The green line is the pivot point (P).
The red lines are resistance levels (R1, R2, R3).
The blue lines are support levels (S1, S2, S3).
Saturday, October 31, 2009
Understanding Pivot Points Using Charts.
Generally speaking, the pivot point is seen as the primary support or resistance level. The following chart is a 5 minute chart, where:
The green line is the pivot point (P).
The red lines are resistance levels (R1, R2, R3).
The blue lines are support levels (S1, S2, S3).
The green line is the pivot point (P).
The red lines are resistance levels (R1, R2, R3).
The blue lines are support levels (S1, S2, S3).
Monday, October 26, 2009
Using Pivot Points In Trading.
You are going to love this lesson. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.
The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.
Every day the market you are following has an open, high, low and a close for the day (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to use pivot points.
Daily pivot points give a structure to each new trading day in the currency market. With these values you can use traditional support and resistance techniques to enter and exit trades. But before I get to the strategy, I'll show you how to calculate pivot values.
Pivot Point (PP) = (High + Low + Close) / 3
Resistance 1 (R1) = (2 x Pivot Point) - Low
Support 1 (S1) = (2 x Pivot Point) - High
Resistance 2 (R2) = Pivot Point + (Resistance 1 - Support 1)
Support 2 (S2) = Pivot Point - (Resistance 1 - Support 1)
(Pivot values for several different currency pairs are posted on the TradingMarkets web site every day.)
The pivot values are plotted as horizontal levels which, in turn, serve as support and resistance. The pivot point itself can be thought of as the day's mid-point, or fulcrum. It's where the buyers and sellers meet to determine the day's trend in a currency pair. The support and resistance levels that are plotted around the pivot point are just that: potential support and resistance.
A daily pivot point (in green), S2, S1, R1, and R2 values are plotted on the chart below of the EUR/USD FX future. The chart is a 5-minute interval. Notice how the Euro broke above the pivot point early in the day, and then proceeded to trade up to R1, where it met resistance and gyrated for the rest of the day. There are many sites providing facilities to calculate pivot points, like the following site:
http://www.earnforex.com/pivot_points_calculator.php
The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.
Every day the market you are following has an open, high, low and a close for the day (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to use pivot points.
Daily pivot points give a structure to each new trading day in the currency market. With these values you can use traditional support and resistance techniques to enter and exit trades. But before I get to the strategy, I'll show you how to calculate pivot values.
Pivot Point (PP) = (High + Low + Close) / 3
Resistance 1 (R1) = (2 x Pivot Point) - Low
Support 1 (S1) = (2 x Pivot Point) - High
Resistance 2 (R2) = Pivot Point + (Resistance 1 - Support 1)
Support 2 (S2) = Pivot Point - (Resistance 1 - Support 1)
(Pivot values for several different currency pairs are posted on the TradingMarkets web site every day.)
The pivot values are plotted as horizontal levels which, in turn, serve as support and resistance. The pivot point itself can be thought of as the day's mid-point, or fulcrum. It's where the buyers and sellers meet to determine the day's trend in a currency pair. The support and resistance levels that are plotted around the pivot point are just that: potential support and resistance.
A daily pivot point (in green), S2, S1, R1, and R2 values are plotted on the chart below of the EUR/USD FX future. The chart is a 5-minute interval. Notice how the Euro broke above the pivot point early in the day, and then proceeded to trade up to R1, where it met resistance and gyrated for the rest of the day. There are many sites providing facilities to calculate pivot points, like the following site:
http://www.earnforex.com/pivot_points_calculator.php
Friday, October 23, 2009
How To Place A Forex Order.
Whether you are trading in a demo account or a live "real money" account, when you are ready to make a trade, you will need to place an order with your Forex broker. You will place an order to start a new trade or to end a trade. So now, we'll talk about the types of orders that apply to the Foreign Exchange Market.
Market Order – It is an order where you can buy or sell a currency pair at the market price the second that the order is processed. Customers utilizing ACM's online currency trading platform click on the buy or sell button after having specified their deal size. The execution of the order is instant; this means that the price assured at the exact time of the click will be given to the customer. Setting a market order by phone is quite similar but normally takes a few seconds more time.
Entry order – It is an order where you can buy or sell a currency pair when it attains a certain price target. In theory, this can be any price. You can set an entry order for the low price of a time period or the high price of a time period. The entry order is also studied by university students under forex trading education.
Limit Orders - A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. The trader specifies the price at which he wishes to buy/sell a certain currency pair and also specifies the duration that the order should remain active.
GTC (Good till cancelled): A GTC order remains active in the market until the trader decides to cancel it. The dealer will not cancel the order at any time therefore it is the customer's responsibility to remember that he possesses the order.
GFD (Good for the day): A GFD order remains active in the market until the end of the trading day. Since foreign exchange is an ongoing market the end of day must be a set hour.
For ACM the end of the trading day occurs at exactly 23:00 CET.
Stop orders - A stop order is also an order placed to buy or sell at a certain price. The order contains the same two variables, price and duration. The main difference between a limit order and a stop order is that stop orders are usually used to limit loss potential on a transaction whilst limit orders are used to enter the market, add to a pre-existing position and profit taking. The same variations are used to specify duration as in limit orders (GTC and GFD). Let's take the following example:
Example: Trader x Buys EUR/USD 100'000 @ 0.9340, he's expecting a 60 to 70 pip move in the market but he wants to protect himself in case he has overestimated the potential strength of the Euro. He knows that 0.9310 is a b support level so he places a stop loss order to sell at that level. Trader x has limited his risk on this particular trade to 30 pips or USD 300.
Another usage of a stop order is when a trader is expecting a price breakout to occur and wishes to grasp the opportunity to 'ride' the breakout. In this case a trade will place an order to buy or sell 'on stop'. To illustrate the logic behind this let's review the following scenario:
Example: Trader x sees EUR/USD breaking through the 0.9390 resistance level. He believes that if this happens, the price of EUR/USD could be headed to 0.9450 or over. At this point the market is at 0.9350 so trader x places an order to initiate a buying position of 500'000 at 0.9392 'on stop'.
OCO - An OCO (order cancels other) order is a mixture of 2 limit and/or stop orders. 2 orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is cancelled. To illustrate how an OCO order works let's take the following example:
Example: The price of EUR/USD is 0.9340. Trader x wants to either buy 500'000 at 0.9395 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls to 0.9300. The understanding is that if 0.9395 is reached, he will buy 500'000 and the 0.9300 order will be automatically cancelled.
Market Order – It is an order where you can buy or sell a currency pair at the market price the second that the order is processed. Customers utilizing ACM's online currency trading platform click on the buy or sell button after having specified their deal size. The execution of the order is instant; this means that the price assured at the exact time of the click will be given to the customer. Setting a market order by phone is quite similar but normally takes a few seconds more time.
Entry order – It is an order where you can buy or sell a currency pair when it attains a certain price target. In theory, this can be any price. You can set an entry order for the low price of a time period or the high price of a time period. The entry order is also studied by university students under forex trading education.
Limit Orders - A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. The trader specifies the price at which he wishes to buy/sell a certain currency pair and also specifies the duration that the order should remain active.
GTC (Good till cancelled): A GTC order remains active in the market until the trader decides to cancel it. The dealer will not cancel the order at any time therefore it is the customer's responsibility to remember that he possesses the order.
GFD (Good for the day): A GFD order remains active in the market until the end of the trading day. Since foreign exchange is an ongoing market the end of day must be a set hour.
For ACM the end of the trading day occurs at exactly 23:00 CET.
Stop orders - A stop order is also an order placed to buy or sell at a certain price. The order contains the same two variables, price and duration. The main difference between a limit order and a stop order is that stop orders are usually used to limit loss potential on a transaction whilst limit orders are used to enter the market, add to a pre-existing position and profit taking. The same variations are used to specify duration as in limit orders (GTC and GFD). Let's take the following example:
Example: Trader x Buys EUR/USD 100'000 @ 0.9340, he's expecting a 60 to 70 pip move in the market but he wants to protect himself in case he has overestimated the potential strength of the Euro. He knows that 0.9310 is a b support level so he places a stop loss order to sell at that level. Trader x has limited his risk on this particular trade to 30 pips or USD 300.
Another usage of a stop order is when a trader is expecting a price breakout to occur and wishes to grasp the opportunity to 'ride' the breakout. In this case a trade will place an order to buy or sell 'on stop'. To illustrate the logic behind this let's review the following scenario:
Example: Trader x sees EUR/USD breaking through the 0.9390 resistance level. He believes that if this happens, the price of EUR/USD could be headed to 0.9450 or over. At this point the market is at 0.9350 so trader x places an order to initiate a buying position of 500'000 at 0.9392 'on stop'.
OCO - An OCO (order cancels other) order is a mixture of 2 limit and/or stop orders. 2 orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is cancelled. To illustrate how an OCO order works let's take the following example:
Example: The price of EUR/USD is 0.9340. Trader x wants to either buy 500'000 at 0.9395 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls to 0.9300. The understanding is that if 0.9395 is reached, he will buy 500'000 and the 0.9300 order will be automatically cancelled.
Some Forex Quotations.
Now i'm going to post some famous forex quotes, this might sound off-topic but m going to post it anyways, :D
1.“If you get in on Jones’ tip; get out on Jones’ tip”. If you are riding another person’s idea, ride it all the way.
2. Run early or not at all. Don't be an eleven o'clock bull or a five o'clock bear.
3. Woodrow Wilson said, "a governments first priority is to organize the common interest against special interests". Successful traders seek out market opportunities capitalizing on the reality that government's first priority is rarely achieved.
4. People who buy headlines eventually end up selling newspapers.
5. If you do not know who you are, the market is an expensive place to find out.
6. Never give advice-the smart don't need it and the stupid don't heed it.
7. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word-nobody! Thus the successful trader bases no moves on what supposedly will happen but reacts instead to what does happen.
8. Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
9. Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does console yourself by thinking of all the times when liquidating early preserved gains you would otherwise have lost.
10. When the ship starts to sink, don't pray-jump!
11. Life never happens in a straight line. Any adult knows this. But we can too easily be hypnotized into forgetting it when contemplating a chart. Beware of the chartist's illusion.
12. Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
13. Whatever you do, whether you bet with the herd or against, think it through independently first.
14. Repeatedly reevaluate your open positions. Keep asking yourself: would I put my money into this if it were presented to me for the first time today? Is this trade progressing toward the ending position I envisioned?
15. It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments "ride". Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly-hold losses to a minimum.
16. As a rule of thumb good trend lines should touch at least three previous highs or lows. The more points the line catches, the better the line.
17. Volume and open interest are as important to the technician as price.
18. The clearest and easiest way to determine a trend is from previous highs and lows. Higher highs and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
19. Don't sell a quiet market after a fall because a low volume sell-off is actually a very bullish situation.
20. Prices are made in the minds of men, not in the soybean field: fear and greed can temporarily drive prices far beyond their so called real value.
21. When the market breaks through a weekly or monthly high, it is a buy signal. When it breaks through the previous weekly or monthly low, it is a sell signal.
22. Every sunken ship has a chart.
1.“If you get in on Jones’ tip; get out on Jones’ tip”. If you are riding another person’s idea, ride it all the way.
2. Run early or not at all. Don't be an eleven o'clock bull or a five o'clock bear.
3. Woodrow Wilson said, "a governments first priority is to organize the common interest against special interests". Successful traders seek out market opportunities capitalizing on the reality that government's first priority is rarely achieved.
4. People who buy headlines eventually end up selling newspapers.
5. If you do not know who you are, the market is an expensive place to find out.
6. Never give advice-the smart don't need it and the stupid don't heed it.
7. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word-nobody! Thus the successful trader bases no moves on what supposedly will happen but reacts instead to what does happen.
8. Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
9. Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does console yourself by thinking of all the times when liquidating early preserved gains you would otherwise have lost.
10. When the ship starts to sink, don't pray-jump!
11. Life never happens in a straight line. Any adult knows this. But we can too easily be hypnotized into forgetting it when contemplating a chart. Beware of the chartist's illusion.
12. Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
13. Whatever you do, whether you bet with the herd or against, think it through independently first.
14. Repeatedly reevaluate your open positions. Keep asking yourself: would I put my money into this if it were presented to me for the first time today? Is this trade progressing toward the ending position I envisioned?
15. It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments "ride". Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly-hold losses to a minimum.
16. As a rule of thumb good trend lines should touch at least three previous highs or lows. The more points the line catches, the better the line.
17. Volume and open interest are as important to the technician as price.
18. The clearest and easiest way to determine a trend is from previous highs and lows. Higher highs and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
19. Don't sell a quiet market after a fall because a low volume sell-off is actually a very bullish situation.
20. Prices are made in the minds of men, not in the soybean field: fear and greed can temporarily drive prices far beyond their so called real value.
21. When the market breaks through a weekly or monthly high, it is a buy signal. When it breaks through the previous weekly or monthly low, it is a sell signal.
22. Every sunken ship has a chart.
Wednesday, October 21, 2009
How To Trade Trend Lines?
Only one of two things can happen when a price approaches support or resistance: the price can break through it, or it can bounce off and reverse direction. The same is of course true for trend lines.
Trading on a Pullback
If a chart is trending in a clear direction, and a trend line can be drawn connecting a series of relative highs or relative lows, trading opportunities exist when the price approaches the trend line. If the price bounces off the trend line and resumes the trend in the original direction, this can be an excellent opportunity to enter the market in the direction of the dominant trend. This is often referred to as buying on a pullback in an up trend or selling into strength in a downtrend.
Buying on a bounce off such a support line can be done through a limit order just above the support.
Trading a Break of the Trend
The second possible trade is the break of the trend line, which can be traded just as any other broken support or resistance line. If a candle closes through a trend line to the downside, as in the example below, the proper entry point would be to sell once the price moves below the low of the breakthrough candle.
This ensures that the short term force is in the direction of the break lower. The opposite would be true for a break above a resistance line.
Trading on a Pullback
If a chart is trending in a clear direction, and a trend line can be drawn connecting a series of relative highs or relative lows, trading opportunities exist when the price approaches the trend line. If the price bounces off the trend line and resumes the trend in the original direction, this can be an excellent opportunity to enter the market in the direction of the dominant trend. This is often referred to as buying on a pullback in an up trend or selling into strength in a downtrend.
Buying on a bounce off such a support line can be done through a limit order just above the support.
Trading a Break of the Trend
The second possible trade is the break of the trend line, which can be traded just as any other broken support or resistance line. If a candle closes through a trend line to the downside, as in the example below, the proper entry point would be to sell once the price moves below the low of the breakthrough candle.
This ensures that the short term force is in the direction of the break lower. The opposite would be true for a break above a resistance line.
Monday, October 19, 2009
Understanding Trend Lines.
Trend Lines are the most powerful technical analysis tools. They allow you to gauge the trends direction, identify potential reversal levels and enter trades with low risk and high reward. In this article, you will learn how to use trend lines indicators in FOREX trading
An uptrend creates a series of trends that have higher lows and highs. A trend line drawn between the rising lows can often be fairly accurate in determining where the market can find greater support during the next low trend and indicate fairly good buying levels. In the Up Trend, Forex trend line that connects at least two lowest low (Low open/Close) will create a trend line. In the uptrend a trend line acts as Support.
Many Forex traders will choose an area below the trend line at which stop orders are are placed resulting in a sharp sell off. New sellers are generally attracted by breaks below the uptrend line. It's quite normal to see a series of lower lows and lower highs during a downward trend in the market.In this case, the trend line is drawn in alignment with the descending highs and will mirror the analysis as described above. In the Down Trend Forex trend line that connects at least two highest highs (High Open/Close) will create a trend line. In the downtrend a trend line acts as Resistance.
An uptrend creates a series of trends that have higher lows and highs. A trend line drawn between the rising lows can often be fairly accurate in determining where the market can find greater support during the next low trend and indicate fairly good buying levels. In the Up Trend, Forex trend line that connects at least two lowest low (Low open/Close) will create a trend line. In the uptrend a trend line acts as Support.
Many Forex traders will choose an area below the trend line at which stop orders are are placed resulting in a sharp sell off. New sellers are generally attracted by breaks below the uptrend line. It's quite normal to see a series of lower lows and lower highs during a downward trend in the market.In this case, the trend line is drawn in alignment with the descending highs and will mirror the analysis as described above. In the Down Trend Forex trend line that connects at least two highest highs (High Open/Close) will create a trend line. In the downtrend a trend line acts as Resistance.
Sunday, October 18, 2009
Leading And Lagging Indicators.
The term “indicator” refers to a metric whose main task is to point towards a certain situation/aspect etc - in short: to “indicate” something. For example the metric “cost-per-click” indicates how much one has to pay for one click at a certain time on a certain link.
Leading Technical Indicators are the indicators that help to predict possible future trend. Many trading systems use these types of indicators to generate trend reversal signals. However, there is no guarantee that the analyzed security, index or market will reverse its trend after a signal is generated. The common problem with this type of technical studies is that in some cases a trade could be opened too early and the signal could be ignored (no reversal). Examples of such indicators could be volume based technical indicators. Examples of these would be:
1. number of booked impressions for a certain ad position for the coming quarter (e.g. 100000 ad impressions for REC booked for Q2 2007)
2. budget for specific keyword groups for the next quarter (e.g. 100.000 USD for keyword-group “fitness” booked for Q2 2007)
3. number of leads referred by affiliate partner campaigns to a certain product (e.g. 500.000 leads monthly referred by campaign “X” to product “Y”)
Lagging Technical Indicators are the technical indicators that would rather follow a trend then predict its reversal. These studies are more reliable than the leading technical indicators. However they have other problem: in many cases a trade could be opened and closed when it is too late and the trend already in reversal movement. Example of these studies could be MACD, Moving Averages, etc. Examples
1. number of page impressions for a specific product within the past month (e.g. 1 million page impressions for product “X” in August 2006)
2. number of unique users for a specific site (e.g. 100.000 unique users for the sports special “FIFA WM” in June 2006)
3. amount of revenue generated with a specific product
Leading indicators mostly refer to the beginning of the value chain and reflect the drivers and/or causes of value whereas lagging indicators mostly refer to the end of the value chain and reflect the effect certain measures, decisions, actions had.
Leading Technical Indicators are the indicators that help to predict possible future trend. Many trading systems use these types of indicators to generate trend reversal signals. However, there is no guarantee that the analyzed security, index or market will reverse its trend after a signal is generated. The common problem with this type of technical studies is that in some cases a trade could be opened too early and the signal could be ignored (no reversal). Examples of such indicators could be volume based technical indicators. Examples of these would be:
1. number of booked impressions for a certain ad position for the coming quarter (e.g. 100000 ad impressions for REC booked for Q2 2007)
2. budget for specific keyword groups for the next quarter (e.g. 100.000 USD for keyword-group “fitness” booked for Q2 2007)
3. number of leads referred by affiliate partner campaigns to a certain product (e.g. 500.000 leads monthly referred by campaign “X” to product “Y”)
Lagging Technical Indicators are the technical indicators that would rather follow a trend then predict its reversal. These studies are more reliable than the leading technical indicators. However they have other problem: in many cases a trade could be opened and closed when it is too late and the trend already in reversal movement. Example of these studies could be MACD, Moving Averages, etc. Examples
1. number of page impressions for a specific product within the past month (e.g. 1 million page impressions for product “X” in August 2006)
2. number of unique users for a specific site (e.g. 100.000 unique users for the sports special “FIFA WM” in June 2006)
3. amount of revenue generated with a specific product
Leading indicators mostly refer to the beginning of the value chain and reflect the drivers and/or causes of value whereas lagging indicators mostly refer to the end of the value chain and reflect the effect certain measures, decisions, actions had.
Wednesday, October 14, 2009
Forex Trading In India: Legal Or Not?
Still i can see debates going on this topic that whether forex trading is legal in india or not? People are still in doubt. Those who are against the trading in india say that forex trading is illegal in india is that Only corporates are allowed to trade in forex - subject to the condition that they can use only their free dollar reserves. i.e. they cant purchase dollars by converting rupees into dollar, they can use only the existing dollars they have earned in normal business. Also another condition is that they cannot use leaverage of more than 10 times. Forex trading for indivisual is strictly not allowed for indians, forex trding is explicitly banned in FEMA and is non-bailable offence.
Well lets talk about what i feel that if you are intersted in forex trading Open an online share trading or forex trading or currency trading account whose registered Regulatory office is based anywhere out side Indian Jurisdcition. Then open an International Personal Banking Account in the same country bank where you hold trading account and I would like to say that it is allowed as per the LRS scheme FAQ point number 36 mentioned on http://www.rbi.org.in/scripts/FAQView.aspx?Id=53
Once you open a trading account AND also an international personal banking account in jurisdiction which falls outside India, then you can first of all send the money to you international personal banking account using the LRS scheme. And once it's remitted the powers of Indian jurisdiction is over. Then from that bank account simply transfer to your trading account which is also in the same country and does not falls in Indian Jurisdiction. This is the way and legal way to do forex trading using the LRS scheme and within legal limits.
In simple words select a broker online first then you just need to deposit funds in your online account with your credit card, or Paypal and do trading. You can also withdraw your funds through Paypal. Your bank won't even care where you spent your money, or from where you even got it.
HAPPY TRADING!
Well lets talk about what i feel that if you are intersted in forex trading Open an online share trading or forex trading or currency trading account whose registered Regulatory office is based anywhere out side Indian Jurisdcition. Then open an International Personal Banking Account in the same country bank where you hold trading account and I would like to say that it is allowed as per the LRS scheme FAQ point number 36 mentioned on http://www.rbi.org.in/scripts/FAQView.aspx?Id=53
Once you open a trading account AND also an international personal banking account in jurisdiction which falls outside India, then you can first of all send the money to you international personal banking account using the LRS scheme. And once it's remitted the powers of Indian jurisdiction is over. Then from that bank account simply transfer to your trading account which is also in the same country and does not falls in Indian Jurisdiction. This is the way and legal way to do forex trading using the LRS scheme and within legal limits.
In simple words select a broker online first then you just need to deposit funds in your online account with your credit card, or Paypal and do trading. You can also withdraw your funds through Paypal. Your bank won't even care where you spent your money, or from where you even got it.
HAPPY TRADING!
Friday, October 9, 2009
Candelstick Reversal Patterns.
Candlestick patterns can consist of just one candlestick or couple of them, usually not more than six, some reversal patterns are described below:
Hammer And Hanging Man Patterns
This is a one candlestick pattern with small body and long lower shadow (and no upper shadow). The hammer occurs in a downtrend and hanging man in the uptrend. The smaller the body is and the longer the long lower shadow is, the better is the actual signal. Also, hanging man with a black body is more bearish and hammer with white body more bullish.
Engulfing Pattern
It consists of two bodies ( two candlesticks ) of which one is filled and one is empty. The second day’s body should be engulfing the first day’s body like you can see on the picture. Shadows are not important. This pattern predicts end to the previous trend. The first day’s color should reflect the trend (filled for downtrend and empty for uptrend).Note that in order to make any conclusions from this pattern, there must be a previous trend. The bigger the second day’s engulfing is, the more likely signal it is.
Bullish: when a white, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.
Bearish: when a black, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.
Stars make up part of four separate reversal patterns:
Morning Star: This is a bullish reversal pattern that consists of long filled body which is followed by small body (and a gap between them), followed by a long empty body. It’s good if there’s a gap both after and before the middle body. Like with most reversal candlestick patterns, the first body should be according to the previous trend. Note that in case of the second body it is not important whether it is filled or empty.
Evening Star: A bearish top reversal pattern and counterpart to the Morning Star. Three candlesticks compose the evening star, the first being long and white. The second forms a star, followed by the third, which has a black real body that moves sharply into the first white candlestick.
Doji Stars
When a doji gaps above a real body in an uptrend, or gaps under a real body in a falling market, that particular doji is called a doji star. Two popular doji stars are the evening star and the morning star.
Evening Doji Star: A doji star in an uptrend followed by a long, black real body that closed well into the prior white real body. If the candlestick after the doji star is white and gapped higher, the bearishness of the doji is invalidated.
Morning Doji Star: A doji star in a downtrend followed by a long, white real body that closes well into the prior black real body. If the candlestick after the doji star is black and gapped lower, the bullishness of the doji is invalidated.
Hammer And Hanging Man Patterns
This is a one candlestick pattern with small body and long lower shadow (and no upper shadow). The hammer occurs in a downtrend and hanging man in the uptrend. The smaller the body is and the longer the long lower shadow is, the better is the actual signal. Also, hanging man with a black body is more bearish and hammer with white body more bullish.
Engulfing Pattern
It consists of two bodies ( two candlesticks ) of which one is filled and one is empty. The second day’s body should be engulfing the first day’s body like you can see on the picture. Shadows are not important. This pattern predicts end to the previous trend. The first day’s color should reflect the trend (filled for downtrend and empty for uptrend).Note that in order to make any conclusions from this pattern, there must be a previous trend. The bigger the second day’s engulfing is, the more likely signal it is.
Bullish: when a white, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.
Bearish: when a black, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.
Stars make up part of four separate reversal patterns:
Morning Star: This is a bullish reversal pattern that consists of long filled body which is followed by small body (and a gap between them), followed by a long empty body. It’s good if there’s a gap both after and before the middle body. Like with most reversal candlestick patterns, the first body should be according to the previous trend. Note that in case of the second body it is not important whether it is filled or empty.
Evening Star: A bearish top reversal pattern and counterpart to the Morning Star. Three candlesticks compose the evening star, the first being long and white. The second forms a star, followed by the third, which has a black real body that moves sharply into the first white candlestick.
Doji Stars
When a doji gaps above a real body in an uptrend, or gaps under a real body in a falling market, that particular doji is called a doji star. Two popular doji stars are the evening star and the morning star.
Evening Doji Star: A doji star in an uptrend followed by a long, black real body that closed well into the prior white real body. If the candlestick after the doji star is white and gapped higher, the bearishness of the doji is invalidated.
Morning Doji Star: A doji star in a downtrend followed by a long, white real body that closes well into the prior black real body. If the candlestick after the doji star is black and gapped lower, the bullishness of the doji is invalidated.
Thursday, October 8, 2009
Candelstick Patterns.
Marubozu
Marubozu may sound like voodoo magic. Luckily, Marubozu is not voodoo and no one will cast a wicked spell on you. This term means that the real bodies do not have shadows at all. When a Marubozu forms, the high and low are similar to the opening and closing prices. The diagram below will show you the two different kinds of Marubozu.
The white Marubozu will show a long body without shadows. This means the open price is equivalent to the closing price. It also means that the highs and lows are also equal.
When you see this candle, this means there is bullishness in the market as buyer take command of the entire season. This is also the first step of a continuing bullish trend or a pattern of bullish reversal.
The black Marubozu will show a long bodied filled candle without shadows. This indicates that the opening price is equivalent to the high while the closing price is equivalent to the low.
There is a bearish mood at the market if a black Marubozu appears showing that sellers are taking command. This is also an indication of continuing bearishness or a bearish reversal.
The Spinning Tops Pattern
Spinning tops are characterized by candlesticks with small real bodies, long upper shadow, and long lower shadow. Real body color is not really important. This pattern means that buyers and sellers are reluctant to decide.
Hollow or filled, the small real bodies indicate little activity from open to close. The upper and lower shadows show the struggle between buyers and seller. However, no one can really gain the top position.
The prices can move higher and lower for a time even if the opening and closing prices shows insignificant changes. There is essentially a standoff between buyers and sellers because no one is gaining.
When you spot a spinning top during an upswing, it could mean that there is a dearth of buyers. A reversal in that direction is likely to happen.
When a spinning top emerges on a downswing, sellers are lacking and you should watch out for a reversal in the other direction which could occur soon.
The Doji Candlestick Pattern
Doji sticks have the same open and close price. Obviously in fluctuating currency markets, identical open and close prices may be rare, but if they are close enough then the candlestick can be said to be a Doji.
A Long-Legged Doji has long shadows protruding from it, indicating that there is considerable fluctuation on both sides of the open price, during the course of the trading period. Ultimately the period ends with the close price retracting back to the open price. It is a good signal of market indecision.
A Dragonfly Doji has only one long shadow, on the lower end of the open and close price. This indicates that all price activity during the trading period is on the lower side of the open price, but by the end of the trading period the price has moved back up to the open price. It is a good signal of a bearish trend reversal, i.e. price should now move upwards.
A Gravestone Doji is the opposite of a Dragonfly and again has one long shadow, to the high side of the open and close price. It indicates that during the price period all price activity is at the upper end, but that the price retracts back to open price by the end of the trading period. It is a good signal of a bullish trend reversal, i.e. price should now move downwards.
A 4-Price Doji is a rare event, in that for the prescribed trading period, the open, close, high and low price points are the same. Such an event is rare in currency trading and normally only happens when trading is suspended.
Marubozu may sound like voodoo magic. Luckily, Marubozu is not voodoo and no one will cast a wicked spell on you. This term means that the real bodies do not have shadows at all. When a Marubozu forms, the high and low are similar to the opening and closing prices. The diagram below will show you the two different kinds of Marubozu.
The white Marubozu will show a long body without shadows. This means the open price is equivalent to the closing price. It also means that the highs and lows are also equal.
When you see this candle, this means there is bullishness in the market as buyer take command of the entire season. This is also the first step of a continuing bullish trend or a pattern of bullish reversal.
The black Marubozu will show a long bodied filled candle without shadows. This indicates that the opening price is equivalent to the high while the closing price is equivalent to the low.
There is a bearish mood at the market if a black Marubozu appears showing that sellers are taking command. This is also an indication of continuing bearishness or a bearish reversal.
The Spinning Tops Pattern
Spinning tops are characterized by candlesticks with small real bodies, long upper shadow, and long lower shadow. Real body color is not really important. This pattern means that buyers and sellers are reluctant to decide.
Hollow or filled, the small real bodies indicate little activity from open to close. The upper and lower shadows show the struggle between buyers and seller. However, no one can really gain the top position.
The prices can move higher and lower for a time even if the opening and closing prices shows insignificant changes. There is essentially a standoff between buyers and sellers because no one is gaining.
When you spot a spinning top during an upswing, it could mean that there is a dearth of buyers. A reversal in that direction is likely to happen.
When a spinning top emerges on a downswing, sellers are lacking and you should watch out for a reversal in the other direction which could occur soon.
The Doji Candlestick Pattern
Doji sticks have the same open and close price. Obviously in fluctuating currency markets, identical open and close prices may be rare, but if they are close enough then the candlestick can be said to be a Doji.
A Long-Legged Doji has long shadows protruding from it, indicating that there is considerable fluctuation on both sides of the open price, during the course of the trading period. Ultimately the period ends with the close price retracting back to the open price. It is a good signal of market indecision.
A Dragonfly Doji has only one long shadow, on the lower end of the open and close price. This indicates that all price activity during the trading period is on the lower side of the open price, but by the end of the trading period the price has moved back up to the open price. It is a good signal of a bearish trend reversal, i.e. price should now move upwards.
A Gravestone Doji is the opposite of a Dragonfly and again has one long shadow, to the high side of the open and close price. It indicates that during the price period all price activity is at the upper end, but that the price retracts back to open price by the end of the trading period. It is a good signal of a bullish trend reversal, i.e. price should now move downwards.
A 4-Price Doji is a rare event, in that for the prescribed trading period, the open, close, high and low price points are the same. Such an event is rare in currency trading and normally only happens when trading is suspended.
Wednesday, October 7, 2009
Introduction: Candlestick Charts.
Candlestick charts were derived over 200 years ago by the Japanese, who used them for the purpose of doing analysis of the rice markets. The technique evolved over time into what is now the candlestick technique used in Japan and indeed by millions of technical traders around the world. They are visually more attractive than standard bar and line charts and they make for a clearer market reading, once understood. Now the question arises that why to use these candlestick charts in forex trading so here is the answer:
Why Use Japanese Candlestick Charting
Candlestick charting utilizes the same information that appear on the bar chart and used primarily as visual aid. This method is adopted internationally by traders, investors and premier financial institutions because of the following advantages:
a. Can be easily interpreted/understood. Beginners as well as seasoned traders, can easily figure out the trading movement in candlestick analysis because it employs the same data (high, low, open, close) required in plotting a bar chart
b. Powerful tool in pinpointing market turning points. Reversal signals (uptrend to downtrend and vice versa) are visible in candlestick chart after a few sessions unlike in the traditional bar chart. Most likely, market turns with the candle charts are advance thus the trader can send out and exit the market with better timing.
c. Provide unique market insights. Unlike the bar chart, Candle charts showed not only show the trend of the move but the force underpinning the move as well.
The information in the candlestick chart and the bar chart are the same, however, candlestick chart is pleasant to look at because of its graphical format.
Candlestick bars show the high-to-low ranges with a vertical line. The top of the block is the opening price and the bottom is the closing. The middle block is the range indicator showing the opening and closing prices.
If the closing price is higher than the opening price, the middle block will be hallow or white, and if the concluded price of the currency is lower than its opening price, then middle block is filled or colored.
Why Use Japanese Candlestick Charting
Candlestick charting utilizes the same information that appear on the bar chart and used primarily as visual aid. This method is adopted internationally by traders, investors and premier financial institutions because of the following advantages:
a. Can be easily interpreted/understood. Beginners as well as seasoned traders, can easily figure out the trading movement in candlestick analysis because it employs the same data (high, low, open, close) required in plotting a bar chart
b. Powerful tool in pinpointing market turning points. Reversal signals (uptrend to downtrend and vice versa) are visible in candlestick chart after a few sessions unlike in the traditional bar chart. Most likely, market turns with the candle charts are advance thus the trader can send out and exit the market with better timing.
c. Provide unique market insights. Unlike the bar chart, Candle charts showed not only show the trend of the move but the force underpinning the move as well.
The information in the candlestick chart and the bar chart are the same, however, candlestick chart is pleasant to look at because of its graphical format.
Candlestick bars show the high-to-low ranges with a vertical line. The top of the block is the opening price and the bottom is the closing. The middle block is the range indicator showing the opening and closing prices.
If the closing price is higher than the opening price, the middle block will be hallow or white, and if the concluded price of the currency is lower than its opening price, then middle block is filled or colored.
Tuesday, October 6, 2009
Advantages Of Using Support And Resistance.
The importance of studying support and resistance levels in multiple timeframes cannot be overestimated. Starting from the longest term chart (monthly), traders need to establish the important support and resistances and then transfer them to the medium term chart (weekly) of the same market. Then, having added any new medium term support and resistances that can be discovered, transfer all levels to a short term chart (daily). To summarise:-
1) The study of support and resistance is vital for controlling a position: where to cut risk and where to take profit.
2) trends, patterns and Fibonacci constructions all give rise to support and resistance levels in a single chart.
3) Multiple timeframes give rise to still more levels.
4) The supports and resistances derived from all these timeframes can be simplified by assessing their importance and proximity to any given position.
6) The most important thing is that you will never get a sense of confidence from oscillators. The problem with oscillators is they tell you what happened in the past, and they’re derived from price, Oscillators don’t tell you very much about the future. The way most traders use them, they’re not much better than flipping a coin.
1) The study of support and resistance is vital for controlling a position: where to cut risk and where to take profit.
2) trends, patterns and Fibonacci constructions all give rise to support and resistance levels in a single chart.
3) Multiple timeframes give rise to still more levels.
4) The supports and resistances derived from all these timeframes can be simplified by assessing their importance and proximity to any given position.
6) The most important thing is that you will never get a sense of confidence from oscillators. The problem with oscillators is they tell you what happened in the past, and they’re derived from price, Oscillators don’t tell you very much about the future. The way most traders use them, they’re not much better than flipping a coin.
Thursday, October 1, 2009
Determining Support And Resistance Levels.
Determining support and resistance levels are somewhat different for the day trader than the position trader. This is because support and resistance levels for the day trader must be closer to the current market price that they are for the long term or position trader. Markets can only drop so far in one day, and as such the determination of support and resistance levels by the day trader must be realistic in terms of what can be expected – however this does mean that day traders must be willing to use technical support and resistance levels to establish their positions.
The following rules may appear very simple, but they are very effective at isolating support and resistance levels and can be applied in any market:
1. Follow a 3-day simple moving average of the lows, and a 3-day moving average of the highs.
2. Take the 3-day moving average of the lows to define your support level, and the 3-day moving average of the highs to define your resistance level.
3. Draw a line at the support of the lows, if the trade has made a 3-day high in say the last 3 days (you can use four or five days, depending on your trading method) This means that you will only draw in the 3-day moving average of the highs if the stock has made a 3-day low in the last three days – this means that you only want to sell when the short term is down.
This is a very simple method of trading stocks and commodities on a daily basis, and if calculated correctly they will work. Combine this with the insight that candlestick charts give you and you can create a system that works for you. Let me give you a example:
The above chart for Halliburton (HAL)[HAL] shows a large trading range between Dec-99 and Mar-00. Support was established with the October low around 33. In December, the stock returned to support in the mid-thirties and formed a low around 34. Finally, in February the stock again returned to the support scene and formed a low around 33 1/2.
After each bounce off support, the stock traded all the way up to resistance. Resistance was first established by the September support break at 42.5. After a support level is broken, it can turn into a resistance level. From the October lows, the stock advanced to the new support-turned-resistance level around 42.5. When the stock failed to advance past 42.5, the resistance level was confirmed. The stock subsequently traded up to 42.5 two more times after that and failed to surpass resistance both times.
The following rules may appear very simple, but they are very effective at isolating support and resistance levels and can be applied in any market:
1. Follow a 3-day simple moving average of the lows, and a 3-day moving average of the highs.
2. Take the 3-day moving average of the lows to define your support level, and the 3-day moving average of the highs to define your resistance level.
3. Draw a line at the support of the lows, if the trade has made a 3-day high in say the last 3 days (you can use four or five days, depending on your trading method) This means that you will only draw in the 3-day moving average of the highs if the stock has made a 3-day low in the last three days – this means that you only want to sell when the short term is down.
This is a very simple method of trading stocks and commodities on a daily basis, and if calculated correctly they will work. Combine this with the insight that candlestick charts give you and you can create a system that works for you. Let me give you a example:
The above chart for Halliburton (HAL)[HAL] shows a large trading range between Dec-99 and Mar-00. Support was established with the October low around 33. In December, the stock returned to support in the mid-thirties and formed a low around 34. Finally, in February the stock again returned to the support scene and formed a low around 33 1/2.
After each bounce off support, the stock traded all the way up to resistance. Resistance was first established by the September support break at 42.5. After a support level is broken, it can turn into a resistance level. From the October lows, the stock advanced to the new support-turned-resistance level around 42.5. When the stock failed to advance past 42.5, the resistance level was confirmed. The stock subsequently traded up to 42.5 two more times after that and failed to surpass resistance both times.
Subscribe to:
Posts (Atom)
