Forex Technical Analysis

When developing your own forex trading style, there is a danger in becoming fascinated with indicators. The newer trader experiments with one, finds it doesn’t work so well, then switches to another, then another, etc.

The list below highlights 7 key indicators that can be woven into your forex trading style. You may not need to go any further than this. Stick with the 7, practice them, get to know them inside out, and get the satisfaction of developing your own successful forex trading style.

#1: Candlesticks

Watch for a hammer, doji, head and shoulders pattern, 1-2-3 formation, double top or bottom.

#2: Trendlines

Draw common sense trendlines across the highs in a downtrend or lows in an uptrend. Watch for price to break the trendline and come back and test it.

#3: MACD

Watch for a difference between the highs and lows of MACD and price. When there is divergence watch closely for a good entry point once price has shifted in the direction of the divergence.

#4: 200 EMA

This indicator is an all time favorite for traders across the board. On higher time frames (1 hour, 4 hour, daily) take note whether price is above or below the 200 EMA to give you the sense of price direction.

#5: Pivot points

Take note of previous support and resistance lines as price will come back to retest these levels time and time again.

#6: Fibonacci

Learn how to use this tool well and take particular note of the 50 and 62 retracement levels, especially when they coincide with trendlines or previous support/resistance.

#7 Price Itself

Let price prove to you where it wants to go by setting entry orders rather than market orders when entering a trade. By setting an entry order, price has to reach the target you specify before pulling you into the trade.

Using Technical Indicators

It is important to acknowledge the probability that no indicator on its own is a good enough reason for entering or exiting a trade.

Your individual Forex trading style will evolve in time as you become familiar with the key indicators and probably rely heavily on just 2 or 3 out of the 7. However, it is crucial to get a combination factor when considering a trade. Ask questions such as:

While one indicator may show a clear signal, how do the other indicators line up? Is that one signal running against the general conclusion drawn from the other indicators?

This is where your skill as a trader comes in as you assess the clues the indicators give and make a decision based on your perception and experience in the market.

Only time and practice can give you that. Once you are familiar with the top 7 indicators, spend most of your time and energy on developing the emotional and mental disciplines necessary for successful trading. This will eventually make up the most important part of your Forex trading style.

By: Michael A Jones

Part of trading for a living is accepting a calculated loss, it’s simply a part of the trading game.
New traders need to come to terms with handling a loss both financially and emotionally. Being a good loser helps create a winning trader as there is much to learn within a loss – it’s your teacher, that is if you’re using your eyes and ears. The reality is generally that the new trader will have more losses than a professional trader who has been trading for a living. So, accept that and do something about it.

Today I would like to put forward a few simple thoughts in managing your financial and emotional risk, specifically with a review of better set-ups and entries. The actual loss is only half the story with another aspect worthy of consideration being the recovery, the time it takes to recover from a dip in the equity curve.

What can be done to improve this situation that is within your control? Your approach to handling money and streamlining your entries can become a much easier and more relaxed affair. This seems a simple way to becoming a more professional trader, by managing financial risk, but simplifying what we do is better management.

There are many fancy names for trading a variety of time frames and the concept of scaling small positions into a market can be done in any time frame, however the new trader must understand that the shorter the time frame the more education would be needed as trading shorter time frame needs more trading skill.

For the point of the exercise I will take the middle ground and use position trading, with the aim of trading a trend between large numbers as many markets tend to travel from one large price to the next or from one degree of correction to the next. In this case I will use the Fibonacci Trading Levels as the trading analysis tool. The Fibonacci Trading Levels is a strategy simply using the Fibonacci sequence as price ratio, i.e. tracking market growth. The Trading Levels will assist with finding the price levels for scaling each position into the market.

Scaling or pyramiding

Scaling for me is risking a certain percentage such as 2.5% of total capital, then dividing that into say three smaller positions and feeding them into the same market at different price levels.
(Where pyramiding is risking 2.5% on the first trade then a further 2.5% on the second and third trades, this becomes a double-edged sword as the pyramid becomes too top heavy as a percentage in relation to total capital – pyramiding three times like this equates to 7.5% weighted in profit/loss of a market movement). Small steady profits within your overall trading plan, is a safer aim.

So armed with this method of scaling into most of your trades, you can create many benefits. You can benefit financially in that the first trade only becomes 0.83% of capital at risk (i.e. one third of 2.5%) so if the trade does not move in your favour and gets stopped out, you have then managed it more professionally and it is certainly less stressful. In fact it will probably be no stress as you can just get on with the job at hand because the loss is so small. If the trade does move in your favour to the second price level entry, you now have a small profit buffer to work off in placing the second trade. And so on for the third.

You are now building into the trade and the benefit here is that you are confirming your position as being on the right side of the market as it moves in your favour. You now add into strength (less if you are wrong and more if you are right)

How do I figure out how many CFDs to buy with the percentage at risk?

If you are risking 2.5% on the trade and you have a total of $10,000 then that would equal $250 to risk on the trade. What comes next is the ‘Position Size’ of the trade. This depends on the price difference between entry and stop loss, if it was 25 cents, what you do is divide the risk 25 cents into the $250 = 1,000 CFDs, this is very important, the position size of every trade you do is imperative to handling money correctly!

Let’s look at scaling into a market with the Trading Levels. The Trading Levels simply put are divided into Major, Medium and Minor pricing levels

The Santos chart below was put out on the 26 March with the view of a long term trade from TL13 ($13) to TL2 ($20) the Medium Trading Levels were used as support and resistance levels but more importantly further entry signals. By scaling into the market and breaking down your initial percentage at risk is simply a sensible way for the new trader to approach the market.

When a market is approaching a large whole number such as Santos approaching $20 it’s common for larger traders to start scaling out of their positions before this major level. In fact according to the Trading Levels analysis the profit taking at $20 TL2 would start at $18 which is considered a minor trading level mTL8. You can look at many other stocks at 18 and 20 to see this profit taking occurring at mTL2. In fact you can see it at any TL2 that is 8 cents 18 cents 8 dollars, 18 dollars 180 dollars such as IPL and watch RIO when it arrives at 180. The point of this is that it is also a good level for you to start scaling out and protecting your profit, scaling into a trade and scaling out makes the journey much smoother.

By: Peter Mathers

Fibonacci Retracements are a popular trading tool used by many Forex traders to identify areas of support and resistance in the market. Fibonacci levels are particularly useful in calculating areas where markets are likely to pullback to following a strong directional move. These levels can be used either as an opportunity to trade the pullback or alternatively as a point to position for the rejoining of the major trend.

Fibonacci is named after Leonardo Fibonacci of Pisa, an Italian mathematician of the late twelfth century. Leonardo analysed many number sequences which had been observed repeating in nature. The Fibonacci number sequence that he identified was formed from adding the two preceding numbers in a sequence to create the next. What he also found was that by dividing any number in the sequence by the subsequent number, you would end up with a ratio of 61.8%. This is referred to as the ‘Golden Number’ and is part of the Fibonacci sequence used in Forex trading.

Fibonacci retracement levels are used in two main ways by Forex traders. We examine both approaches below.

Using Fibonacci to trade retracements

The first use of retracement levels is to identify where a market may pull back to following a strong move. After identifying the high point of a move, any subsequent pullbacks can be traded.

Fibonacci Retracements work across all chart time frames and for all types of traders. The retracements occur at predefined levels of the preceding move. The most common levels used are 23.2%, 38.2%, 50% and 61.8%. Each of these levels can provide support or resistance to the market traded. The 61.8% level is of specific significance. If this level is broken when the market retraces then it is assumed that the whole of the preceding move will be retraced.

These defined support and resistance levels are also often used by traders as points to place profit targets or areas to locate stop losses.

Using Fibonacci to enter a trend

The retracement levels identified can also be used to position for a resumption of the original trend. In this case, the retracement levels are used to identify levels that the market may sell back to. This might simply be the result of profit taking or the market unwinding from oversold levels. By being aware of where the market is likely to pull back to, the trader is able to position themselves to rejoin the major trend.

Fibonacci tools are available in many charting packages today or alternatively, the levels can be calculated via the use of a Fibonacci calculator. Simply plot the ratios on your charts and use Fibonacci levels to help time your trade entries.

By: Vernon L Lees

Free of cost real time forex charts are widely available, thanks to the popularity of FX Trading. Trading in foreign exchange currencies (commonly known as FX or Forex) is accessible to the individual trader, as long as he has a fast internet connection. People getting started in FX trading are often stymied by the wealth of information. Here is some important information to help you.

Where To Find Charts:

These days, virtually every Forex broker will have currency charts that their clients can use at no cost. Most will provide you with the ability to set up a practice account. All brokers are more than happy to do this. It gives prospective traders a risk free way to try out FX trading and its platform. All the trades are placed using real prices, but nothing is actually exchanged. So you cannot lose money. In the world of trading, a practice account is the only thing that truly is free of risk.

FX Charts And How to Use Them:

Usually when you open up a chart, you will see the price displayed as either a line or candle stick chart. The charting software allows you to view prices over different time frames. The reason is that different traders do trade with varying frequency. Someone who trades a lot during the day will probably be looking at a 15 minute or hourly chart (though you can go as low as 1 minute). Someone who trades less frequently may prefer looking at daily charts, or maybe even weekly or monthly ones.

Technical Analysis:

Real time forex charts that are free of clutter are generally the easiest to trade from. Having too many indicators is like having too many cooks; they spoil the pot. There are a wide variety of technical indicators in use. Some of the most popular are: moving average, parabolic SAR, stochastics, RSI and MACD. These indicators are merely tools in the currency trader’s toolbox. Seasoned traders never rely on one indicator alone, and always seek confirmation from another one. Though for a beginner, it is best to start out using just one indicator at a time to get a good feel for how it works. As you gain more experience, you can expand your set.

In conclusion, getting started in FX can be overwhelming at first because there is a lot of new material to learn. However, real time forex charts, free of charge appears to be the best way to get your foot in the water safely.

Free of cost real time forex charts are widely available, thanks to the popularity of FX Trading. Trading in foreign exchange currencies (commonly known as FX or Forex) is accessible to the individual trader, as long as he has a fast internet connection. People getting started in FX trading are often stymied by the wealth of information. Here is some important information to help you.

Where To Find Charts:

These days, virtually every Forex broker will have currency charts that their clients can use at no cost. Most will provide you with the ability to set up a practice account. All brokers are more than happy to do this. It gives prospective traders a risk free way to try out FX trading and its platform. All the trades are placed using real prices, but nothing is actually exchanged. So you cannot lose money. In the world of trading, a practice account is the only thing that truly is free of risk.

FX Charts And How to Use Them:

Usually when you open up a chart, you will see the price displayed as either a line or candle stick chart. The charting software allows you to view prices over different time frames. The reason is that different traders do trade with varying frequency. Someone who trades a lot during the day will probably be looking at a 15 minute or hourly chart (though you can go as low as 1 minute). Someone who trades less frequently may prefer looking at daily charts, or maybe even weekly or monthly ones.

Technical Analysis:

Real time forex charts that are free of clutter are generally the easiest to trade from. Having too many indicators is like having too many cooks; they spoil the pot. There are a wide variety of technical indicators in use. Some of the most popular are: moving average, parabolic SAR, stochastics, RSI and MACD. These indicators are merely tools in the currency trader’s toolbox. Seasoned traders never rely on one indicator alone, and always seek confirmation from another one. Though for a beginner, it is best to start out using just one indicator at a time to get a good feel for how it works. As you gain more experience, you can expand your set.

In conclusion, getting started in FX can be overwhelming at first because there is a lot of new material to learn. However, real time forex charts, free of charge appears to be the best way to get your foot in the water safely.

By: Cedric Welsch

Support and resistance is such a powerful Forex signal that without understanding its impact on the market, a trader will probably never master the skills necessary to make profits on a consistent basis.

This Forex signal simply registers where price reached a peak or a low. On a higher time frame these price levels can have huge significance. Why?

Getting Behind The Scene

We need to understand what is going on behind candle patterns and price movements. Imagine thousands of traders coming to their desks each day all around the world and processing orders involving billions of dollars worth of currency.

The price at which they bought the currency now represents a key level for them. They do not want to see price go in the opposite direction or they will be at a loss. So what happens? They do everything possible to protect that price level.

The daily chart is of particular importance when considering support and resistance as a Forex signal. Traders associated with big institutions often refer to the daily chart rather than lower time frames. So price highs and lows on a daily chart can represent key, strategic price levels.

If price reached a high within the last few days, you can be sure a number of traders have millions or even billions of dollars worth of currency tied up at around that level or below it. For price to go above that high there is going to have to be considerable buying pressure from the bulls. Obviously the converse is true when price reaches a new low.

So look at the higher time frames like the daily, and 4 hour charts and identify these key levels of support and resistance. They form a major Forex signal.

Where Price Spends Most Of It’s Time

Here is another factor regarding support and resistance that makes it such a critical Forex signal.

Most of the time price moves in a consolidation channel or range. Depending on the time frame you are looking at, it may be a 40 or 50 pip range on the higher levels, and within these larger levels are small trading ranges of 10 to 20 or 30 pips.

Some estimates put the amount of time the market is in consolidation around 60-80%. This means only 20-40% of the time price is actually trending, making new highs and lows.

This piece of information is critical. Once you have identified a trading range (it helps to put lines on your charts marking the high and low of the trading range) you can now manage trades much more effectively.

If you are considering going long and you see price is in a consolidation channel, you will not want to enter near the top of the channel. Wait for price to come back to the bottom of the channel by putting in an entry order and get taken into the trade. This way your stop is closer and your profit potential is greater.

Once price has moved through a major level of resistance, that level now becomes future support. Once price has moved through a major level of support, that level now becomes future resistance.

Include This In Your Daily Preparation

Every day when you open your charts look for this simple yet powerful Forex signal. Mark out your lines of support and resistance on each time frame you use. For example, if you customarily use daily, 4 hour, 1 hour, and 15 minute charts, mark out the key levels of support and resistance. Remember the more candles there are either side of the high or the low, the more significant that level becomes.

Then compare the various time frames and see if any of the levels you have marked coincide. Then look for suitable trading opportunities accordingly.

An effective Forex signal does not have to be complicated. Understanding how support and resistance works can make a huge difference to your consistency as a trader.

Don’t pass over it because it is so simple. Remember, in the minds of the traders who pushed price to key levels, and who are defending positions involving billions of dollars, levels of support and resistance are hardly inconsequential!

By: Michael A Jones