Written by Thomas Long, FX Power Course Instructor
Which moving average is better, the Simple Moving Average (SMA) or the Exponential Moving Average (EMA)?This is the type of question I get every week from new traders who have found all of these new tools at their disposal and start the process of finding the best ones.Below is a daily chart of the EUR/USD with a 200-day SMA (green line) and a 200-day EMA (black line) plotted.You can see that in the graphic there is little difference between the two.Normally, the EMA will change sooner than the SMA because it emphasizes the recent activity more than the older activity.But in this case there really is not much of a difference.New traders will play with both to find out which one is better and use that one in their trading approach.But the reality is that it is unlikely that one moving average will give you winning results if the other does not.If you find that a switch from a SMA to an EMA turns a losing strategy into a winning strategy, it is probably your strategy that needs changing instead of the moving average.There is just not enough difference in the two to have that much of an impact in the results of a certain strategy.The 200-day SMA is popular for identifying the trend.If the market is above the 200-day SMA, the trend is considered to be up and if the market is below the SMA, the trend is considered down.Short-term traders have made the 10-day EMA popular based on its use by some famous traders.But the only judge to what type of moving average to use is your account balance from month to month.If it helps your trading, then keep it and if it does not help your trading, then look to replace it.
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Written by Thomas Long, FX Power Course Instructor
Many traders who have tried using moving average crossovers to time their entry into a trade have probably found them to have limited value as they have a tendency to signal an entry late in the move.If you are buying late, you find that too often you buy near a short-term top or if you sell late, you find that too often you sell near a short-term bottom.
This would not be so bad in a strong trending market, but the real damage is done in a directionless market where there are many crossovers with no follow-through which can mean losing trade after losing trade.The key to use moving average crossovers is to first identify the trend of the market and then to only trade in that same direction.If you find a strong uptrend, then using a moving average crossover as a buy signal has more value.If you find a strong downtrend, then using a moving average crossover as a sell signal also has more value.Since moving averages can help identify the trend of the market, we can develop a simple trading approach using three different moving averages.This is a daily chart of the EUR/USD with one year of activity.The green line is a 200-day simple moving average.When the market is above this moving average we can consider the trend as up and only take the buys.When the market is below this moving average, we can consider the trend as down and only take the sells.We are also using a 10-day simple moving average which is the black line and a 25-day simple moving average which is the purple line.When the fast moving average (the 10-day or black line) crosses from below to above the slow moving average (the 25-day or purple line), a buy signal is given.We can see that there were three crossovers on the chart below and that the market continued to move in the direction of the trend after the crossover.The key here is to first identify the trend and to only trade the strong trends to increase your chance of success.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/12/strategy_pieces/Lesson/weekly_trading_lesson_1210_A.gif
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Written by Thomas Long, FX Power Course Instructor
Since my interest in trading started in the futures markets, I was exposed to the value of using a calendar in my trading decisions.I am not referring to an economic calendar where the news releases can influence market activity, but rather buying and selling certain futures contracts based on the month of the year.Since the futures markets were dominated by agricultural products for years, trading by the calendar not only made sense, but was also profitable.With the introduction of the financial futures products in the early 70’s, futures traders continued to look at the calendar to see if there were any tendencies that could be taken advantage of in the trading pits.One tendency was that the currency markets seemed to experience some major trend changes near the end of a calendar year.There is not a trend change every year as it takes more than just a change of the year to change a trend in the FX markets.But when things did line up, a trend change seemed to take place at the end of a calendar year with enough frequency to be a factor in trading.Below we have a weekly chart of the EUR/USD which shows what I would refer to as three major changes that took place in November or December of those years.We can also see many minor trend changes that also occurred near the end of a calendar year.There could be many reasons for this including a change in opinion by major firms about the likely trend of a currency for the next year or changing spending patterns from one year to the next.We can also see on this chart how falling interest rates in the US have resulted in a strong move up by the EUR/USD. Since higher interest rates usually leads to a higher currency and lower interest rates usually leads to a lower currency, this makes perfect sense since the US is the only major country lowering interest rates.All of the other countries that make up the major currency pairs have been raising interest rates, which usually leads to a stronger currency.But lately we have been hearing something different as other countries are starting to adopt a bias toward leaving rates alone or even lowering them.This shift has resulted in some corrections in the pairs as the USD weakness has turned into some strength.There are no guarantees that this is the start of a major trend change for the USD, but changing attitudes about interest rates and the end of a calendar year offers good reasons to be on the lookout for one.
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We always recommend to new traders taking one of our FX Power Courses to use support and resistance as one method to help time their entries and exits.One of the best tools for determining support and resistance is a trend line.A test of a trend line can not only offer a good entry point, but offer a relatively low risk trading opportunity.The idea is to buy as close to support as possible and place your protective stop below that support or to sell as close as possible to resistance and place your protective stop above that resistance.
We can see on this 8-hour chart of the EUR/USD how to draw the trend line and then to use a test of that trend line as a good entry point.The key here is that the trend is up on this pair so we are only looking for buying opportunities on a test of support.To draw a trend line, we need two lows or two highs to connect.On this chart we connected two lows noted as point 1 and point 2 and extended that line out.I think that the best trading opportunity comes on the first test of support which is point number 3 on this chart.You can see how close the market traded down to that support level and then reversed.Buying close to trend line and placing your stop below that support can keep your risk lower as the distance between your entry and the protective stop level can be relatively close.Because that risk is small, you have an excellent risk:reward ratio and can maintain profitability even if losing more trades than you are winning.Also note that the longer the time frame chart, the better the chance of the trend line offering solid support or resistance.While the daily chart is the best chart to use for technical analysis, an hourly, 4-hour or 8-hour chart can still offer many solid trading opportunities like the one you see here.
http://www.dailyfx.com/export/sites/dailyfx/story-images/2007/11/strategy_pieces/lesson/eurusdlesson111907.gif
Source: FXTrek Intellicharts
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By Thomas Long, FX PowerCourse Instructor
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Written by Thomas Long, FX Power Course Instructor
You bought the EUR/USD at 1.4000 and the market is now trading at 1.4025.
Since there is an economic release due out in 15 minutes, you move your protective stop up to 1.4000 to protect your winning trade from turning into a losing trade.The number is released and the market trades down through your stop level to as low as 1.3975 in a matter of seconds.But instead of getting filled at your price of 1.4000, you are filled at 1.3990 and now have a losing trade on your hands.Why?The answer is that there was nobody willing to take the other side of the trade at your price.A trade is when two people agree on price but disagree on value.One thinks the value is too high and the market should move down while the other thinks the value is too low and the market should move up.When a major economic number is released, the volume dries up as most big traders stand aside.They will not trade if they cannot identify their risk.So there is not as much volume as you would see in a normal market environment.However, there are still plenty of traders trying to take advantage of the volatility.They will all want to trade in the direction the market should take based on the number released.So if everybody thinks that the market is going down, all these traders try to sell at the same time.The problem is that there are not many traders looking to buy if the market is falling quickly.So the market continues to fall until the buyers step in and start taking the other side of the trades.But they are buying at their price, not yours.In the example above, a sell stop order becomes a market order once the price designated is printed.So when the market traded down to your stop level of 1.4000, your order then became a market order.When you are selling at the market you are matched up with somebody is buying.If they are only buying below your sell stop price, you will be filled at that level.This is called slippage and it is present in every market in the world.This brings us back to why many big traders do not trade in this environment.So if you are trading in a volatile market environment, you have to be prepared for slippage.It is the nature of the game.
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Written by Thomas Long, FX Power Course Instructor
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Written by Thomas Long, FX Power Course Instructor
One of the best technical tools we can use in our analysis is the status other currency pairs.If you are of the opinion that because of fundamental reasons the US Dollar will weaken, your next step would be to find the currency pair that gives you the best chance for a profitable trade.
Instead of automatically picking a pair like the EUR/USD and placing a buy, you might want to take a look at some of the crosses to see which currency is currently the strongest and play that one instead.An example would be to first check the chart of the EUR/GBP.If this pair is rising, that means that the EUR is currently stronger than the GBP and buying the EUR/USD would be preferred.However, if the EUR/GBP is falling, then the GBP is stronger than the EUR and buying the GBP/USD would be preferred.You can also add the CHF into the equation by first checking the EUR/CHF and the GBP/CHF.You should get a good idea of which of the European currencies is the strongest of the three and trade that currency against the weakening USD.The idea is to buy the strongest currency against the weakest to increase your chance of success.
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Written by Thomas Long, FX Power Course Instructor
When working with new traders in the FX Power Course, we try to impress on them the importance of using a protective stop in every trade.Identifying and limiting your risk are keys to long term success.However, where we place that protective stop is another matter.The problem is that a 100 pip stop on the EUR/GBP is not the same as using a 100 pip stop on the GBP/JPY.
The volatility of the two pairs is quite different and can also change from week to week.So we need to find a tool that gives us a way to quantify the current market environment in each currency pair to determine our stop level.One such tool is the ATR or Average True Range.A simplified explanation of the ATR is that it measures the range of a session in pips and then determines the average range of a certain number of sessions.For instance, if using a daily chart with a default value of 14, the ATR will measure the average daily range, from high to low of the previous 14 days.This way you are getting a current reading on the volatility of a specific currency pair.The current 14 day ATR for the EUR/GBP is 41 pips while the same 14 day ATR for the GBP/JPY is 239 pips.So we can see why a standard 100 pip stop is not the best way to determine your risk on every trade.Many traders will simply use the ATR for their risk.They would place their stop 41 pips from their entry in a EUR/GBP trade and 239 pips from their entry in a GBP/JPY trade.This is one way to base your risk on the reality of the current market you are trading which can increase your chance of success.
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Written by Thomas Long, FX Power Course Instructor for DailyFX.com
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Written by Thomas Long, FX Power Course Instructor
Many times in trading we here the terms overbought and oversold. We hear an analyst state that the EUR/USD is overbought and due for a correction or that the USD/CAD is oversold and due for a bounce. But how does one determine what is overbought and what is oversold and just what does that mean? The terms are used to describe a market condition that is quantified by certain technical indicators. These indicators are called oscillators with two popular examples being the Stochastics and RSI. An oscillator is a commonly used momentum indicator that measures the current currency price compared to its historical price over a given time period. It looks to gauge the strength and momentum of a currency pair's move by measuring the degree by which a currency is overbought or oversold.The scale for the both indicators is 0 to 100.When Stochastics reaches a value of 80, the market is considered overbought and when Stochastics reaches a value of 20, the market is considered oversold. RSI uses the same scale of 0 to 100, but the value for overbought is 70, while the value for oversold is 30. The idea is when the market reaches either extreme, the chance for a reversal increases. However, a reversal is not imminent. Markets that are in a strong uptrend can remain overbought for long periods of time and markets that are in a strong downtrend can remain oversold for long periods of time. This is why these oscillators have limited value in trending markets. However, when the market is in a downtrend and the oscillator moves up to overbought, there is a much better chance of a reversal. On the flip side, when the market is in an uptrend and the oscillator moves down to oversold, there is also a good chance of a reversal. Here is an example using the daily chart of the EUR/USD with one year of activity. Also plotted on the chart is a Slow Stochastics using values of 25,5,5. You can see that while the market is in an uptrend, the Stochastics will spend more time in an overbought condition and little time in the oversold condition. Also, when Stochastics moves down to an oversold condition, the market has a tendency to reverse. But the key here is that the market is in an uptrend. If the market was in a downtrend, the opposite would be true.
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Written by Thomas Long, FX Power Course Instructor
One of the technical indicators we teach in the FX Power Course is the Stochastic Oscillator.Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that shows the location of the current close relative to the high/low range over a certain number of periods. New traders typically want to know the difference between Fast Stochastics and Slow Stochastics.They also want to know whether the typical default settings of 5,5 (for Fast Stochastics) or 5,5,5 (for Slow Stochastics) as seen in most charting packages developed for FX are better or worse than the typical default settings of 14,3 (for Fast Stochastics) or 14,3,3 (for Slow Stochastics) seen in stock and futures charting packages.First of all, the difference between Fast Stochastics and Slow Stochastics is just a moving average.When calculating Fast Stochastics using the values of 5 and 5, the first “5” is the raw value for Stochastics, while the second “5” is a 5-period moving average of the first “5”.When using Slow Stochastics, the first two 5’s are the same as with the Fast Stochastics, with the third “5” being a moving average of the second “5”.Yes, that’s right, a moving average of the moving average.This slows the movement of the indicator down even further, hence the name of Slow Stochastics.By slowing the movement of the indicator down, we will see fewer signals to buy or sell on the chart, but they should be more reliable signals. By using a larger value in calculating the raw value of Stochastics, we slow the indicator down even more.This is why I recommend to traders using FX charts to use the Slow Stochastics with values of 15,5,5.This combination offers fairly reliable signals that can offer solid entries into trading opportunities.The chart below shows the difference between Fast Stochastics with values of 5,5 compared to Slow Stochastics with values of 15,5,5.
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You can see how much easier it is to identify the signals using the Slow Stochastics.Being able to use the technical tool effectively is most of the battle.By keeping things simple and consistent, we should start to see consistent results in our trading.
Written by Thomas Long, FX Power Course Instructor for DailyFX.com
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Written by Thomas Long, FX Power Course Instructor
The last two weeks we talked about identifying a trade as a two step process.The first step is to determine the direction of the trend on the daily chart and then to move down to an intraday chart, like the hourly or 4-hour, to pinpoint our entry and exit. If the daily chart shows an uptrend, then we only want to look for buying opportunities.If the daily chart shows a downtrend, then we only want to look for selling opportunities.If the daily chart shows a range bound market, then we want to buy above support and sell below resistance.If we are not sure about the trend, we simply move onto another currency pair where the trend seems obvious.We identify an uptrend as a series of higher highs and higher lows and a downtrend as a series of lower highs and lower lows.We used a daily chart of the USD/CAD to identify an uptrend, a change to a downtrend and a downtrend.We then used a daily chart of the NZD/JPY to identify a downtrend, a change to an uptrend and an uptrend.Here we have a daily chart of the GBP/CHF, which shows a range bound market.
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A range bound market is noted by the market oscillating between two similar price levels for a long period of time before experiencing a breakout of the range.This is best identified on a daily chart to give the trader time to react and enough of a range to be able to justify taking the trade based on an acceptable risk:reward ratio.The idea here is to identify a buying zone just above the lows and a selling zone just below the highs.We also want to identify the zones where we would consider the market to have broken out of the range and offer good placement for our protective stop orders.This range bound situations will most likely show up in the currency pairs that do not include the USD and are close in geographical and economic terms.Examples would be the EUR/GBP, the GBP/CHF, the EUR/CHF and the AUD/NZD.We should confirm the range bound condition before using a range bound strategy and of course, always trade with a protective stop to limit our losses on the eventual breakout.As usual, we want to pick the most obvious range bound markets to trade, as that increases our chance of success.
Written by Thomas Long, FX Power Course Instructor
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Written by Thomas Long, FX Power Course Instructor
Last week we talked about identifying a trade as a two step process.The first step is to determine the direction of the trend on the daily chart and then to move down to an intraday chart, like the hourly or 4-hour, to pinpoint our entry and exit. If the daily chart shows an uptrend, then we only want to look for buying opportunities.If the daily chart shows a downtrend, then we only want to look for selling opportunities.If the daily chart shows a range bound market, then we want to buy above support and sell below resistance.If we are not sure about the trend, we simply move onto another currency pair where the trend seems obvious.We identify an uptrend as a series of higher highs and higher lows and a downtrend as a series of lower highs and lower lows.We used a daily chart of the USD/CAD to identify an uptrend, a change to a downtrend and a downtrend.Here is a daily chart of the NZD/JPY.
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This chart starts with the market in a downtrend and then changes to an uptrend and continues in the uptrend through the end of the chart.The key is identifying the change from the downtrend to the uptrend and that is simply when the market moves up through the previous high.That change is noted on the chart.Remember that the idea is to pick the strongest trends to trade as that increases our chance of success.Next week we will go over a range bound market.
Written by Thomas Long, FX Power Course Instructor of DailyFX.com
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Written by Thomas Long, FX Power Course Instructor
One of the things we try to impress upon students taking one of the FXCM Power Courses is that identifying a trade is a multiple step process.Too many new traders pull up an hourly chart plotted with a variety of technical indicators in an attempt to find a trade. I think this misses what might be the most important step in trading, which is to always trade in the direction of the trend as seen on the daily chart.If the daily chart shows an uptrend, then we only want to look for buying opportunities.If the daily chart shows a downtrend, then we only want to look for selling opportunities.If the daily chart shows a range bound market, then we want to buy above support and sell below resistance.If we are not sure about the trend, we simply move onto another currency pair where the trend seems obvious.The advantage of adopting a directional bias is that it keeps us on the momentum side of the market, which means we don’t have to be exact in our entry or exit to profit.This bias also puts us in a position to be in on some of the big trending moves that the FX markets are known for.After having identified the trend on the daily chart, we can then move down to an intraday chart to pinpoint our entry and exit.This time we know whether we want to buy or sell, which can make all the difference in the world in our profitability.We can take a look at a few examples of the trend of the market in the next couple of lessons, but first let’s look at how we identify an uptrend, a change to a downtrend and a downtrend.
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This is a daily chart of the USD/CAD.The chart starts with the market in an uptrend, which is a series of higher highs and higher lows.Then we can see the uptrend changed to a downtrend when the market traded down through the previous low.Then we see a downtrend, which is a series of lower highs and lower lows.The idea is to pick the strongest trends or most obvious range bound situation when looking for a trade.Be very picky about the pair you choose to trade and you increase your chance of success.
Written by Thomas Long, FX Power Course Instructor
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Written by Thomas Long, FX Power Course Instructor
In my opinion, one of the strongest signals generated by technical indicators is MACD divergence on a daily chart.MACD stands for Moving Average Convergence/Divergence and can be quite useful for giving hints of a possible market reversal.We calculate this indicator by generating a 12 period Exponential Moving Average and a 26 period Exponential Moving Average and plotting the difference on our chart.We then add a 9 period Exponential Moving Average of that figure and plot that as our Signal Line.We now look for two situations. Positive Divergence is when the MACD makes a higher low but the market makes a lower low.This situation gives us a hint of a possible reversal to the upside. The other situation is Negative Divergence and is noted when the MACD makes a lower high while the market makes a higher high.This situation gives us a hint of a possible reversal to the downside.
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Since I am a trend trader and only trade in the direction of the daily trend, I would not look to initiate is new buy position when noting Positive Divergence or a new sell position when noting Negative Divergence.However, if I were already in a trade and the MACD showed a possible reversal, I would tighten up my protective stop by moving it closer to the current market price to protect any profits that I may have in the trade at that time.As with any technical indicator, the best signals will come on the daily chart and as the time frame shortens, the reliability of the signal weakens.
Written by Thomas Long, FX Power Course Instructor
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Written by Thomas Long, FX Power Course Instructor
Moving Averages may be the most popular technical indicator because they are easy to understand.After all, a 10-day Simple Moving Average is calculated by just taking the closing prices of the last 10 days, adding them together and dividing by 10. We can then plot those daily numbers on the chart to smooth out the market movement and get a better feel for the mood of the market.Many new traders run into problems as they use the market price crossing the Moving Average or a crossover of two Moving Averages to enter and exit the market.Typically they find that their entry and exit are late and very often find themselves with a losing trade.However, the use of Moving Averages can be of great help in determining the direction of the trend or for showing possible support and resistance levels.Here is a daily chart of the EUR/USD with one year of data and a 100-day Simple Moving Average.
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We can see two things with the chart.The first is that since the Moving Average is moving up and the price is above the moving average, we can conclude that this pair is in an uptrend.We can also see where the market has pulled back off of its highs a couple of times and found support at the Moving Average.So if we are buying pullbacks in uptrends or selling rallies in downtrends, the use of a Simple Moving Average can help us better time our entry.This simple technical indicator has a lot of value it today’s trading environment, but we just have to be sure we understand its strengths and weaknesses to better judge its effectiveness.Good luck with your trading!
Written by Thomas Long, FX Power Course Instructor
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Written by Thomas Long, FX Power Course Instructor
In the FXCM Power Courses we teach new traders about how interest rates can be the biggest factor in the value of a currency pair. Higher interest rates usually lead to a higher currency value while lower interest rates usually lead to a lower currency value. The chart below is a daily chart of the EUR/USD. In addition, we have plotted the highs and lows of the 10-year US Treasury Note to see if there is indeed any relationship between the US interest rate environment and the value of the USD when compared to the EUR.
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The 10-year note is typically the benchmark comparison mostly because all major industrialized nations issue a 10-year government note/bond. Since this is the EUR/USD, a rising market would indicate USD weakness, while a falling market would indicate USD strength. We can see where the highs and lows of the 10-year yield do indeed coincide with the highs and lows of the EUR/USD. The currency pair typically falls as the yield moves higher and the pair rises as the yield move lower. The only time this did not happen was as the 10-year yield was moving up from 4.47 to 4.75 in March and April of this year, when interest rates in Europe were also rising.We can also see though how the strong sell off in the bond market (higher yields) from May into June resulted in the EUR/USD falling and once again confirming the relationship. The best way to follow the yield of the 10-year US Treasury Note is to use the symbol $TNX on most stock charting packages. For those who are interested, the symbol $TYX offers the yield on the 30-year US Treasury Bond. Both offer a good idea of the US Treasury market and can give a clue into the prevailing strength or weakness of the USD.
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Written by Thomas Long, FX Power Course Instructor
The first step in identifying a trading opportunity is to start with the daily chart to get a feel for the mood of the market. Is the market range bound and bouncing between two general areas or is it trending? This first step leads to what approach should be used when opening a trade. If the market is range bound, buying above the support and/or selling below resistance is the preferred method. If the market is trending up, then we should only look for buying opportunities and if the market is trending down, then we should only look for selling opportunities. These trend traders look for what is called an A,B,C or 1,2,3 formation. A look at the GBP/USD chart below gives a good example. Point A is the bottom and the start of the trending move up. Point B is the high of the trending move while Point C is the bottom of the corrective move against the trend. Where trend traders enter is a matter of personal preference. Aggressive traders will try to buy near point C and use technical indicators like Fibonacci retracement levels and Slow Stochastics to help better time their entry. Notice how the market pulled backed to the 50% retracement level while the Slow Stochastics dipped below the 20 level as the market pulled back to point C. This is how these tools should be used. They are much more valuable when used as confirmation of your analysis rather than as a stand alone tool. Traders could enter on either signal and place their initial protective stops below the 61.8% Fibonacci level. More conservative traders will wait for the market to rally up past point B before entering the market as they prefer to wait for a signal that the uptrend is intact and the buyers are back in charge before entering. This is called a breakout as the market moves up to new highs. While this may mean less in terms of profit as some of the move is over by the time entry takes place, these traders will be rewarded with a higher win percentage because they waited for confirmation of the trending move being intact. So the next time you are looking for a trading opportunity in a trending market think A,B,C….or if you prefer 1,2,3. The choice is yours.Good luck with your trading!
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Written by FX Power Course Team
There are a number of simple strategies we can create with the use of two or three common technical indicators. The (1-hour) chart below shows the EURJPY over the course of around 1-week’s trading period. The market initially broke to the downside, as the candlestick activity remained below the 20-SMA (Simple Moving Average) and steadily following the lower Bollinger Band to new lows. Once the market reversed direction back to the upside, trading then emerged above the 20-SMA, following the upper band to recent highs. This brief example provides us with the basis for a few simple trading rules:
We should make every attempt to trade only in the same direction as the current trend. The trend can be defined by studying the market’s position in regards to the Bollinger Bands and 20-SMA. Protective stops should be placed below the lower band in uptrend’s, and above the upper band in downtrends. [*]Finally, we may initiate a trade at or below the 20-SMA, while taking profits at the upper band; in up trending markets. The opposite holds true in down trending markets.This strategy may have to be adjusted depending on the currency pair and market condition, however by analyzing a segment of our charts; we can begin to isolate specific conditions telling us when to trade, and when to simply wait…
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Written by Joseph Woods, FX PowerCourse Instructor
Traders have many different technical indicators to choose from when analyzing the FX market.This virtual cornucopia of options can sometimes be unsettling to some traders but does not need to be.The important thing to remember, when practicing Technical Analysis, is to use indicators that work well together. For example, you would want to use indicators that show both potential levels of support/resistance with one that might show oversold/overbought levels so that both indicators work together to confirm an entry point.
The following EUR/CHF daily chart shows and ideal entry point by the use of complimentary indicators.The price action traded below but failed to close below the 1.5975 level creating a spike low.This simple candlestick pattern would be a confirmation that this old resistance level is acting as new support.By combining the use of an oscillator with this support level we can begin to see an ideal trade opportunity.The spike low confirms the new support level while the RSI crossing back above 30 signals a beginning of a possible up trend. This combination of complimentary indictors helps traders make better trading decisions which will translate into bigger profits. Best of luck in all your trades!
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Written by Adam Rosen, FX PowerCourse Instructor
When the market establishes a trend in a particular direction, often times this trend may continue higher at a certain angle which simply reflects the strength of the buying forces over a given period of time. What’s important to note is that these trends may persist for a great period of time; perhaps several months or years. With that said, we may use a SMA (Simple Moving Average) to define this trend, and use this moving average to plan our future trades. If we select a moving average too short in time frame such as a 10-SMA, we can see the market may cross below and above, and thus producing a number of false trading signals. On the other hand, if we select a moving average too long in it’s time frame, then we run the risk of missing trades as the market may not pull all the way back to this moving average; such as the 30-SMA shown below. However we can see the market tested and failed to break below its 20-SMA and therefore we may use this moving average to plan our next trade to the long side. In this case, traders may wait for the CADJPY to pull back to the 20-SMA, and fail to ‘close’ below. Taking this a step further, we may place our protective stops below this moving average at a point where we do not believe the market will trade to.
Best of luck in all your trades!!!
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Written by Adam Rosen, FX Power Course Instructor
The following 1-Hour chart shows the CADJPY in the midst of a long term trend to the upside. Below this chart the BB-Width indicator is plotted, which reflects the market’s current state of volatility. As the Bollinger Bands expand, the BB-Width indicator line begins to trend to the upside, as quiet (non-volatile) markets that force the Bollinger Bands to contract, would also send this indicator line back to the downside. As we know that market breakouts typically occur when market volatility increases, as we can see in the past, during periods of market volatility, the CADJPY continued to trend to the upside. However recently as the volatility once again increased, the market this time broke down below its up trending support line, and continued to the downside. When the market provides us with two independent trading signals, our chances of success increase in our favor; which recently can be see as the CADJPY appears to have begun a new trend to the downside.
Best of luck in all your trades!!!
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