Identiffy Reversal (1)

Successful hedge fund managers, for example Bruce Kovner, Ed Seykota and John Henry happen to be stalwarts of trend trading for a long time. This approach is probably the most reliable trading methods devised for all those seeking outsized returns. It features a proven history of producing large profits in from stock indexes to orange juice. Additionally was, perhaps most famously, the tactic used using a relatively well-known number of average people that Richard Dennis became profitable traders, referred to as


But, at some point, all good things must end, including a trend.

When this occurs, a price reversal happens, and if you‘re unable in order to make the distinction between a price pullback and also a price reversal, it may cost you dearly.

Price reversals could be brutal and sudden because when an existing mature trend is set up, it may catch complacent traders off guard, as when they are hit using a sucker punch.

The rationale is any trend, regardless of how strong or how long it really has been set up, can outrun its underlying fundamentals or evolving technical criteria. As a rubber band which has been stretched to its limit, at some point It‘ll snap back quickly inside the opposite direction.

Trend traders must keep this on your mind. Inside a fast-moving market, not understanding each time a price reversal will appear is similar to playing Russian roulette. Even should you get lucky five times, once the hammer falls you‘re finished.

Trend physics

Newton’s First Law of Physics details that,


However, the hard truth of trend trading is at some point it ends. Worse, during its move it may result in complacency upon the section of the trader because it may lull you into believing that It‘ll continue on its current path forever. The trader simply overlooks the consideration the trend could end suddenly and abruptly.

Herds of traders become victim to price reversals just by the inability to learn warning signs and produce adjustments because They‘re Not reading price accurately. This insufficient skill can cause unnecessary losses, but, greater than that, it may cause missing opportunities in case a new trend begins to materialize.

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Using Channel in Forex

 Pricing channels could be a good technical trading strategy for trending markets. Perhaps one of the reasons they‘re so popular with market technicians is e they‘re easily recognizable in your charts, and can also be just as simple to plan a trading strategy around if you understand things to look out for. Today we‘ll review how you can identify a pricing channel, and how you can organize a trading strategy by applying this charting pattern.

First, let’s understand how to discover a pricing channel on our charts. This could be made by identifying and connecting a series of highs and lows in your graph, which should become levels of support and resistance. Below we will see a descending channel upon the AUDUSD 2Hr chart. Notice how resistance is formed by connecting the 2 previous highs to form a type of resistance (price ceiling ). Since resistance is descending, support (floor ) ought to be descending along with the AUDUSD creates a series of lower lows. These lows should run parallel towards the resistance line which was a previously drawn completing the value channel pattern.

The AUDUSD in your example today is taken into account a descending price channel, but it ought to be noted that channels can also rise inside an uptrend and trade sideways in ranging markets. When the pattern is identified together with its direction, a trader can then prepare to enter into the marketplace.

Learn Forex – USDCHF 4Hour Trend
Channel_Trading_Basics_body_Picture_2. png, Channel Trading Basics

(Created using FXCM’s Marketscope 2. 0 charts )

Trading the Channel

Once a price channel is identified, identifying areas to trade becomes a really straight forward proposition. Trading pricing channels is a lot like trading a range since we‘ll pinpoint regions of support and resistance for out entries. Inside a descending pricing channel, such like the AUDUSD seen below, traders will look to sell the marketplace on the test of resistance. Traders will look to sell during this gradual downtrend and take advantage or price reaching to lower lows. It’s crucial to recognize that trading channels is ultimately a support and resistance strategy. That implies that traders will wait for their chance to enter the marketplace and never trade when prices reside between these levels.

Learn Forex – USDCHF Channel Entries
Channel_Trading_Basics_body_Picture_1. png, Channel Trading Basics


(Created using FXCM’s Marketscope 2. 0 charts )

Exiting Positions

No matter your trading strategy, traders should always possess a intend to exit the marketplace. One among the rewards of channel trading, is stop and limit levels are built around our previously defined levels of support and resistance. Inside a downward sloping channel, stops ought to always be placed above a degree of resistance. In case that price begins printing higher highs, traders would want to exit positions to sell the AUDUSD as soon as possible.

Profit targets will certainly be set by using the support line from the pricing channel. Traders will extrapolate this value by extending our line upon the graph. Traders would want to exit positions having a limit order, when price touches this area of support. When the channel usually is to continue, price may bounce to resistance at this stage, continuing our descending charting pattern.

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Candlestick Strategies 5

 Hanging man

Hanging man candlestick formations are another reversal pattern. This formation typically happens following a prolonged uptrend each time a security moves significantly lower following the open, but rallies to close well above the intraday low. It is very important emphasize the hanging man pattern is really a warning of potential price change, not really a signal, in and of itself, to reach short.

“Hang ‘em high” (below ) includes an example found in Alcoa (AA ). On Feb. 15, Alcoa formed a hanging man pattern after a short uptrend, Alcoa opened at $9. 34 created a higher of $9. 36, a coffee of $9. 20 after which closed at $9. 32. So after made a low of $9. 20, Alcoa recovered and closed almost near its opening price.

A trader may need taken short positions when the Feb. 15 low of $9. 20 was taken in subsequent trading sessions. This happened on Feb. 19 when Alcoa opened at $9. 31. When the $9. 20 level was broken, shorts may need been initiated, having a stop loss set in the Feb. 15 high of $9. 36. In later trading sessions, Alcoa reached a coffee of $8. 30.

Although they‘re relatively reliable, candle patterns are only one tool inside a trader’s toolbox. Traders should integrate candlestick analysis, moving averages, Bollinger bands, price patterns (for example triangles ) and indicators (for example stochastic or CCI ) to attain trading decisions. In fact, the break of the simple trendline is really a powerful message that shouldn‘t be ignored, particularly when done about of reversal formations.

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Candlestick Strategies 4

 “Downturn” (below ) provides an example in Caterpillar. On March 12, 2013, Caterpillar formed a bearish engulfing pattern that engulfed the previous day’s candle completely and gave an indication of the subsequent correction — during this case, one which continued until April 18. As for entry strategy, the trader Shouldn‘t short sell on March 12 but wait for the day’s low to become broken and sustained for any subsequent trading session. Entry confirmation came on March 13, and also a short sell could possibly be initiated regarding that day. A reasonable stop loss could happen to be placed in the March 12 high, or $91. 16.

Hammer

The hammer candlestick pattern forms following a prolonged downtrend. It is taken into account a robust reversal signal. Upon the day from the hammer candle, There‘s strong selling like the market opens up. Like the day goes on, however, the marketplace recovers and closes close to the unchanged mark, or in some instances even higher.

American International Group (AIG ) provides a very good example from the hammer formation (see “Trend shift, ” below ). On June 24, AIG formed a hammer pattern following a prolonged downtrend. The stock opened at $43. 01 created a coffee of $41. 53 before closing at $42. 30. Although the stock stabbed lower, it recovered and closed near its opening price, indicating that buyers came in in the lower levels.

A reasonable entry point for that particular hammer pattern could be in the high of June 23 at $43. 04. On June 25, AIG opened at $42. 85 and when $43. 01 was broken, longs could happen to be initiated having a stop loss in the June 23 low of $41. 53. AIG inside the coming sessions made a higher of $46. 83.

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Candlestcik Strategies (3)

 Engulfing pattern

The bullish engulfing pattern is most significant when it occurs following a prolonged downtrend. The stock or index is selling off sharply. Upon the day from the bullish engulfing pattern, prices will often start the day by falling. However, strong buying interest is available in and turns the marketplace around.

The bullish engulfing pattern is so named since the open-close choice of this candle surrounds or engulfs the open-close range from the previous one. The bullish engulfing represents a reversal of supply and demand. Whereas supply has previously far outstripped demand, now the buyers tend to be more eager compared to the sellers. Perhaps with a market bottom, this really is just short covering initially, though it‘s the catalyst that ultimately creates a buying stampede.

When analyzing the bullish engulfing pattern, always concentrate on its size. The wider the candle, the greater significant the possible reversal. A bullish engulfing candle that consumes several from the previous candles speaks of the powerful shift out there.

Apple Inc. provided a very good example of the pattern last summer. Apple were on the downtrend from June 1 until June 20. Then, on June 23, Apple formed a bullish engulfing pattern where that day’s candle engulfed the previous day’s candle completely and suggested the market would embark on a brand new bullish rally.

As seen in “Expanding opportunity” (below ), the trader wouldn‘t buy exactly on June 23 once the bullish engulfing pattern was formed, however. The trader would wait to the June 23 high of $331. 69 to become broken and sustained for any subsequent trading session. Confirmation came on June 28, when prudent traders may need initiated long positions. A reasonable level for any stop loss would function as the June 23 low of $318.



The bearish engulfing pattern is that the opposite from the bullish engulfing pattern. Like its companion, It‘s most significant when it occurs following a prolonged, steady trend. Upon the day from the bearish engulfing pattern, prices often begin by rising. However, strong selling is available in and turns the marketplace around.

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Candlestick Strategies (2)

DOJI
The Doji  is one of the most important candlestick patterns. A doji formation is a single-candle pattern. It occurs when prices opened and closed at the same level. A doji represents equilibrium between supply and demand, a tug of war that neither the bulls nor bears are winning. Traders should not take action on the doji alone. Always wait for the next candlestick to make an appropriate trade.
After a long uptrend, the appearance of a doji can be an ominous warning sign that the trend has peaked or is close to peaking. The converse holds true for a downtrend. When assessing a doji, always take careful notice of where the doji occurs. If the security you’re examining is still in the early stages of an uptrend or downtrend, then it is unlikely that the doji will mark a top, but it could precede a pause in the current trend move. It can be viewed as a pivot.
“Top marker” (below) includes an example of a successful doji pattern. As shown in the daily chart, the S&P 500 started its rally from June 25, 2013, reached a high of 1709 on Aug. 2, and then on Aug. 5, the index opened at 1708 and closed at 1707.41. The open and the high were almost the same, which are the qualifications for the doji candlestick pattern.


Confirmation of a new downtrend came on Aug. 6 when the S&P 500 broke the Aug. 5 low of 1703 and closed at 1697.3. A reasonable stop loss could have been placed at the Aug. 5 high of 1709.

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Candlestick Strategies (1)

Candlestick are one of the most powerful technical analysis tools in the trader’s toolkit. They are also one of the most prevalent. Most technical analysis programs use candlesticks as the default mode of charting. Used correctly, candlesticks can give a signal in advance of much other market action. They can be a leading indicator of market activity.
But familiarity doesn’t necessarily breed expertise. There are perhaps more than 100 individual candlesticks and candlestick patterns. This is a daunting amount of information for a trader to understand and apply.
As with most things, some candlestick patterns are more useful than others. Here, we will take a look at some of the most viable for stock traders. These are candlestick patterns that experience shows have the most relevance to making consistently profitable trading decisions. Used correctly, they should increase the accuracy of your predictions.

Candle basics
For those not familiar with the details of candlestick charting, it’s important to go over the fundamentals. The difference between the open and the close is called the “real body” of the candlestick. The higher of these values creates the upper extreme of the real body, and the lower of these values creates the lower extreme. The amount the stock rose in price above the real body is called the upper shadow. The amount that the stock fell below the real body is called the lower shadow.
If the candle is green or white, it means the lower extreme is defined by the opening price and that the stock’s price rose during the period being charted. If the candle is red or black, then the lower extreme identifies the closing price, and the stock fell during the period.
Candles may be created for any time period: Monthly, weekly, hourly or even a minute. Regardless of the time frame, candlesticks should not be judged in isolation; traders should always look for follow-up action to confirm any signals during the following applicable period.

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How To Draw Support and Resistance

Do you know the most significant concepts when one thinks of forecast any financial market (Forex, stocks, futures, etc )? I believe support and resistance levels, some traders might disagree with me, but the knowledge we could get from these levels could actually help us trade with better results.

There will be three things the marketplace could do after hitting a support or resistance level :

Retrace
Change direction
Stall

Being aware what the marketplace is probably to carry out after reaching one of these simple levels, we could adapt our strategy to trade based regarding that information : about what the marketplace is probably to carry out. Therefore, we want to understand how to draw support and resistance levels and be ready to result in the necessary changes to our strategy : move your stop loss levels, close your trade, add within your trade, etc.

But first things first, what exactly are these support and resistance levels :

Support level : Is really a level during which the marketplace is rejected a minimum of twice and it‘s keeping the marketplace from reaching lower levels.

Resistance level : is really a level during which the marketplace is rejected a minimum of twice and it‘s keeping the marketplace from reaching higher levels.

Can it be important to understand why the marketplace is rejected from these levels?

No, it isn’t. I don’t care why the marketplace was rejected from a crucial level, what is vital for myself usually is to know what the marketplace is probably to carry out upon the following hours / days (following the rejection has happened ) so I will profit from it. It’s not important to work out why the marketplace moved up or down, what is vital is : whether you profited from it, isn’t it?

There could possibly be many reasons of why the marketplace is rejected from these levels : accumulation of buy orders (with a support level ) or sell orders (with a resistance level ), buyers are attracted from the lower levels (support level ) or sellers attracted from the higher levels (resistance level ), buyers think or have the market will go higher (support ) or sellers think or have the market will go lower, etc. Except for sure, nobody knows the rationale behind market rejections, but again, it doesn’t make a difference, what is vital for those usually is to know what we will do following the rejection. Plus, there isn‘t any method of knowing exactly why the marketplace topped or bottomed at certain level.

Like a side note, There‘ll continually be someone telling you what caused the rejection from the market at one important level, but now you know about the analyst or trader is simply bluffing.

3 Simple rules to draw perfect support and resistance levels

Rule No. 1 : the marketplace needs to obtain rejected a minimum of twice coming from the level (not just one, twice ).

Rule No. 2 : the greater rejections the level has, the greater important it becomes

Rule No. 3 : most recent rejections tend to be more important than less recent rejections


A chart is valued at one thousand words : )

The resistance level (blue line in the top ) it’s essential, the marketplace is rejected three times coming from the same level. If there was another resistance level near this one, with only two rejections, the one marked on blue could be more important.

Now, in regards to the support levels (both have three rejections ), which is much more important? I’d say support level B, since it is more recent than support level A. So If I‘d been trading this currency pair, I’d consume consideration only support level B.

There is definitely rule that I always follow : only take on consideration the support and resistance levels the market is really taking in consideration. Why would I act with different level the marketplace is responding to? Right?

One important thing to think about : support and resistance levels are like zones rather than levels. So don’t break your head attempting to determine places to draw your level : at close from the candlestick, at the bottom low, etc. Just draw it where it touches the foremost rejections.

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Using RSI in Forex

Relative Strength Index, or RSI, is similar to the stochastic in that it identifies overbought and oversold conditions in the market. It is also scaled from 0 to 100. Typically, readings below 30 indicate oversold, while readings over 70 indicate overbought.

How to Trade Using RSI

RSI can be used just like the stochastic. We can use it to pick potential tops and bottoms depending on whether the market is overbought or oversold.
Below is a 4-hour chart of EUR/USD.

EUR/USD had been dropping the week, falling about 400 pips over the course of two weeks.
On June 7, it was already trading below the 1.2000 handle. However, RSI dropped below 30, signalling that there might be no more sellers left in the market and that the move could be over. Price then reversed and headed back up over the next couple of weeks.

Determining the Trend using RSI

RSI is a very popular tool because it can also be used to confirm trend formations. If you think a trend is forming, take a quick look at the RSI and look at whether it is above or below 50.
If you are looking at a possible uptrend, then make sure the RSI is above 50. If you are looking at a possible downtrend, then make sure the RSI is below 50.





In the beginning of the chart above, we can see that a possible downtrend was forming. To avoid fake outs, we can wait for RSI to cross below 50 to confirm our trend. Sure enough, as RSI passes below 50, it is a good confirmation that a downtrend has actually formed

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Cup and Handle Pattern in Forex

Cup and Handle or Saucer and Handle pattern is among the strongest patterns I‘ve ever seen. This pattern doesn’t forms upon the charts too often, because unlike another patterns like triangles, head and shoulders, rectangles and… it requires a very long time to form. However, when formed It‘s so reliable and strong and generates strong and profitable trade setups.

This patterns looks exactly as it‘s named. It‘s as a cup and it is handle when you percieve it coming from the side.

Click the images to discover them in full size :

Cup and Handle Pattern
How Will the Cup and Handle Pattern Form?

Please refer towards the below screenshot while reading this article :

1. A to B : Cup and handle pattern starts forming once the market starts going down strongly. The down movement forms the left side from the cup.

2. B to C : Following a while of owning a strong bearish market, bears becomes exhausted and thus the down movement becomes slower, and we‘ll possess a sideways market for any short time period. This sideways movement forms the bottom from the cup.

3. C to D : Probably the bulls eliminate the control and also the market starts going up strongly, like when it started going down strongly at the start of the formation from the cup. This strong up movement forms the ideal side from the cup.

4. D to E : Following a while of going up, the bulls become exhausted too and thus the marketplace stops going up strongly and forms a little sideways section which happens to be the cup handle. This part is vital since it is where we will predict subsequent direction from the market. I will be able to tell you the way.
Cup and Handle Pattern Formation

Cup and Handle Pattern Formation 

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Double Tops and Double Buttoms Pattern

Forex double top price patterns usually occur after an uptrend and illustrate buyer exhaustion

- Forex double bottom patterns usually occur after a downtrend and reflect seller exhaustion

- Profit objectives and stops can be easily place on these patterns

Forex double tops are very popular among traders as they signify a successful test and price rejection from a recent new high. Found in an uptrend, the forex double top pattern consists of a run up in price to a new high and then followed by a pullback and then a retest of that previous new high. Usually, the following rally stops at or near the exact price of the previous high. In some cases, a slightly lower low is made as buyers run out of strength. 

 

Learn Forex: Double Top Price Pattern

(Created using FXCM’s Marketscope 2.0 charts)

Notice in the example above, the uptrend makes a new high and then pulls back to a level of support. Forex traders will recognize the letter “M” shape pattern formed by the forex double top pattern. As bulls take back control of the market and buy the dip in price, they push price back up toward the old high. Unable to push price back above the old high, buyers give up and prices begin to fall back to support.

Traders should then wait for price to close below the previous level of support to confirm that the pattern is truly a forex double top. Entering short with a stop above the previous high and a profit target equal to two times the stop distance is a solid way of trading this reliable pattern.

On the other hand, the forex double bottom chart pattern is found at the end of a downtrend and resembles the letter "W". Price falls to a new low and then rallies slightly higher before returning to the new low. Unable to push price to a new lower low to continue the downtrend, sellers give up and price bounces sharply from this area.

 

Learn Forex: Double Top Price Pattern

The retest of the previous low point and the subsequent rebound confirm that this was a very strong  level of support. Buyers have confidence in trading the currency pair long because the odds of price reversing is now much less. Aggressive traders may place waiting buy orders at or near the previous low in order to catch an early move higher. While more conservative traders will wait for a close above a trend line to confirm the pattern.

The double bottom can be a fast moving pattern so traders will want to see price rally after a few bars. After entering long into the market, traders will place a protective stop a few pips below the lowest low of the pattern and a limit equal to twice the size of the stop.

Very few patterns clearly illustrate the reversals in market direction like the forex double top and forex double bottom patterns. It is important to always use a protective stop when trading and waiting for confirmation of the pattern to filter and reduce the number of pattern failures that can happen.

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Harmonic Pattern

Harmonic Patterns - Are strategies that recognize price patterns using Fibonacci ratios to help determine reversal points in the financial markets.

ABCD

The ABCD pattern is an indicator that identifies three consecutive price swings. This pattern can be recognized in a shape of a lightning bolt. This pattern is unique because the difference between the swing either of low is the same distance. The Fibonacci retracement indicator is good tool to help measure the ideal AB=CD ratio.



A desirable ABCD pattern should retrace either .618%, or .786% Fib. The length as shown in the chart of B-C should be 1.27 or 1.618 Fibonacci. However, a .618% Fib retracement at Point C should result in a 1.618 distance, and .786 Fib should result in 1.27.

A profit target can be made about half or two thirds of the AB=CD move, and the stop loss can be placed under the completion of D.

Name: GBP USD ABCD.png Views: 10502 Size: 53.4 KB


In the above example, the GBP/USD retraced to the profit target. This validated the AB=CD move to be bullish.


Butterfly Pattern

The butterfly pattern is a reversal pattern that focuses on new lows or highs. This pattern can either be bullish or bearish not only depending on price action, but the trend. Entry can be seen when the pattern has reached point D (the end) which gives confirmation of the reversal. A stop should be placed under or above the reversal area. A profit target can be put at half or two thirds of the butterfly move.

The most critical pattern is the XA leg to point B as it defines a crucial point called the Potential reversal Zone. This validates price reversing, which can confirm a trade signal. Further, the XA leg determines the calculation of B-C which is also a validation of a reversal. The ABCD pattern as shown in the chart gives confirmation of the butterfly.

Name: EUR USD butterfly bear.png Views: 12571 Size: 62.1 KB

In the above example of a bearish butterfly for the EUR/USD, it hit our profit target validating the pattern and reversal.

Gartley Pattern

This is leading indicator that is illustrated through four consecutive price swings that are in a shape of a W. The start of the pattern is started from either a low or high that is called X. By defining X you can pinpoint A, B, C, and D. Unlike the butterfly pattern, the gartley is used to help identify opportunities, not a reversal in price action.

The most crucial point of the Gartley pattern is point B. The reason for this is because it defines the most reliable reversal, which is an opportunity. Point B must be at .618 Fib which can be seen from the XA leg.

Name: abcdbullre.jpg Views: 9521 Size: 14.9 KB


3 Drive Pattern

The three drive pattern is a harmonic pattern that is derived from the Elliot wave theory. It is unique as it does not contain X,A ,B, C or D, but instead 3 tops, or bottoms. These three price legs (alike the ABCD) signals the trend direction. These legs are considered to be the drives of the trend, and consist of Fibonacci ratios (1.13 1.27 or 1.618) that show equal movement in prices. These ratios can be seen inside at either the swing high or swings lows.

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Exponential Moving Average in Forex

One of the first indicators that most traders will learn when finding the fascinating field of Technical Analysis is the Moving Average. Moving Averages can have multiple purposes, and can be used in a variety of ways; often-times depending on the trader’s goals.

Price, of any asset, will rarely exhibit a directly linear pattern. In most cases, price will oscillate in both directions – even in strong uptrends or strong downtrends. The moving average can often help the trader ‘smooth,’ these candle-to-candle fluctuations to arrive at an ‘average,’ value.

Let’s look at an example to illustrate:

EMAs_daily_trading_lesson_body_Picture_1.png, Exponential Moving Averages

In the GBP/USD Daily chart above, you are seeing the 200 period Simple Moving Average applied. This is one of the more common moving averages that’s used by Technical Analysts. Notice that the trend is to the up-side for most of the observed period. The Moving Average assists the trader by taking the short-to-intermediate term oscillations, and averaging those with the bullish price movements to plot this as a ‘smoothed price.’

The calculation of the above Simple Moving Average is fairly easy. The value for the Moving Average of the current candle above can be calculated by taking the most recent 200 closing prices, adding them together, and then dividing by 200.


As new prices trend higher, these higher values will then assist in increasing the value of the MA (albeit marginally, as the new higher price is only 1/200th of the moving average).

Now you may notice, by the very nature of the indicators, Moving Averages will ‘lag,’ price. If price doubles this bar, once again, it will only have a marginal impact on the Moving Average because the new price (at double the previous price) is only 1/200th of the calculation.

This is where the Exponential Moving Average (also known as EMA) can help. It’s important to note, the issue of lag can never be completely removed from Moving Averages, as the indicator is always going to lag the market by the nature of its composition. But traders can attempt to mitigate this downside, and one of the ways of doing so is the EMA.

With the Exponential Moving Average, a heavier ‘weighting,’ is used on more recent values – grading the recent changes in price more heavily than later changes in price.

In the example above in which price doubled today, the EMA should reflect more of this movement than the Simple Moving Average, as additional ‘weight,’ is being assigned to the current bar.

Below is the same chart we had looked at above, but this time it has a 200 period EMA, as well as the 200 period Simple Moving Average.

EMAs_daily_trading_lesson_body_Picture_4.png, Exponential Moving Averages

The Exponential Moving Average is plotted in Green in the above chart, and I’ve also identified 2 instances denoted by the numbers 1 and 2.

In the first instance, notice that price is making a very quick ascension. The slope of the Simple Moving Average (in Orange) begins to move up, registering these new values. But also notice how much more quickly the Green line moves up (the Exponential Moving Average also set to 200 periods).

And later in the chart, for instance 2, price reverses to the downside. Once again, the Green EMA registers these more recent price fluctuations more quickly than the Simple Moving Average in Orange; and we can tell us the Green line begins moving down sooner, and at a faster rate.

This is something that we can see time and time again, as the mathematical formula behind the two Averages will allow for EMAs to show recent price movements more prevalently.

Despite their differences, there are also many similarities between the various types of moving averages. The choice as to which to use is often going to be governed by each individual trader’s personal preference or taste, and maybe even more importantly – their goals.

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Accumalation/Distribution in Forex

Accumulation / Distribution is really a price and volume indicator which was a developed by Larry Williams ; the designer of many Technical Analysis tools such like the Williams %R indicator.

The Accumulation / Distribution indicator is designed to determine if market sentiment is either buyer or seller oriented by analyzing the positioning from the indicator against that of price. The A / D indicator is, actually, a variant from the popular ‘On Balance Volume’ indicator.

When the A / D indictor is rising with relation towards the price then this implies the commodity or security, appealing, has been accumulated or bought. In contrast, a falling A / D reading indicates a sellers’ market epitomized by commodity distribution.

Larry Williams designed his indicator to ensure that when divergences commence to emerge involving the A / D and price then this really is indicative that the change inside the price direction could occur soon – see diagram.

To optimize the usage of the Accumulation / Distribution indicator, its following key features should be understood.

Williams’s studies eventually concluded the easiest approach to determining accumulation was by defining buying pressure like the price movement coming from the day’s low to its close. Likewise, distribution could best be considered like the selling pressure denoted from the price movement coming from the day’s high to its close.

In simple terms, Williams then calculated the worth of the A / D indicator by subtracting the Accumulation coming from the Distribution ; then multiplying this result by sales volume after which dividing that value from the price movement from its lowest to highest point throughout the selected trade period.

From his research, Williams showed that an indicator calculated in a way prompted buying when it was eventually at its lowest points and selling whilst at its peaks.

As already stated, once the A / D indicator rises, probably the driving force behind the marketplace will be the buyers from the commodity or security whilst when the A / D indicator falls probably the sellers will be the dominate force.

The most significant feature the user must grasp concerning the A / D indicator is when discrepancies emerge between its readings and price action, probably the current price direction is most likely close to reverse.

As an example, when the price is falling and also the A / D indicator has started to rise, this usually signals that the reversal in price action is imminent. Williams’s research also showed that, inside the majority of cases, price action experienced a predominant tendency to maneuver inside the direction from the Accumulation / Distribution indicator.
The A / D indicator is defined by fluctuations of price and volume. Williams used volume to act like a weighting factor with regards to predicting price change. In particular, larger volumes produce a better probability that the price direction could turnabout in the same near future.

To summarize, the Accumulation / Distribution Indictor is best deployed to supply advance notice of possible changes inside the price direction from the commodity, security or investment, appealing.
 
The indicator produces better results using longer time frames i. e. daily upwards because their associated statistics tends to become more reliable than those of shorter intervals. Basically, the user needs to detect Accumulation / Distribution Indicator peaks for selling opportunities whilst pinpointing troughs for buys.

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Swing Trader In Forex

Like any other market, forex makes some really nice swings in price, which when identified can give you an opportunity for an excellent trade, notes Pete Southern of LiveWire Market Blog.

Swing trading is the art of catching a changing trend and riding it out in the other direction or “swinging” for use of a better phrase! The key to being successful with swing trading is to have a solid method for picking direction changes. There are various ways to do this but for this article I will cover my own favorite. It comprises of a few steps, but by following each one you can be more certain the patterns you are looking at will work out.

Identify Support or Resistance
First and most importantly, you cannot swing trade forex properly unless you can identify clear areas where the price may react from. This is how the big boys play the game, and if done correctly, it can show you excellent areas to watch for entries.

Draw some horizontal lines on your charts. Connect some previous highs and lows. Look for areas where the price has reversed a couple of times in the past, highlight them with a horizontal line and leave them on your chart. These will form the blueprint for your swing trading.

Click to Enlarge

Obviously as time progresses and the more often these lines have been tested in the past, the stronger and more important they become. What you should be looking for is an area that has been tested at least twice, and if it’s within a larger range (like the middle line above) then tests from both directions for support and resistance is essential. These are the areas at which you will be looking to trade from.

Now there are some traders who will just go shorting into resistance or longing into support. In my opinion this is a hit and hope strategy. You will be undone time and time again doing this, and even with good money management, the strain on your emotions will eventually take your edge.

Once the price is heading into one of these areas, it is time to drill down onto a shorter timeframe chart and start watching the patterns.

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MCAD Indikator In Forex Strategies

I hope that you will find one or two forex swing trading strategies here that would help you in trading the forex market.

Remember that these swing trading systems can also be used to trade other financial markets as well, like the stock market, the commodies or the futures markets. The underlying trading principles are the same.

To make it easy for readers and visitors of this website, they are arranged in these four categories:

Basic Swing Trading Strategies –very basic forex swing trading strategies, good for new traders to try and test to increase their understanding and knowledge:

    5ema and 8ema forex swing trading strategy
    10 and 20 sma with 200 sma forex swing trading strategy
    50ema forex trading swing trading strategy
    daily chart forex swing trading strategy
    20 SMA With RSI Forex Trading Strategy
    inside bar trading strategy
    200 EMA forex trading Strategy
    Parabolic SAR Indicator Forex Trading Strategy
    MACD Crossover Forex Trading Strategy
    Parabolic SAR And MACD Forex Trading Strategy
    Outside Bar Forex Trading Strategy
    5 SMA And 5 RSI Forex Trading System
    RSI Forex Trading Strategy

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Moving Average In Forex

Using moving averages to assess trend direction is the oldest form of technical analysis and remains one of the most commonly used indicators. The primary benefit provided by a moving average is to reduce market "noise" (rate fluctuations) that make it difficult to accurately interpret real-time exchange rate data. Moving averages "smooth out" these fluctuations, making it easier for you to identify and authenticate potential market rate trends from the normal up-and-down rate fluctuations common to all currency pairs.
All traders seek to find a trend when studying pricing data. Traders also attempt to identify a rate trend reversal point in order to time market buys and sells at the most profitable level. Moving averages can help in both regards.

Moving averages are essential to other types of technical analysis as well - most notably Bollinger Bands and Stochastic Measurements. You'll learn about these indicators in later lessons.

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Bollinger Bands Techniques for Trading Forex

Bollinger Bands: What are they and how do we use them?

The idea behind Bollinger Bands is relatively straightforward: take a simple moving average and put an upper and lower trading band around it. The indicator uses the standard deviation of the trading instrument to determine the width between the SMA and the bands—borrowing a popular statistical tool based on the normal distribution for random variables.

It is critical to stress that the upper and lower bands are not considered “confidence intervals” in the way that a trader might expect. That is to say, there is no numerical justification behind expecting price to stay within the Bollinger bands any specific percentage of the time. This being said, price tends to stick within two standard deviations the vast majority of the time, and we can use this to our advantage.

Thus we will use standard inputs for the Bollinger band indicator to subsequently develop a simple strategy and test the results.

Generated using FXCM Strategy Trader

Forex Bollinger Band Reversal Strategy

Entry Rule: Wait until price falls below the lower Bollinger band or above the upper band. When price subsequently crosses back above the lower band and closes there, place a buy stop entry order at the last value for the lower band. When price crosses back below the upper band, place a sell stop entry order at the last value for the upper band.

Stop Loss: None

Take Profit: None

Exit Rule: The trade is taken out by the opposite signal. Thus if we are long due a cross above the lower band, a cross below the upper band would close the existing long position and establish a short position. The reverse is also true.

Backtesting our Forex Bollinger Band Reversal Strategy

Using FXCM’s Strategy Trader software, we will code a strategy based on this popular technical indicator and see the results. In doing so, we can easily test our concepts across the spectrum of currencies and time frames.

View a video guide on strategy backtesting and optimization in Strategy Trader here:

https://admin.na6.acrobat.com/_a205571165/p83928216/

Download and install the Strategy Trader platform, then import the following code example from the DailyFX forex forum. Download the attached .zip file. Go to the directory under which you've unzipped the contents of the file. Open the "BollingerMAFilter.fxd" file and when prompted by the Strategy Language Editor, hit "OK" to import the file. Once you have imported the Strategy Advisor, open the "BollingerMAFilter.fxw" file included in the attached zip to see examples on how you may use this in your charts.

Forex Bollinger Band Reversal Strategy

We ran this strategy using the standard Bollinger Band inputs on 60min charts on the four traditional forex market majors: EURUSD, USDJPY, GBPUSD, and USDCHF. We use Strategy Trader and assume a spread of 3 pips per round-trip trade on each individual pair. Hypothetical profit and loss is calculated on single standard lot trades using the aforementioned strategy rules. The resulting equity curve is a combination of four individual currency equity curves.

Generated using FXCM Strategy Trader

The strategy shows extended periods of underperformance and indeed, hypothetically loses a great deal of money over the past 9 years or so of trading. Yet why is this indicator so popular among forex traders? To gain a better understanding of why this strategy may have lost through specific stretches of time, we can look at specific periods of underperformance for greater insight.

When we look more closely, we see a major reason for underperformance: the strategy tends to make a great number of losing trades when it attempts to go “against the grain” during a strong trend. If we can tell the strategy to avoid trading against the trend, then there is a reasonable chance that our performance will improve.

Placing a trending filter on the Bollinger Band strategy

We will borrow insight learned through an earlier Forex Strategy Corner article on moving average crossover strategies and attempt to place a trending filter on our Bollinger Band trading technique. If we know that our system only works when it trades in the direction of the trend, a trending indicator may in fact keep us out of bad trades.

Forex Bollinger Band Reversal Strategy with Moving Average Crossover Filter

Entry Rule: Unchanged from earlier strategy EXCEPT system may only take long positions when 100-period Simple Moving Average (SMA) is above the 200-period SMA. System may only take short positions when 100-period SMA is below the 200.

Stop Loss, Take Profit, Exit Rule: Unchanged from earlier strategy.

Generated using FXCM Strategy Trader

The hypothetical equity curve shows that our Bollinger Band Reversal strategy performance improved a great deal with the aid of our trend filter. Though past performance is never a guarantee of future results and there is admitted risk of over-optimization in this particular example, this idea holds promise. In fact, the performance on EURUSD and GBPUSD pairs in particular is substantially improved with this trend filter.

I encourage you to download the Strategy Trader software, visit the specified forum thread and download the pertinent code and example workspace for this strategy. In changing the strategy inputs and examining different currency pairs, you can gain a better understanding for what has historically worked with this Bollinger Band Reversal Strategy and what has not.

Applying our Analysis to Existing Forex Strategies

This is one example of a strategy that performs poorly in a specific type of market. Using a market conditions filter, we have improved the hypothetical performance a great deal. One can easily think of many other strategies that could similarly benefit from this particular filter or many others. In fact in an earlier article we highlighted specific market conditions for the RSI and Moving Average Crossover strategies. In understanding what has historically worked, we can get a better sense for how to apply this in day-to-day trading.

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Head and Shoulders Pattern

A head and shoulders pattern is also a trend reversal formation.

It is formed by a peak (shoulder), followed by a higher peak (head), and then another lower peak (shoulder). A “neckline” is drawn by connecting the lowest points of the two troughs. The slope of this line can either be up or down. Typically, when the slope is down, it produces a more reliable signal.

Head and Shoulders Pattern
In this example, we can easily see the head and shoulders pattern.

The head is the second peak and is the highest point in the pattern. The two shoulders also form peaks but do not exceed the height of the head.

With this formation, we put an entry order below the neckline.

We can also calculate a target by measuring the high point of the head to the neckline. This distance is approximately how far the price will move after it breaks the neckline.

Head and Shoulders Pattern Breakdown
You can see that once the price goes below the neckline it makes a move that is at least the size of the distance between the head and the neckline.

We know you’re thinking to yourself, “the price kept moving even after it reached the target.”

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How to Use Stochastic Oscillator in Forex

The Stochastic Oscillator was created by George C. Lane and introduced towards the trading community inside the late 1950s. It was eventually among the first technical indicators utilized by analysts to supply understanding of potential future market direction and it is driven by premise that during a market uptrend, prices will remain add up to or above the previous period closing price. Alternatively, inside a market downtrend, prices will likely remain add up to or below the previous closing price.

Employing a scale to measure their education of change between prices in one closing period to another, the Stochastic Oscillator attempts to predict the probability to the continuation from the current direction trend. Traders look out for signals generated from the actions from the stochastic lines as viewed upon the stochastic scale.

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Dead Cat Bounce Chart Pattern

 Continuation Pattern
ike any other market, forex makes some really nice swings in price, which when identified can give you an opportunity for an excellent trade, notes Pete Southern of LiveWire Market Blog.

Swing trading is the art of catching a changing trend and riding it out in the other direction or “swinging” for use of a better phrase! The key to being successful with swing trading is to have a solid method for picking direction changes. There are various ways to do this but for this article I will cover my own favorite. It comprises of a few steps, but by following each one you can be more certain the patterns you are looking at will work out.

Identify Support or Resistance
First and most importantly, you cannot swing trade forex properly unless you can identify clear areas where the price may react from. This is how the big boys play the game, and if done correctly, it can show you excellent areas to watch for entries.

Draw some horizontal lines on your charts. Connect some previous highs and lows. Look for areas where the price has reversed a couple of times in the past, highlight them with a horizontal line and leave them on your chart. These will form the blueprint for your swing trading.


Click to Enlarge

Obviously as time progresses and the more often these lines have been tested in the past, the stronger and more important they become. What you should be looking for is an area that has been tested at least twice, and if it’s within a larger range (like the middle line above) then tests from both directions for support and resistance is essential. These are the areas at which you will be looking to trade from.

Now there are some traders who will just go shorting into resistance or longing into support. In my opinion this is a hit and hope strategy. You will be undone time and time again doing this, and even with good money management, the strain on your emotions will eventually take your edge.

Once the price is heading into one of these areas, it is time to drill down onto a shorter timeframe chart and start watching the patterns.
Appearance : An shallow upward bounce and declining price immediately indulging in steep decline.

Typical Duration : 2-4 days to the initial decline. Given by a few days as much as 3 weeks to the bounce high to become reached. A couple of days to a couple of weeks to the drop below initial decline low. As much as 3 months to the final decline to play out.

Description : We‘ll describe the pattern when it comes to a decline for simplicity's sake, but please bear on your mind that inside the forex there isn‘t any bias, and hence chart patterns work equally well in both directions. The logic behind this pattern is fairly simple. There was an unexpected event that caught the marketplace off guard, and resulted in an abrupt sell-off from the base currency against the quote currency. When the selling subsided, many market participants made a decision to take profit on the short positions, and a few perhaps even entered long positions inside the hope the event that caused the sell-off would somehow be mitigated. This causes a bounce in price, but once shorter term players who took profit are done, the buying dies down again and also the sellers take over, causing yet another drop well beyond the previous low.

Initial decline normally 20% or even more ;
Second decline continues another 15% coming from the bottom from the initial decline ;
Total decline between 30% and 40% ;

It ought to be noted the larger the initial decline, the wider the bounce, because of more market participants being caught short and getting squeezed from their positions. The quicker the initial decline, the quicker the bounce too. The entire picture is reminiscent of the bouncing ball.

Strengths : The dead-cat bounce is among the highest probability chart patterns you‘ll run into, particularly when the initial decline is steep and deep. The probability of the false break-out below the initial decline's low, referred to as l.

Weaknesses : From the time the dead-cat bounce occurs, you‘ve got already missed the meat from the decline.

How you can Trade it :

There are many methods to trade this pattern

Type 1 :

Await bounce to round as well as then short-sell the pair.
Price is predicted to decline to a minimum of the previous low made from the sharp initial decline. Partial profit could be taken here.
In many cases, price will continue downward, approximately 15% beyond the initial decline's low. A big support level during this approximate area is normally a very good spot to exit the complete short position.

Type 2 :

Wait for any breakout below the initial decline's low. A daily close below this level is normally considered a confirmation of breakout. Waiting to the breakout adds to the success rate from the trade, but decreases the quantity of gain when the trade reaches your target.
Place take profit target near a big support level found close to the 15% decline point, as measured coming from the initial decline's low.

Both Kinds of trades have their advantages and disadvantages. Type 1 trades possess a slightly lower success rate, but could possess a far better reward : risk ratio, while Type 2 trades produce a slightly higher success rate at the price of less reward : risk ratio. Taking both into account, Type 1 trades provide a better overall expectancy, but traders may choose Type 2 if using other confirmation factors which further enhance the Type 2 probability or R : R ratio.

Even though you do not trade the dead-cat bounce, It‘s strongly recommended which you avoid all bullish formations for the following 6-12 months, as they simply normally either fizzle out or produce below-average gains, and in many cases pushing your expectancy into negative territory.

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