡¯ll lose money.
Breakouts work, and if you use them in your FOREX Trading strategy, you won¡¯t be comfortable on entry - but you¡¯ll make money - and that will more than compensate.
The way to succeed in FOREX trading is to do what the losing majority don¡¯t do - then you can join the elite 10% of traders who make the big profits - try it and see!
Here we explain how to incorporate better market timing into your FOREX strategy - so that you can make bigger profits.
Most traders time their entry levels incorrectly, so here¡¯s the right way to do it:
Using Support and Resistance Correctly
A basic wisdom of market timing is ¡°buy low, sell high¡± - well, the reality is, if you try this in FOREX trading, you¡¯ll end up losing money. First, let¡¯s define what support and resistance means
A support level is a historical price that traders come in, and buy to ¡°support the market¡± ¨C and the more times it¡¯s tested, the more valid the support will be.
Conversely, a resistance level is a level on the charts that ¡°resisted prices from moving higher¡±- again the more times it¡¯s tested, the more significant it becomes.
Why Buy Low and Sell High doesn¡¯t Work
¡°Buy low, sell high¡± is accepted wisdom by the majority of traders - but this logic is fundamentally flawed - use it in FOREX trading, and you¡¯re asking for trouble. Why? - If you wait for a pullback, you¡¯re going to miss some of the biggest moves.
Think about it - what if a currency starts to trend and doesn¡¯t pullback? (How often have you seen this?) If you¡¯re waiting for a pullback that never comes, you¡¯ll never get in on the trade ¨C and you¡¯ll miss a major opportunity.
You Need to Feel Uncomfortable
When Trading in the FOREX market, you should usually feel uncomfortable (and that¡¯s why most traders don¡¯t make these trades) - as no one likes to buy or sell after the market has started trending - but doing this will make you money.
The fact is, the more comfortable you feel when entering a trade at support, the less likely the trade will be a big winner.
During any given year, most of the big moves in currencies, take place from new MARKET HIGHS with NO pullback.
If you base your FOREX Trading strategy around waiting for a warm comfy entry, at key support, you¡¯re going to miss the biggest and most profitable trades ¨C so step away from the losing majority of traders.
Your FOREX trading strategy should give you a different mindset - most traders ¡°buy low and sell high¡± - so you should ¡°buy high and sell higher¡± ¨C i.e. you should be doing the opposite of what the crowd are doing.
Don¡¯t worry - most traders lose money, and their FOREX Trading strategy is based on the flawed logic we have just discussed - so not doing what they do makes total sense. Therefore, look for breakouts through support and resistance - and sell and buy respectively.
Its Tough Mentally - But it Makes Money!
Sure, it¡¯s hard to do - the majority don¡¯t agree with you - and no one likes to go against the majority. However, it¡¯s the right thing to do, to make your FOREX trading successful. Think about what we¡¯ve just said, and you¡¯ll see it makes logical sense.
Has this Happened to You?
How many times do traders buy into support, and the market breaks support, stops them out and continues to decline. On the other hand, another common scenario is, price never get to support - it simply goes higher - and the trader misses the chance to get in on the trend.
This type of trading is tough mentally - that¡¯s why 90% of traders don¡¯t do it - they want to be comfortable - well being comfortable is great, but you¡¯ll lose money.
Breakouts work, and if you use them in your FOREX Trading strategy, you won¡¯t be comfortable on entry - but you¡¯ll make money - and that will more than compensate.
The way to succeed in FOREX trading is to do what the losing majority don¡¯t do - then you can join the elite 10% of traders who make the big profits - try it and see!
Bollinger Bands Can Give You a Huge Trading Edge
One of the critical pieces of forex education for any Forex trader is to understand the concept of standard deviation of price and how to use volatility to their advantage.
If you understand the concept you can easily apply it with Bollinger bands which are an essential tool for all forex traders.
Let¡¯s look at why Bollinger Bands are so useful and profitable, when incorporated in your Forex Strategy.
If you don¡¯t know what standard deviation is simply check our article on the concept ¨C right, let¡¯s take a look at Bollinger bands.
Bollinger Bands Defined
Bollinger bands are simply volatility bands drawn either side of a moving average.
You calculate Bollinger bands using the standard deviation of price over the same period as moving averages the mean price, then the volatility bands are plotted above and below the moving average.
Moving averages are used to identify the underlying trend of currencies and Bollinger bands take this one step further by:
Combining the moving average of the currency with the volatility of the individual market (or the standard deviation) ¨C this then creates a trading envelope ¨C with a middle mean price (moving average and 2 x bands (expanding or contracting) either side that reflect volatility or standard deviation.
As prices move away from the longer-term average, the standard deviation rises - and thus the bands will fluctuate in varying amounts, away from the average.
Why they work
In any market, the value of a currency traded tends to rise slowly over the longer term.
Prices can and do spike quickly in the short term, but will normally return to the longer term moving average - which represents fair value.
The standard deviation of the outer bands (how far they are from the mean) shows how far prices are from longer-term value.
Most price spikes are caused by trader psychology with greed and fear to the fore and this can be graphically seen with Bollinger bands.
So how should you use Bollinger bands?
There are 3 main ways to use them.
1. Spotting price spikes
When the bands are a long way from the mean you can use Bollinger bands as profit taking signal on existing trades or use them to spot contrary trades.
2. Enter exisiting trends
If you have a good trend in the forex markets then you can use dips to the middle band to buy at fair value.
3. Entering new trends
When prices are trading in tight range and start to breakout with a change in volatility a great new trend could be emerging.
Bollinger bands can certainly give you a new dimension to your forex trading strategy and any currency trading system can benefit from the extra insight that they can give you.
A word of warning
Like all technical indicators you should not use Bollinger bands in isolation to enter trades, however combined with timing indicators such as, the stochastic or RSI, then you have a powerful combination for greater FX profits.
With regard to forex education, knowing what standard deviation is and how to apply the concept through Bollinger Bands, will give you a huge trading edge, so make sure you use them.
If you understand the concept you can easily apply it with Bollinger bands which are an essential tool for all forex traders.
Let¡¯s look at why Bollinger Bands are so useful and profitable, when incorporated in your Forex Strategy.
If you don¡¯t know what standard deviation is simply check our article on the concept ¨C right, let¡¯s take a look at Bollinger bands.
Bollinger Bands Defined
Bollinger bands are simply volatility bands drawn either side of a moving average.
You calculate Bollinger bands using the standard deviation of price over the same period as moving averages the mean price, then the volatility bands are plotted above and below the moving average.
Moving averages are used to identify the underlying trend of currencies and Bollinger bands take this one step further by:
Combining the moving average of the currency with the volatility of the individual market (or the standard deviation) ¨C this then creates a trading envelope ¨C with a middle mean price (moving average and 2 x bands (expanding or contracting) either side that reflect volatility or standard deviation.
As prices move away from the longer-term average, the standard deviation rises - and thus the bands will fluctuate in varying amounts, away from the average.
Why they work
In any market, the value of a currency traded tends to rise slowly over the longer term.
Prices can and do spike quickly in the short term, but will normally return to the longer term moving average - which represents fair value.
The standard deviation of the outer bands (how far they are from the mean) shows how far prices are from longer-term value.
Most price spikes are caused by trader psychology with greed and fear to the fore and this can be graphically seen with Bollinger bands.
So how should you use Bollinger bands?
There are 3 main ways to use them.
1. Spotting price spikes
When the bands are a long way from the mean you can use Bollinger bands as profit taking signal on existing trades or use them to spot contrary trades.
2. Enter exisiting trends
If you have a good trend in the forex markets then you can use dips to the middle band to buy at fair value.
3. Entering new trends
When prices are trading in tight range and start to breakout with a change in volatility a great new trend could be emerging.
Bollinger bands can certainly give you a new dimension to your forex trading strategy and any currency trading system can benefit from the extra insight that they can give you.
A word of warning
Like all technical indicators you should not use Bollinger bands in isolation to enter trades, however combined with timing indicators such as, the stochastic or RSI, then you have a powerful combination for greater FX profits.
With regard to forex education, knowing what standard deviation is and how to apply the concept through Bollinger Bands, will give you a huge trading edge, so make sure you use them.
Online Forex Trading Strategies
Forex trading strategies are the key to successful forex trading or online currency trading. A knowledge of these forex trading strategies can mean the difference between a profit and a loss and it is therefore imperative that you fully understand the strategies used in forex trading.
Forex trading is very different from trading in stocks and using forex trading strategies will give you more advantages and help you realize even greater profits in the short term. There are a wide range of forex trading strategies available to investors and one of the most useful of these forex trading strategies is a strategy known as leverage.
This forex trading strategy is designed to allow online currency traders to avail of more funds than are deposited and by using this forex trading strategy you can maximize the forex trading benefits. Using this strategy you can actually utilize as much as 100 times the amount in your deposit account against any forex trade which will make backing higher yielding transactions even easier and therefore allowing better results in your forex trading
The leverage forex trading strategy is used on a regular basis and allows investors to take advantage of short term fluctuations in the forex market.
Another commonly used forex trading strategy is known as the stop loss order. This forex trading strategy is used to protect investors and it creates a predetermined point at which the investor will not trade. Using this forex trading strategy allows investors to minimize losses. This strategy can however, backfire and the investor can run the risk of stopping their forex trading which could actually go higher and it really is up to the individual trader to choose whether or not to use this forex trading strategy.
An automatic entry order is another of the forex trading strategies that is commonly used and this strategy is used to allow investors to enter into forex trading when the price is right for them. The price is predetermined and once reached the investor will automatically enter into the trading.
All these forex trading strategies are designed to help investors get the most from their forex trading and help to minimize their losses. As mentioned earlier knowledge of these forex trading strategies is vital if you wish to be successful in forex trading.
Forex trading is very different from trading in stocks and using forex trading strategies will give you more advantages and help you realize even greater profits in the short term. There are a wide range of forex trading strategies available to investors and one of the most useful of these forex trading strategies is a strategy known as leverage.
This forex trading strategy is designed to allow online currency traders to avail of more funds than are deposited and by using this forex trading strategy you can maximize the forex trading benefits. Using this strategy you can actually utilize as much as 100 times the amount in your deposit account against any forex trade which will make backing higher yielding transactions even easier and therefore allowing better results in your forex trading
The leverage forex trading strategy is used on a regular basis and allows investors to take advantage of short term fluctuations in the forex market.
Another commonly used forex trading strategy is known as the stop loss order. This forex trading strategy is used to protect investors and it creates a predetermined point at which the investor will not trade. Using this forex trading strategy allows investors to minimize losses. This strategy can however, backfire and the investor can run the risk of stopping their forex trading which could actually go higher and it really is up to the individual trader to choose whether or not to use this forex trading strategy.
An automatic entry order is another of the forex trading strategies that is commonly used and this strategy is used to allow investors to enter into forex trading when the price is right for them. The price is predetermined and once reached the investor will automatically enter into the trading.
All these forex trading strategies are designed to help investors get the most from their forex trading and help to minimize their losses. As mentioned earlier knowledge of these forex trading strategies is vital if you wish to be successful in forex trading.
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