Channel Forex Trading System

Channel is one of the most traded Forex chart pattern in Foreing exchange trading. Channel trading gives good chance for beginner or expert traders to get big money. Channel chart pattern determine trending or side ways market price in Forex market in all time frame trading.

If there is no trend in Forex market (sideways), we still can make channel horizontal chart pattern. And if we have sloping channel chart pattern, we can consider it as trending market. So, the point is we can still spot trading entry and exit using channel trading chart pattern.

As you can see in the picture below, channel trading chart pattern can determine the bullish trend on the trading chart.

Channel trading chart pattern can be identified just after we decide 2 lows and 2 highs. After we drew a trading channel, we can follow this trading system:

In this situation we have two chances :
1. Market price trades in the channel range, it moves up and down like a ball.
2. Breakout chance. We can take opportunity to open a trading position in the direction of the breakout.
In the picture below the market price bounces inside the channel trading chart pattern.


But the bullish trend was not powerful enough and bullish trend movement did not survive. The market price corrected below 50% of fibonacci level and then price reversed again to the lower channel and tried to test the line or support level. Once the market price broke the support line, then we considered it as sell trading signal. And the support line change into resistance line.


We can plot our stop loss above the resistance level line, and we can set profit target based on risk and reward ratio. This is our trading money management.

YOu can use your experience trading skill in this trading system to set your profit target and stop loss order. For example we can consider again if the market price breaks support or resistance level.

In the trading example above the market price trend moved bearish, and our trade is reached the second profit target. This trading system can gives an good profits. And also this trading system is quite easy and very simple Forex trading system. The basic of this trading system are to reduce trading risk and to improve the trading profitability.

There are a lot of Forex trading system like ADX Trading strategy, Divergence Trading Strategy, Heiken ashi technique, Triple Moving Average Crossover trading, Fibocalc v31 system, Alternative Ichimoku, Fx5 divergence V3, Kuskus Starlight trading, Trend alexcud trend trading, Two bar reversal trading, Donchian breakout system, Bollinger breakout system, CCI strategie and etc.

Also, if you are interested in trading in the parallel channels, recommend to pay attention also to the strategy of sliding price channels Victor Barishpolts where you will learn how to automate trading strategy B. Barischpoltsa with a profitable forex advisor.

Bollinger Bands Scalping trading system

Forex trading pair: Euro Dollar EURUSD
Forex indicators: Bollinger Bands, Relative Strength Index RSI 14 period, Stochastic (5,3,3)
Time Frame: 30 minutes, 1 Hour, D1
Trading rules
- Make channel line above and below market price
- Place buy stop or sell stop order position with 20 pips distance from above / below channel
- In the D1 time frame analysis example, we saw that market price inside the channel, as you can see in the below image. In this situation we can only place stop order inside the Bollinger bands channel.

In the trading example above we can clearly see the channel inside the Bollinger bands indicator.
Place your stop loss based on risk and reward ratio.

The main problem when we are opening a trading position is placing a stop loss order. When the market price near to the market price channel line and you do not have confidence that the market price will break it, we can reanalyze our trading position and change the stop loss order on break even.
Open a trading position when the Bollinger bands indicator channel broken, you can open a trading position in the direction of the market trend.

Best Metatrader 4 Indicators

Here are the Best Metatrader 4 Indicators

Accelerator indicator
The Accelerator indicator is a very powerful technical indicator when identifying the buy and sell trading signal of a trade. You have to learn using the Accelerator indicator on bigger time frame chart to avoid you from wrong trades. The Accelerator indicator is a indicator that is made by experienced trader. Honestly I use this indicator in my own Forex trading system. This indicator has many capability that can improve your trading, Accelerator indicator is very reliable Forex indicator.
Download Accelerator indicator

3level zz semafor or 3 Semafor Indicator
3Level ZZ Semafor indicator is on of my popular forex technical indicator among so many different Forex technical indicators in Forex trading and this indicator gives many accurate trading signals.
Forex market is difficult market trading. It is important to follow the market trends in order to determine where the market trend is headed. 3level zz semafor indicator is the only indicator to improve your profitable trades.
Download 3level zz semafor

ASI indicator
ASI indicator is not like 3 semafor indicator, ASI indicator is more like RSI indicator or CCI commodity channel indicator. ASI indicator is one of the best metatrader 4 indicators in Forex market trading. ASI indicator is stand for accumulative swing index indicator, this indicator is used by experienced traders to identify trend of the currency pairs.
Download ASI indicator

Average True Range Forex
Average True Range indicator technical in Forex market measures the average range price in the market. Forex traders use this indicator to determine the stop loss level and to identify the strength of the market or volatility. You can use this indicator to calculate your trading's risk and target level.
Download Average True Range Forex

Advanced ADX
The Average Directional Movement Index indicator, referred to as the ADX Forex indicator, is an technical Forex indicator that brings you trend signals of the market price in the Forex market.
Advanced ADX indicator is one of the most traded indicator that most Forex traders line to use. This Advanced is so powerful trading indicator is because of this indicator give clear trading signals in market.
Download Advanced ADX indicator

3 Ways For Traders To Manage Unruly Emotions

Article Summary:Because trading is a flood of opportunity for both buyers and sellers, emotions often run rampant. However, making the best decision from a trading point of view is often the hardest emotional decision to make. This article will help you on the battlefield of trading by pointing out 3 key ways to keep your emotions in check so you can win the battle that so many before you have lost.

“Successful trading is always an emotional battle for the speculator, not an intelligence battle.”

-Jesse Livermore

Knowledge is paramount to trading well. There is no doubt that an understanding of different indicators to apply to a chart or understanding of the fundamental factors that show an economy’s weakness or strength can help you gain an edge. However, knowledge can only take you so far and those who focus only on knowledge or intellect are often standing in harm’s way when their money is on the line.

That harm shows up in the form of emotions. Emotions going unchecked often cause a trader to trash the concept of risk to reward or trade a very large size, which is a common predecessor to large losses. Therefore, the advanced trader would do well to know how to limit the negative effect of emotions on your trading.

Why Emotions Are A Problem?

Certainty in an executed trading idea is often a guise for greed and fear. As a trader, it is important to have a plan which focuses on entry triggers, trade size, and risk to reward ratios so that you’re acting in a mechanical manner. However, you should also be willing to exit your trade or accept the fact that moving forces in the markets can change quickly so you can avoid the painful experience of holding on to and closing out larger losses than winners.

Learn Forex: Emotions Alone Would Cause a Trader to Hold This GBPAUD Trade Short

Presented by FXCM’s Marketscope Charts

The opportunities in the Forex market are almost infinite. Any trader around the world can trade on any time frame using nearly any strategy. In the end though, the market will either rise or fall and regardless of your strategy for identifying an entry, you need to know when to eject from the trade idea so that you’re not holding a long position in a bear move or a short position in a bullish rip higher.

3 Focal Points to Manage Emotions

1. Earlier this week, we discussed how key the concept of uncertainty is to our trading success . This belief that anything can happen at any time should allow us to be flexible on a mental level so that we’re willing to exit a trade with mounting evidence. From the start of your trading career, you should be able to avoid holding onto to any ‘Enron trades’ that can wipe a trading career off the map because you’re looking for new data that causes you to exit the trade.

2. Trade size is something that is more paramount to overall trading success than many new traders realize. Most new traders will run out to find and buy the hottest system on the market, which was likely optimized and back tested in market conditions that aren’t present and won’t perform close to their intended results. Here is a quote from a famous trader, Larry Williams that many admire after his great trading book, How I Made One Million Dollars…Last Year…Trading Commodities, hit the shelves in 1979 that discusses trade size:

“Thus, what we need to do is under-bet our system or approach. Do not put as much money behind the system as the numbers from the past suggest you can. For most of us a 5% risk factor is all that’s needed to do rather well in this business…Under-trade, under-bet and you will be overwhelmed with your results...”

-Larry R. Williams

Personally, I’ve noted that a smaller trade size keeps me more objective on exiting a trade as well as allows me to stay in trades longer. Objectivity leads me to focus on reasons to exit a trade when the facts supporting the trade change. The smaller trade size also encourages me to stay in a trend longer because I’m not as eager to close at the trade at the current profit but rather let the trend run its course which often surpasses what I expect. To learn other ways to manage your risk, you can register for our free online course here.

Learn Forex: Small Trade Sizes Allow Traders to Emotionally Ride Out a Trend

3. Lastly, a focus on exiting strategies over entries will give you a healthier view of the market. Many traders use candlesticks or an overbought / oversold reading on the Relative Strength Index (RSI) to get out of a move. The key point is that when traders focus only on the entry, they’re often likely to hold onto a losing trade until it breaks even and that is often the death-nail of a trader’s career that we heartily recommend you to avoid.

The Basics of a Forex Breakout

Article Summary: Trading a breakout strategy is easy to implement in the Forex market. Learn how to begin trading breakouts today!

Price breakouts are a market condition that occur after price action either rises above resistance or drops below support. Savy traders that are aware of these conditions can quickly adapt their trading plan and be prepared to take advantage of the next market move. To be better prepared for these scenerios, today we will examine the basics of trading Forex breakouts.

Learn Forex –EURUSD Daily Breakout

(Created using FXCM’s Marketscope 2.0 charts)

Many traders choose to trade breakouts due to their simplicity and effectiveness. To begin, traders will use entry orders to establish a price where they wish to enter into the market. If the price you select becomes available for trading your order will then be executed. This can be a huge benefit to traders that can’t monitor the market 24Hrs a day. Even if you’re away from the trading screen, if the price you select becomes available, after a breakout in the market, your trade will be executed. Let’s look at an example using the EURUSD.

To take advantage of a breakout on the EURUSD, entry orders should be placed above a point of resistance in its current uptrend. In the chart below, resistance has been identified as the current peak on the daily chart at1.3389. Orders should be set above this point, so in the event that price breaks through orders will already be set and waiting for execution. To limit risk, traders will also include a stop underneath current resistance levels to exit a position in the event that it reverses.

Learn Forex –EURUSD Basic Breakout Strategy

(Created using FXCM’s Marketscope 2.0 charts)

As you can see trading breakouts can be an effective way to time market entries. However, for those that are looking to spend less time in front of their charts, traders can consider trading an automated breakout strategy using FXCMs Mirror Trader. Using the Mirror Trader software, traders can select from a variety of breakout strategies. This includes both the Breakout 1 and Breakout 2 DailyFX PLUS trading signals which can be applied to over 14 different currency pairs.

Breakout Trades and the Power of Price Channels

When Price Channels (sometimes referred to as Donchian Channels) are placed on a chart, they identify the high and the low price at which the pair traded over a specified period of time. The Channels on the Daily chart below are set to 20 periods so they would represent the high and the low at which the pair traded over the previous 20 days.

As such, they can be used quite effectively to visually identify levels of Support and Resistance on a chart. The channels can be used by “breakout” traders to identify entry levels. This would occur when price “breaks” below support in a downtrend or above resistance in an uptrend.

When the breakout occurs, this can be taken as an entry signal as the potential exists for price to continue to move in that direction for a period of time.

Let’s take a look at the example below of Price Channels on a Daily chart…

As noted on the chart, the lower channel line represents support while the upper channel line represents resistance.

As with most every strategy, the first step is to determine the direction that we should trade the pair. In the case of the EURCAD pair we know we want to look for opportunities to short the pair for the following reasons: 1) Price Action is below the 200 SMA and is pulling away from it; 2) at the time of this writing the EUR is weaker than the CAD, and 3) price has been making successively lower highs on this Daily chart since the end of February.

Now that we have determined the direction to trade the pair, we can look to a lower time frame chart to “fine tune” our entry. For our purposes on this pair, I prefer the 1 hour chart as we may be close to an entry.

When moving down to an intra-day chart (anything below a Daily) we will change the indicator to 55 periods. We do this to slow down the indicator a bit as we have moved to a faster, lower time frame chart.

If/when price breaks below the lower channel line at 1.2941 a trader could sell the pair. The stop would be placed above the upper channel line at 1.3041. As can be seen, the price channels have provided us with our “breakout” entry along with our stop placement.

To manage the trade as it progresses, a trader would manually trail the stop by keeping it just above the upper channel line. The trade would be closed when price action retraces to the point that it intersects the upper channel line and the stop.

Since Price/Donchian Channels are not an indicator that is built into the Marketscope charting package, instructions are needed to install them.

Weekly Forex Trading Forecast: Fed Decision Expected to Rock the FX Market

Make or Break Week for US Dollar as the Fed Decides the Taper

The Dow Jones FXCM Dollar (ticker = USDollar) endured a critical tumble this past week – a move that threatens to seismically alter a nine-month bull trend for the currency. Yet, both technical break and trend ambitions can be immediately reversed by one critical piece of event risk: the Federal Reserve’s June rate decision.

Euro and US Dollar Traders on Edge Ahead of Critical FOMC Decision

The Euro finished higher against the US Dollar for the fourth-consecutive trading week, good for its largest win streak since September and leaving it poised to test fresh peaks.

Yen’s Gains to Extend as BoJ Stands Pat, Fed Tapers Less than Expected

The Bank of Japan is firmly on hold despite recent volatility in Japanese financial instruments, which keeps the bull case for the Japanese Yen intact. Furthermore, with US Treasury yields set to fall and European peripheral yields set to rise, the Yen looks well-suited to gain further against the Euro and the US Dollar.

British Pound Eyes Fresh Highs on Faster Inflation, BoE Minutes

The British Pound extended the rebound carried over from the previous month, with the GBPUSD climbing to a fresh monthly high of 1.5736, and the sterling may continue to appreciate next week should the fundamental developments coming out of the U.K. further dampen speculation for additional monetary support.

Gold Break Out Imminent on FOMC Rate Decision- $1355 Key Support

Gold crept higher this week with the precious metal posting a modest advance of just 0.36% to trade at $1387 at the close of trade in New York on Friday. Bullion price action has remained rather subdued despite the wide spread volatility seen in FX and broader equity markets with prices continuing to hold steadily below the $1400-threshold. All eyes now turn to key event risk next week as prices continue to coil into a clearly defined range.

Use the DailyFX-Plus Technical Analyzer to identify possible trade setups.

how to trade in your spare time?

Many people think that trading foreign exchange (FX) requires a lot of time to research the market and to identify trading opportunities. However, I believe the 24 hour nature of FX makes it easier for traders to take advantage of trends in currencies because they are not bound by when an exchange allows them to trade. So regardless of what your busy schedule is like, there are trends in the market you can take advantage of with as little as 30 minutes of time invested per week.

There are several different ways to approach the market if you are short on time. Today, I want to share with you one of these strategies to trading FX in your spare time. Today’s strategy is called the Simple DNC Breakout. I chose this strategy because the tools involved in identifying trades are fairly intuitive even if you have never traded FX previously.

Before I get into some specifics of the strategy, you may be wondering how a trader can effectively find good trades if they are not constantly watching the market? You see, the essence of this approach is that you will place orders to enter into the market at strategic price points. When the market trades through these prices, this will be our signal to enter the trade and your resting order with your broker will take care of the entry and exit automatically.

So the strength of this strategy depends upon the strength of the trend. We want to utilize the strongest trends in the market at the moment…the stronger the trend the better. When these strategic price points are reached, we want to enter the trade in the direction of that strong trend.

As a result, there are 2 significant benefits to this type of strategy.

1. No need to baby sit the trades. Place orders to enter the market at specified prices then simply let the market enter you into these trades at these strategic prices. Many of these trades will trigger while you are away from your computer, sleeping, or busy with other time commitments.

1. This strategy can keep you out of SOME losing trades. Don’t get me wrong…you will still have losing trades. However, it happens frequently where you will be wrong on a trading idea but you never get entered into the trade…which would have been a losing trade. You see, if the market never trades to your strategic price point, then your entry into the market does not get triggered. This means you are kept away from the losing trade
2.  
   
   The Simple DNC Breakout Strategy
   Tools Needed:
   *A price chart set to the daily bar
   *The Donchian Channel (DNC) indicator
   *A strong trend
   *30 minutes of time to identify strategic price points
   To get started, open up a price chart of a currency pair that has been in a strong trend. The Australian Dollar has been one of the strongest currencies for the past 3 years. So the AUD/USD is a good place to start. A daily price chart means each bar or candle on the chart represents one day’s worth of price action.
   Secondly, add the DNC indicator to the chart (most charting packages include this for free). The DNC indicator will calculate the highest high and the lowest low price for the past X number of bars.
   Set the input value of the DNC indicator to 8. This means we want to see the highest high price and the lowest low price for the past 8 days worth of trading. Your chart should look like this.
   
   (Created using FXCM’s Marketscope 2.0 charts)
   Identifying the Strategic Price Points
   Now comes the fun part. Since the AUD/USD has been in a strong up trend for the past 3 years, we want to filter our trades so that we are only looking to buy this strong up trend. Conversely, if we were trading a strong down trend (like the EUR/AUD), then we would filter for only sell trades. Setting up the trade is a simple 4 step process.
   
   (Created using FXCM’s Marketscope 2.0 charts)
   Rules to Buy:
3. We will use the upper DNC line as are strategic price point to enter our position as a buyer (green circles).
4. We will use the lower DNC line as our stop loss.
5. Manually trail the stop loss at the lower DNC line.
6. Exit the trade when price reaches the lower DNC line (pink circles).

The opposite is true for selling a strong down trend.

1. Use the lower DNC line as the strategic price point to enter a sell trade.
2. Use the upper DNC line as the stop loss point.
3. Manually trail the stop loss at the upper DNC line.
4. Exit the trade when price reaches the upper DNC line.

You can see in the above chart, there were 3 trading opportunities from October 2011 to the present. When price tagged the upper line, we are entered into the market as a buyer. Our exit point in the trade is the lower DNC line.

Spare Time

While logging into your charts, most of your time will be spent reviewing the location of the upper and lower DNC lines. If the location of these lines moved since your last review, then you would change the entry orders in your brokerage account according to the strategy rules.

Since we are interested in the highest high price for the past 8 trading days, these price points likely won’t move much on a day to day basis which affords us the opportunity to check on them at least 1 time per week. As you can imagine, it doesn’t take very long for check the change in the strategic price points and it can usually be completed within 30 minutes.

finding best forex broker

The Best Way to Find a Broker

Every trader knows that he or she will need a broker to trade in the Forex market. Yet they don’t know how to find a good Forex broker. There are many brokers in the Forex market. And there are many different types of brokers. Knowing how to find a broker is not a decision that should be made lightly.
When a person begins to make inquiries about trading Forex, he or she could be inundated with advertisements from brokers offering to help him or her trade in the Forex market easily, effortlessly, and inexpensively. Most of these brokers will be legitimate, but a few will be fraudulent. Beginning traders need to know the signs of an unscrupulous broker to avoid becoming a victim of Forex fraud.
The Best Way for New Traders
Many people don’t have any experience with brokerage houses or individual brokers. As the Forex market opens up to individuals, the number of new traders is growing. Don’t feel alone or alarmed because there are ways for a new trader to find a legitimate broker.
The best way for beginning traders to find a broker is to contact the National Futures Association. This organization monitors brokerage firms and brokers in the currencies market. It is a voluntary organization, but holds its members to very high standards, has a complaint and disciplinary procedure, and oversees the actions of its members. It is one of the best sources of information on a brokerage firm.
Anyone can obtain a directory of the NFA’s members. This directory will list all its members, provide contact details, and give the most current information (including complaints and disciplinary action) about the brokerage firm. It is an excellent way to begin the search for a Forex broker. To obtain this important directory, contact the NFA and complete the NFA Directory Order Form.
If you have already identified a broker, but you need more information, you can search the NFA’s database for the most current information and details about the broker

 
Several brokerage houses can trade in many different markets. For traders who have experience with trading stocks, options, or commodities, the best way could be to use their current broker if they have access to the Forex market.
If the current broker does not have this type of access, the trader could obtain a recommendation from their current broker about legitimate brokers in the Forex market. This is not to say that the trader should use any Forex broker who advertises with the current broker. No, an advertisement is not an endorsement. The trader should talk directly to the customer service department and ask about their recommendation for a Forex broker.
Alternatively, the trader can contact the National Futures Association.
The Best Steps:

• Use your current stock or commodities broker.
• Ask your broker for a recommendation.
• Talk directly to an in-house broker or customer service agent.
• Avoid advertisements.
• Contact the NFA (see above information for new traders).

One of the most important decisions to make for beginning traders is how to find a legitimate broker. Don’t take this decision lightly. This will be a relationship that should last a long time. It will also involve constant contact and a financial commitment.
Taking the above steps will help all traders reduce the risk of becoming the victim of a Forex scam and protect the money committed to trading currencies.

indicators 6 - Stochastics

Stochastic is an oscillator that determines where the most recent closing price is relative to its price range over a given time period. It is one of the most popular oscillators that traders use in range-bound market.
The indicator involves two lines:

1. %K
2. %D which is a D-period moving average of %K

Where

1. %K = 100 [ (C - Ln) / (Hn - Ln) ]
2. C = latest close, Ln = lowest close over last n periods, Hn = highest high over last n periods

The most commonly used time period is 14, and the most common value for K and D are 5 and 3 respectively.
As you can see in the formula, %K measures where the closing price is in relation to the price range over n period of time. If the lowest close over last periods is 0, highest high over last n periods is 100, and the closing price is 75, then %K = 75%, which means the price is close quite close to the highest high.

Applications of Stochastics:

1. Detect overbought/oversold levels
When Stochastic is over 80, the pair is considered to be overbought. If Stochastic is below 20, the pair is considered to be oversold. It works best in range-bound market. If the currency pair is in strong trend, the overbought/oversold levels offer limited value.
2. Crossovers
If the %K line crosses above the %D line, especially below the lower extreme of 20, a buy signal is generated. If the %K line crosses below the %D line, especially above the higher extreme of 80, a sell signal is generated.

In the above charts, six selling signals were generated in the range-bound period of EUR/USD. Notice that Stochastic may stay above 80 when the up-trend went strong at later stage.
 

Some Final Words about Technical Analysis

We have gone through some of the most common indicators in the previous articles. Traders may actually find that there are many other technical indicators in their charting software. There is no single indicator can do all the work, traders may pick a few of their favorites under different market situation.

When the Market is Ranging

When the market is ranging, there are only two possibilities if the price hits the boundary: retrace or breakthrough the boundary. The two possibilities make up the two major trading strategies in range-bound market: to trade inside the range or to trade after the breakthrough.

Technical indicators in Range-bound market

1. Oscillators (RSI, MACD, Stochastic)
The oscillators are the best detectors of overbought and oversold conditions. When the market is ranging, traders can pay attention to the overbought/oversold levels of the oscillators, or the crossovers of the MACD lines and Stochastic lines. The signals from the oscillators are always few bars behind the prices. Traders should compare the current price with support/resistance levels and the indicators' signals, so as to make a better trading decision.
2. Bollinger bands
In range-bound market, Bollinger bands help to tell the future direction of the price movement, particularly when the price breaks through the bands or rebounces away from the bands. If the bands are getting wider towards one direction (either up or down) in a range-bound market, it means the price is moving more vigorously towards that direction, and it is getting higher volatility. Price may eventually break through that boundary. If the bands and the central line is moving parallel and keep a constant width, the price is more likely to retrace at the two bands.
3. Support/resistant levels
Resistant levels are formed by recent highs, and support levels are formed by recent lows. The more times the price hits the recent highs/lows, the stronger is the resistance/support levels. Traders can buy at support levels and sell at resistant levels, and should always set tight stop just below the support level or above the resistant level to prevent any severe loss with subsequent breakthroughs.
4. Candlestick patterns
There are three indications from the candlestick patterns: bearish, bullish or neutral. Traders should not place their trades solely base on candlestick patterns. A bearish pattern (like a bearish engulfing pattern) is only valid when it occurs near the resistance levels. If the price rises further after a Doji, and it breaks through a resistant level, the Doji is seen as a bullish signal.

When the Market is Trending

Trends occur when the market makes higher highs or higher lows (or lowers lows and lower highs). When the price is near the support/resistance levels in a trending market, there are only two possibilities for the price movement: to retrace or to keep going in the original trending direction.

Technical indicators in Trending market

1. Trend-lines
The trend-lines indicate the direction of the trend and the support/resistant levels. Traders can buy at support level when the market is undergoing retracement, or can sell when the price falls below support level. On the other side, traders can sell at resistance level when the market re-bounces, or can buy when the price rises above the resistant level.
2. Fibonacci retracements
If the market is undergoing retracements, Fibonacci levels can estimate to which level the market is expected to resume its current trending direction. Traders can place orders near those Fibonacci levels.
3. Moving averages
Moving averages can tell the direction of the current trend and they can also act as support/resistant levels. If the price falls below a moving average support level, or it breaks above a moving average resistant level, it is a signal of reversal. The longer the period of the moving average, the more reliable is the signal.
4. Divergence of oscillators
Although the overbought/oversold levels of oscillators are of less use in trending market, the divergence of oscillators can indicate the future direction of the trend. When a divergence occurs, traders should pay attention to the trend-lines, moving averages and Fibonacci levels, to see if the retracements have caused any breakthroughs and confirms any reversal signals.
To conclude, traders shall not rely on only one technical analysis tool to make trading decisions. They shall consider the overall situation on the market and take references from different technical analysis tools. Even so, it does not mean that the more technical analysis tools they use, the more accurate are the decisions. In general, three to four references from different technical analysis tool groups would be enough.

indicators 5 - RSI and MOMENTUM

Relative Strength Index (RSI) measures the strength of all upward movement against the strength of all downward movement in a specified time frame.
For mathematical formula of RSI is as follow:

• RSI = 100 - [100/(1+RS)]
• RS = average of n day's up closes / average of n day's down closes

The most common parameter for RSI is period 14, although users can pick their favorite period of time if they wish. It is one of the most popular oscillators that works well in range-bound market.
RSI can range from 0-100. In the formula, if RS = 1, which means the average n day's up closes equals to the average of n day's down closes, RSI = 50. In that case, the market is having an equal strength of upward and downward force. If RSI > 50, which means the upward force is stronger than the downward force. If RSI < 50, which means the downward force is stronger than the upward force.

Applications of RSI:

1. Detect overbought and oversold condition
If RSI > 70, the market is considered to be overbought, a selling signal is issued; if RSI < 30, the market is considered to be oversold, a buying signal is issued.

2. Spot Divergence
If the price near support/resistance level and the RSI begin to diverge and are heading different direction, it may signal a weakening of trend.
The occurrence of divergence can deemed to be the weakening of the current trend or a reversal is about to happen.
In the chart below, the price is making lower lows, however, the RSI does not make any lower lows, it lows are going higher and higher. That marks the weakening of the current downtrend.

MOMENTUM

Momentum measures the rate of change of the currency pair.
Momentum = V - Vn
Where
V = latest closing price
Vn = closing price n periods ago
If there is no change of closing price, momentum equals to 0, which is the central line of the indicator. When there is a rise of price, momentum is greater than 0. If the closing price is smaller than the closing price n periods ago, momentum is a negative value. The most common period for n is 14, traders can adjust the value according to their preference.

Applications of momentum

1. Detect overbought/oversold conditions
When momentum reaches upper boundary level, the pair is considered to be overbought. If momentum reaches lower boundary level, the pair is consider to be in oversold condition. Since momentum has no fix range, there is no standard value for the upper and lower boundary. Traders may consider different boundary values for different currencies after a while of observation.
2. Spot divergence
If momentum is at near its boundary and it heads different direction with the price, a divergence is occurred. Divergence may signal a weakening of the current trend or a reversal may happen.

3. Crossing the central line
The cross over of the central line is deemed as a change of direction of the general trend. When momentum crosses below the central line, a sell signal is issued, whereas a cross above the central line, a buy signal is generated.

indicators 4 - envelope and macd

The moving average envelope is a variant application to the moving average. It is a trading band composed of two moving averages, which attempts to determine the range of market should be trading in. Traders can choose their period of MA, then form the upper line of the envelope by shifting the MA upwards and the lower line of the envelope by shifting the MA downwards.
The reasoning behind the envelope is that moving averages define the general trend of the market and are the best-fit line to the recent movement of the price. Most of the data should appear close to the moving average lines. The envelopes define a range away from the moving average that the price should return to the center in a short term if the price strays too far away from the moving average. Therefore, the envelopes are best to identify potential reversals when the price hits the envelope boundaries.
On a daily chart, it is common to use 21-day Simple Moving Average and form the envelopes with 2% or 3% above and below the 21 day SMA. For longer term trading, traders can choose longer time frame like 50-day SMA and larger percentage variation like 5%.

In the above chart, you can see prices stay within the 3% band most of the time. When the price hits the boundary of the envelopes, it is a sign of reversal. Somehow the price returned to the centerline and move on again. However, traders are reminded that not every signal is valid. When the trend is strong enough, it can raise (or fall) along the envelope boundary resulting many false signals.
MACD
Moving Average Convergence Divergence (MACD) shows the difference of two moving averages - EMA12 and EMA26, and a 9-day EMA of the difference is plotted against it to trigger buy or sell signal.
There are three parameters in MACD:

1. MACD line - the difference between the 12 and 26 period EMA
2. Signal line - the 9 day EMA of the MACD line
3. Histogram - a visual representation of the difference between the MACD line and the signal line

MACD is best use in range-bound market to detect the momentum change and overbought/oversold conditions within a price range.

Applications of MACD:

1. Detect overbought/oversold levels
When the MACD line is far above from the centerline, the market is considered to be in overbought condition; while the MACD line is far below the centerline, the market is deemed to be in oversold condition.

2. Crossovers
When the MACD line crosses above the signal line, a buying signal is generated; while the MACD line crosses below the signal line, a selling signal is generated.

3. Divergences
If the price is moving higher, but the MACD line is moving lower, it signals the weakening of the up-trend or a reversal. If the price is moving lower, but the MACD line is moving higher, it signals the weakening of the downtrend or a reversal.

indicators 3 - bollinger bands

Bollinger bands were created by John Bollinger in the early 1980s. The bands have similar theory and application with the Moving Average Envelopes. It has a set of three curves, the typical parameters are:

• Middle Bollinger Band = 20-period simple moving average
• Upper Bollinger Band = Middle Bollinger Band + 2 * 20-period standard deviation
• Lower Bollinger Band = Middle Bollinger Band - 2 * 20-period standard deviation

The theory behind Bollinger Bands is that, in a normal distribution data set, 68% of data should fall within one standard deviation and that roughly 95% should fall within two standard deviations. So 95% of the price should fall within the 2-width standard deviation, which is within the upper and lower band.
Bollinger bands are often used to forecast reversals in rangebound markets. When the price is close to the upper band, the market is more likely to be in overbought condition, and is likely to reverse. The same holds for the lower band condition.
In the chart below, you can see that prices are likely to reverse at the upper and lower bands. Since 95% of the prices should fall within the band, the price should move back within the envelope if it rises above the top band or falls below the bottom one.

Because standard deviation is also a measure of volatility, traders can know the market condition by observing the Bollinger bandwidth. The bands widen, meaning moves further away from the middle band, when the market is more volatile. The bands contact, meaning moves closer to the middle band, when the market is less volatile.
The Bollinger bands are best to use in ranging markets, but are of limited value in trending markets. As shown on the above chart, when the market is in strong trend, the price can move along the upper or lower band, resulting in many false signals. Traders are better to combine Bollinger bands with other indicators or candlestick patterns to determine a trade.

indicators 2 - moving averages

What is moving average?

Moving average is the average rate of a currency pair over a set period. For example, if you conduct a 20-day moving average (20 day MA), you simply add the close price of the past 20 days and divide it by 20. This is called a simple moving average (SMA).
The most common parameters for moving averages are 5, 10, 20, 50 and 100. The smaller the time frame, the more reactive and sensitive is the indicator to the market movement. The longer the time frame, the smoother is the moving average. Traders should keep in mind that the longer the time frame, the more reliable is the study.

Moving averages show the direction of the trend. As shown in the above chart, the shorter the time frame, the more sensitive is the SMA to the direction of the trend. In an up-trend, the shorter time frame averages should be above the longer ones, where the current price should be above the shortest SMA.

SMA, EMA and WMA

There are few varieties of the moving averages. The most common ones are: Simple Moving Average (SMA), Exponential Moving Average (EMA) and Linearly Weighted Moving Average (WMA). EMA and WMA are under the moving average family that they put more weight on recent data in calculations. They react faster than SMA to the current price movement. As shown on the chart below, 10 WMA is more sensitive to the current price movement than the 10 SMA.

Applications of Moving Average

1. Direction of the trend
Moving averages can show the direction of the current trend. Generally, an up-trend is confirmed when a short-term moving average crosses above a long-term one, and the short-term moving average remains above the long-term moving average. Conversely, a downtrend is confirmed when a short-term moving average crosses below a long-term one, and it remains below the long-term moving average.
Traders can recognize the direction of the trend with reference to the direction of the trend line and their order of arrangement.

2. Support and resistance
The moving averages can act as support and resistance lines. In an up-trend, the SMAs below the rising price can act as support levels. If there is a retracement, the price is likely to bounce off the moving averages. It is the same for a downtrend movement, that the SMAs above the falling price can act as resistance levels.
As shown in the chart below, EUR/USD has experienced a strong downtrend since April 2005. The price retraced a couple of times to the 10 day SMA, however failed to break through and followed with subsequent drops.
The longer the time frames of moving averages are regard as stronger support or resistance than shorter time frames ones. When the price hits the longer time frame moving average, it means a stronger retracement. Traders can combine the candlestick patterns when decide to trade with the moving averages. For instance, a selling decision in a downtrend can be confirmed by price retracement to a 20 day SMA level and a bearish engulfing pattern.

3. Crossovers Signals
Whenever a shorter-term moving average crosses over a longer-term one, it indicates that there is a momentum shift. Traders can use this opportunity to enter a trade in the direction of the crossover.
Since the shorter-term moving averages react more quickly to the market price, a crossover indicates a change of sentiment in the market. In the chart below, the 10-day SMA cut above the 20-day SMA in April 2006, it was a bullish crossover. It indicated an upward momentum. Later in June 2006, the 10-day SMA cut below the 20-day SMA, it indicated the up-trend had lost its momentum and the downtrend was in control. Traders can use the crossovers as entry and exit signals of trades.
The shorter term moving averages generate more crossovers as they react more quickly to the market. However, they also generate more false signals. Traders are recommend to trade the moving averages along with other technical analysis tools, like candlestick patterns or other technical indicators.

Limitations of Moving Averages

Moving averages are best to apply in a strong trending market, otherwise, there can be too frequent crossovers that includes many false signals.
In the chart below, USD/CHF was going an up-trend and there were many retracements to the support line. There were numerous crossovers between the 10-day SMA and 20-day SMA. In this case, the crossovers were inexact signals and they do not take into account the price in relation to the support level. Trading based on SMA crossovers requires caution and better to wait for other signals or candlestick patterns to confirm the trade once a crossover signal occurs.

Indicators 1 - introduction

Technical indicators are statistics of past market data base on different mathematical calculations. Traders use technical indicators extensively in technical analysis to predict the continuance and the reversals in currency trends.
There are two major types of technical indicators: trend following indicators and oscillators.
Trend following indicators reflect the direction and the strength of the current trend. Traders may enter a position when the trend following indicators showing the current trend is in a strong momentum. The most common trend following indicators are: moving averages and bollinger bands.
Oscillators are indicators banded between two extreme values that reflect short-term overbought or oversold conditions. In general, as the value of the oscillator approaches the upper extreme, the currency is said to be in an overbought condition, and as it approaches the lower extreme, the currency is consider to be oversold. Traders may exit a long-trade when the oscillators showing the current price is in an overbought condition, or they can exit a short-trade when the oscillators approach the lower extreme. The most common oscillators are: Relative Strength Index (RSI), Moving Average Concergence Difference (MACD) and Stochastic.
Nowadays, most charting packages include the above common technical indicators. Traders can find a charting package and add their favorite indicators to their charts. Traders tend to use a mix of trend following indicators and oscillators. They usually pick one from each category as the main reference. Most of the forex charting packages offer real-time streaming pricing. At the same time, all the calculations of the indicators are done automatically and instantaneously.
The following articles will introduce the common indicators mentioned above. Readers can choose their preferred indicators after knowing each of their mechanisms.

sample fibonacci trades

The charts below show sample trades using the Fibonacci retracement. GBP/USD was going on an up-trend from November 2003. During an up-trend, traders would look for pullback and buy in. In January 2004, GBP/USD reached its first top at 1.8580 and started pullback. The pullback was until 1.7820 which was the 38.2% retracement of the up-trend. A bullish engulfing pattern at the 38.2% retracement level confirmed the pullback. The trend resumed its upward momentum and reached 1.9140 in Feburary.

After reaching the historical high at 1.9140, GBP/USD reversed its direction and started a downtrend in February 2004. It reached 1.7905 as an intermediate bottom. The price then rebounced. Traders would look for sell at rebounce. The price rebounced twice up to 50% retracement of the downtrend and they were confirmed by bearish engulfing pattern of the candlesticks.

Note that Fibonacci retracements can be use in both bullish (up-trend) and bearish (down-trend) markets. Traders should look for retracement levels and use them with candlestick patterns to confirm the trades

Fibonacci retracement

Fibonacci I: Retracements

The price movement of any financial market is in wave format. Suppose a currency pair is on an up-trend, going from 1.0000 to 1.1000. After reaches certain top "boundary", 1.1000 for instance, it will retrace - meaning pull back down - before resuming its initial up-trend. Fibonacci Retracements are levels at which the market is expected to retrace to after a strong trend.
Based on mathematical numbers that repeat themselves in all walks of life, Fibonacci retracements attempt to measure the likely points that a currency pair will retrace, or pull back to within a range. The key numbers in forex trading are 38.2%, 50%, and 61.8%. We can use the Fibonacci retracement numbers to gauge how far retracement will occur after the top "boundary" is reached.
Mathematically, it works like this:

• The 38.2% line. Calculate 38.2% of the size of the range. The size of the range is the boundary (1.1000) minus the lower boundary (1.0000). In this case, the size of the range is 1,000 pips. 0.382 * 1,000 = 382. It is expected that the asset will retrace 382 points from its current trend. Assuming the asset is going up from 1.0000 to 1.1000, it would retrace 382 pips from 1.1000. 1.1000 - 382 pips = 1.0618. Accordingly, this is a key level to look out for; you may want to buy here, as it is expected the upward trend will resume after reaching this retracement level.
• The 50.0% line. Same deal; 50% of the range (1.1000) is 500. Take that off from top (1.1000) since it is an upward trend. 1.1000 - 500 pips = 1.0500. Look to resume the upward trend here.
• The 61.8% line. 61.8% of the range is 618. 1.1000 - 618 pips = 1.0382. If the asset retraces to here, it is viewed as an opportunity to buy.

If the asset were on a down trend - meaning it had gone from 1.1000 to 1.0000 - then you would use the Fibonacci numbers to calculate the retracement regarding how far it went up before resuming the downtrend again. In this case, 31.8% would be 1.0000 (the end point of the current trend) + 318 pips (size of range - 1,000 - * 0.318).

Steps to draw Fibonacci Retracements

1. Find an ongoing trend. Identify the top and the bottom of the trend. This can be a highly subjective matter. Traders can find the tops and the bottoms by looking at the charts and use their own judgment.
2. Use a charting software which has Fibonacci function, connect the bottom to the top
3. The default Fibonacci levels are 38.2%, 50% and 62.8%. The charting software usually allows users to change the default levels to draw their customized levels

chart battern 5 - rectangles

The rectangle formation is often a very simple one to recognize. It is essentially a market that is trading in a range between two horizontal lines. The rectangle formation represents consolidation of the move that preceded it, creating a foundation for a continuation of a further move in the same direction.
The chart below showed the consolidation period of EUR/USD from May 2004 to October 2004. EUR/USD had been going on an up-trend since the beginning of 2002. In February 2004, EUR/USD started a retracement and followed by the consolidation period in the chart, forming a rectangle. EUR/USD traded between 1.1970 and 1.2460 for five months. The price eventually broke above 1.2460 in mid-October and continued the up-trend, reaching EUR/USD historical high at 1.3660 at the end of year 2004. The rectangular consolidation period created a foundation for the continuation of a further move in the up-trend.

The rectangle formation can be used in either an up trend or a down trend, and although it normally signals continuation of a market move in the direction of the original trend, the important signal is upon the breakout from the rectangle. Reversals are possible in a rectangle pattern if the breakout occurs back towards the origin of the trend that preceded the pattern.

chart battern 4 - trible top and bottoms

A triple top is the same charting pattern as the double top with an extra relative high that touches the same resistance level. A triple top creates a strong resistance level and a neckline connecting the two relative lows in the middle of the pattern. A trader should enter a short position when the daily candle closes below the neckline of the triple top.
The entry point should be set a few points beneath the low of the candle that first closed below the neckline.

The triple bottom is similarly an extension of the double bottom. It simply contains an additional relative low on the chart that touches the same price as the two that preceded it. The triple bottom is a solid support level and can be a basis for entering a long position if it holds for a third time – particularly if there are additional indicators confirming a reversal at the triple bottom. Alternatively, a more conservative trader could also wait until the price closes above the neckline and buy when the following candle surpasses the high for the first candle. This is essentially the same logic utilized in trading the triple top, whereby traders place short orders to sell an asset at a few points beneath the low of the first candle that closes beneath neckline.

chart patterns 3 - double tops and bottoms

The double top formation is a straightforward pattern that is easy to recognize on a chart. One of the features of a market in an uptrend is a series of increasing highs and relatively higher lows. If the market on one of its high points fails to break above the previous high, but instead stalls at the same price, this is an indication that the trend is weakening and may reverse. A double top is therefore a simple horizontal line that connects two relative highs at the same price.

The relative low between the two highpoints of the double top creates a miniature version of the neckline in the head and shoulders pattern, and provides traders with a potential entry point to sell. Traders should sell once they receive reasonable confirmation that the neckline has been broken; a good indication of this is when a candle closes beneath the neckline. In the case of the double top, traders can then place an entry order a few points beneath the low of the first candle that closes beneath the neckline.

The double bottom pattern is the inversion of the double top. In a down-trend, the price tested twice the low level but failed to break through, forming a double bottom pattern. Traders can look for opportunities to buy above the neckline once the pattern is confirmed.

chart patterns 2 - head and shoulders

Head and Shoulders Pattern
The Head and Shoulders pattern is one of the most famous reversal patterns and one that gives a clear signal and entry point. The head and shoulders in an uptrend consists of three relative highs: the first and last peaks are of nearly equal size and are the shoulders of the formation. The middle peak is greater than the other two and forms the head of the pattern. The relative lows in between the head and shoulders form a neckline at the base of the pattern. Once the pattern is completed, the neckline becomes a key support level; the market can bounce off it and reverse, or it can break through it and gather momentum.

Reverse Head and Shoulders
The reverse head and shoulders is the same formation in a downtrending market. The head and shoulders point lower in this case and signal a reversal of the market higher once the price crosses the neckline and closes on a daily chart.

chart batterns 1 - reversal pattern identifying

Chart Patterns II: Rules for identifying Reversal Patterns

The following are the three basic tenets about identifying reversal patterns. While they may seem obvious and even simplistic, they are important for successfully using these patterns.
A Trend Must Exist - A trend must exist before a reversal of the trend. There can be no reversal if a trend does not exist in the first place. A reversal pattern that follows a large trend will have much more movement to retrace, and so the strength of the move after the reversal pattern will likely be stronger.
Trend Lines - The first precise signal that the trend is ending is often the failure of a trend line, that might also come along with oscillators that show overbought or oversold before a reversal pattern occurs. Note that the intraday break of the trend line is not significant until a daily candle closes through the line. The chart below shows a trend line that is broken on an intraday basis before the price recovers. The first strong signal that a reversal may be coming appears when the price closes below the green support line. The price subsequently rallies to form a double top, but it does not hold these gains.

Time Frame - Like relative highs/lows and trend lines, reversal patterns gain greater significance if they occur over a longer time frame. A head and shoulders pattern that takes months to develop will of course signal a reversal of a much larger trend than a head and shoulders that takes place intraday.

candle stick 6 - reversal patterns

Candlestick VI: Candlestick Patterns Confirming Reversals

Candlestick patterns are used to confirm reversals. Often when a price moves towards a support or resistance level, it is unclear for several periods on the chart whether it is going to break through or reverse. Intraday penetrations of important technical levels are often misleading signals, but quick bounces off support can be false signals as well. Candlestick patterns offer a means of confirming that a price has reversed itself at a key technical level. They also provide a precise entry point and ensure that the market's momentum is in the direction of the trader's position at the time of entry.
In the chart below, the Euro has made its famous double top against the US dollar. The first relative high has been established, and although there are later several intraday breaks above this level, no daily candle has closed at a new high. Shortly after, a rapid fall from the 1.29 level creates a bearish engulfing pattern that allows the trader to sell the next day with the market's momentum to the downside. The stop is placed just above the black resistance level, because a further test of the recent highs could easily lead to a breakout higher.

Chart Patterns I: Introduction to Reversal Patterns and Continuation Patterns

There are two major ways to trade the financial markets: swing trading and trend following. Swing traders use technical analysis to look for short-term price movement and capture gains in a relative short-term period. They look for the price patterns that hint for a reversal, in order that they can pick the tops and bottoms of the trend. Trend followers pay attention to the general direction of the price movement and enter trades by following the current direction. They would look for continuation patterns on the price charts to predict the future direction of the trend, or exit the trade until the reversal patterns appear.
The following articles discussed the rules for identifying reversal patterns and continuation patterns, and introduced some well-known reversal and continuation patterns. The reversal patterns include: Head and Shoulders, Double Tops and Bottoms, Triple Tops and Bottoms and Saucers. The continuation patterns include Triangles (Ascending, Descending, Symmetrical and Broadening), Flags and Pennants, Wedges and Rectangles.
The patterns exhibit the psychology and momentum of the market. No matter which type of traders you are, it is always helpful to be aware of the patterns. Using the patterns is not a stand-alone method of trading the market, in fact, it is better to be used with a mix of trend lines and technical indicators. Beginners might first find it difficult to identify the patterns; they can familiarise the patterns by looking at the historical charts and try to identify the patterns.

candle stick 5 - using in trending markets

candlestick VI: Using Candlestick Patterns in Trending Markets

Using candlestick patterns to trade trending markets can be an extremely useful tool to profit from exchange rate movement. The process is simple:
Identify the overall trend

Look for a retracement
Look for a candlestick pattern to confirm a reversal at the retracement level

The candlestick pattern serves to confirm the fact that the market is acknowledging the importance of the retracement level. Traders should look to enter the position just outside of the reversal candle's range. At that point, there is sufficient reason to believe that the retracement is over and that the primary trend is ready to resume.

candle stick 4 - using in rangebound markets

Candlestick V: Using Candlestick Patterns in a Range bound Market

In a range bound market - meaning a market that does not possess a clear directional trend, but rather moves back and forth between support and resistance - traders are essentially looking to short at the top of the range, and buy at the bottom of the range. It is worth noting that this strategy often results in limited profits, as it does not seem to rely on identifying a trend. Nevertheless it can be useful in capturing many small moves for the trader who can maintain discipline and self-control while trading this strategy.
Traders should start by identifying a range bound market.

Once the market is identified to be range bound, traders should look for oscillators suggesting overbought/oversold levels at support and/or resistance.
Traders should then look for a candlestick pattern that also suggests a reversal at the top/bottom of the market's range. When this has been identified, traders can enter once the reversal is confirmed.

candle stick 3 - thrust and run

Candlestick IV: Thrust Day and Run Day

A thrust day
An up-thrust day is when the close for the current period surpasses the previous period's close. A down-thrust day is when the close for the current period is below the previous period's close.
Similar to spike and reversal days, thrust days signify both the strength in the market as well as the possibility of directional reversals. A series of up-thrust days would suggest a pronounced up trend, while a series of down-thrust days would indicate a downtrend dictated by seller dominance in the market.

A run day
An up run day occurs when the true high of the run day surpasses the true high for the past N days, and when the true low is less than the minimum true low on the following N days. A down run day is simply the mirror image of an up run day
Run days can be thought of as a trend-following indicator in the sense that they can only be identified N days after the trend has past. As a result, they may not be ideal for forecasting direction, but can be used as confirmation that a clear trend has in fact manifested itself.

A run day
An up run day occurs when the true high of the run day surpasses the true high for the past N days, and when the true low is less than the minimum true low on the following N days. A down run day is simply the mirror image of an up run day
Run days can be thought of as a trend-following indicator in the sense that they can only be identified N days after the trend has past. As a result, they may not be ideal for forecasting direction, but can be used as confirmation that a clear trend has in fact manifested itself.