Continuation Chart Patterns: Flags, Pennants, Wedges and RectanglesThe FlagFlags are usually preceded by a sharp advance or decline. The flag looks like a rectangle directed against the prevailing trend:
http://www.alpari.co.uk/files/pic/docs/1/64_117.gif
The formation of this pattern is accompanied by a decrease in volume followed by a sharp increase after the breakout. The formation takes from 5 to 15 bars. The pattern is considered to be in the middle of the trend, so after the breakout the price may move the same range as it had moved before the pattern.
The PennantThe pennant resembles a small symmetrical triangle:
http://www.alpari.co.uk/files/pic/docs/1/64_118.gif
The pattern occurs after a rapid trend, as a rule, in the middle of the trend. While the pennant is forming the volume decreases and then increases sharply after the breakout. 5 to 15 bars are required to form this model.
The WedgeThe wedge is a small triangle inclined against the trend:
http://www.alpari.co.uk/files/pic/docs/1/64_119.gif
Typically, like the flag, both the pattern's upper and lower edges are either going up (bearish formation) or down (bullish formation). Breakout tends to happen between 2/3 and 1 of the way through the pattern, and chances of a reversal are great if the pattern inclines along with the trend.
The RectanglesThe rectangle looks like the Triple Top / Bottom:
http://www.alpari.co.uk/files/pic/docs/1/64_120.gif
In order to define what kind of pattern has been formed ("Rectangle" or "Triple Top / Bottom") use oscillatory and volume analyses. After the breakout, the price usually moves a range not less than the rectangle's height. Further edges of the rectangle will be support/resistance levels.
Trend Indicators: Envelopes and Bollinger Bands EnvelopesEnvelopes are formed with upper border U and lower border L. The formula is:
U = ( 1 + u / 100 ) x SMA (P, n)
L = ( 1 - d / 100 ) x SMA (P, n)
where
[*]U – upper border;[*]L – lower border;[*]u - % above the moving average;[*]d - % below the moving average;[*]SMA (P, n) – moving average.The percentage ("u" and "d") should be set so that about 95% of price activity is contained within the envelope and 5% outside it. The indicator will then be adequate to the market balance and all prices will come back to the envelope after they exit it.
Bollinger BandsBollinger Band is constructed by placing upper and lower bands around a moving average, the band width is not constant but instead proportional to the mean square divergence from the moving average over the specified period of time. Based on the Bollinger Band analysis, the decision to enter/exit the market is made when the price rises above upper BB resistance or falls below lower Bollinger Band support.
If the price moves within upper and lower bands, then Bollinger Band analysis is not a reliable method to determine when the best time to open/close positions is. Once the price penetrates the band to, then come back to the previous levels, then it is considered as the right time to open a position.
Sometimes, when the price penetrates the Bollinger Band and only "tries" new levels, but then comes back right away it may be a false breakout. If it is a true breakout then you have the possibility to trade against the trend. However, it is important to make sure that the breakout is false. In this case refer to the volume because it sharply decreases if the breakout is not false.
Bollinger Bands show the strength of the market:
[*]Bollinger Bands contract when the market is quiet, without sharp price movements, consolidating to continue the prevailing trend or produce a new one.[*]Bollinger Bands widen when the prevailing trend becomes stronger or at the beginning of a new trend. A good trend confirmation is when bands widen and volume rises.In a bullish market, moving average is the support level, whereas in a bearish market it is the resistance level.
In order to add the indicator on the chart in MetaTrader 4 follow the «Insert -> Indicators -> Trend -> Bollinger Bands» menu sequence:
http://www.alpari.co.uk/files/pic/docs/1/83_131.gif Bollinger Bands
Trend Indicators: Moving Average Convergence Divergence (MACD) and OsMAMoving Average Convergence Divergence (MACD)Some of the disadvantages of moving averages may be avoided by using the Moving Average Convergence Divergence (MACD). MACD is the difference between the fast 12-day exponential moving average (fast EMA) and the slow 26-day exponential moving average (slow EMA). Typically, this is plotted with the 9-day EMA of the indicator itself.
SIGNAL = EMA(9) ,
where
[*]MACD = EMA(12) - EMA(26) ;[*]p – price.Bullish divergence appears when a new price top has not been confirmed by a new MACD top, i.e. price top is above the preceding top and MACD top is below the preceding top:
http://www.alpari.co.uk/files/pic/docs/1/84_132.gif MACD Bullish Divergence
This signifies that the prevailing trend is weak. However, it is not recommended to open positions against the weakening trend as it is valid up to the moment of reversal. Bullish divergence only indicates that the trend is weak, not that it has ceased. So, before you open a position against the trend, find more significant confirmations that the trend is about to reverse (for example, the breakout of the trend line).
Bearish convergence appears when a new price bottom has not been confirmed by a new bottom of the indicator, i.e. the following price bottom is below the preceding one, and the following indicator bottom is above the preceding one:
http://www.alpari.co.uk/files/pic/docs/1/84_133.gif MACD Bearish Convergence
This means that the bearish trend is weak but this is not a signal for reversal, so find other confirmations before opening a position.
When the price changes a bit and MACD moves around the zero line, this signals trend continuation.
In order to add Moving Average Convergence Divergence (MACD) to the chart use the "Insert -> Indicators -> Oscillators -> MACD" menu sequence.
In MetaTrader 4 MACD is represented as a histogram (MACD) and a signal line (SIGNAL).
MACD signals:
[*]Levels which follow the signal line top or bottom are the alarms for a deal.[*]If MACD is below the zero line then trend is bearish, if it is above it then the trend is bullish.[*]SIGNAL line and price bullish divergence / bearish convergence – a strong sign that prevailing trend is weak.[*]If MACD is below zero and there is no bearish convergence, and MACD histogram crosses the slow line (SIGNAL) from below, then there are great chances for an upside price rebound.[*]If MACD is above zero and there is no bullish divergence and MACD histogram crosses the slow line (SIGNAL) from above, then there are great chances for a downside price rebound.Moving Average of Oscillator (OsMA)Moving Average of Oscillator (OsMA) is generally calculated as the difference between the oscillator and the moving average on the oscillator. In MetaTrader 4, MACD is used as an oscillator, and a SIGNAL (signal line) is used as a moving average:
OSMA = MACD-SIGNAL
Trend Indicators: Parabolic Time Price SystemParabolic indicator (sometimes referred to as SAR) was developed by Welles Wilder in 1976 and was originally called "stop and reverse". The indicator is effective only in a trending market. It helps to define the direction of the prevailing trend and the moment to close positions opened during the reversal.
The closing price (parabolic) is calculated for each bar using the following formula:
Long positions:
SAR (i) = ACCELERATION * (HIGH (i - 1) - SAR (i - 1)) + SAR (i - 1)
Short positions:
SAR (i) = ACCELERATION * (LOW (i - 1) - SAR (i - 1)) - SAR (i - 1)
Where:
[*]SAR (i - 1) — parabolic value on the preceding bar,[*]ACCELERATION – acceleration factor; for the first bar it is usually 0.20, and then it is calculated as follows:[*]AF = 0.20 + n x 0.02, where n – the number of new tops (bottoms),[*]HIGH (i - 1) — high of the previous period,[*]LOW (i - 1) — low of the previous period.If a trend is bullish, SAR is below the price chart; if it is bearish, SAR is above the price chart. When the price crosses Parabolic SAR, the indicator reverses and its value becomes opposite to the price. The actual point at which the system is reversed is the high or the low of the previous period.
In order to add the indicator in MetaTrader 4 use «Insert -> Indicators -> Trend -> Parabolic SAR» menu sequence:
http://www.alpari.co.uk/files/pic/docs/1/84_133.gif
Parabolic signals:
[*]When the price chart crosses Parabolic SAR it may be a reversal signal or may indicate temporary consolidation, hence, it is considered as a classic signal to initiate a position.[*]Parabolic SAR and trend direction are the same. If parabolic moves higher, then the trend is bullish and vice versa.[*]If there is a significant divergence between the price chart and the parabolic, then their convergence may happen very soon.[*]When the indicator has completely formed and the Parabolic SAR moves parallel to the price chart, most of the signals will be true; after this, they tend to contract and the number of false signals will be higher.
Oscillators: Bullish Divergence / Bearish ConvergenceMain principles of oscillators analysisOscillators are used to:
[*]Determine the strength of the prevailing trend.[*]Determine when to open a position on a flat market.To define if the trend is weak, use bullish divergence / bearish convergence.
Bullish divergence occurs when a new price high is not confirmed by a new oscillator high, i.e the next high is above the preceding one and the next oscillator high is lower than the preceding one. This implies that the uptrend is weak:
http://www.alpari.co.uk/files/pic/docs/1/88_136.gif
Bearish convergence occurs when a new bottom is not confirmed by a new oscillator bottom, i.e. every next bottom is lower than the preceding one and every next oscillator bottom is higher than the preceding one. This signals that the downtrend is weak:
http://www.alpari.co.uk/files/pic/docs/1/88_137.gif
Both bullish divergence and bearish convergence, however, show that it is better to refrain from opening a position against the weakening trend. Trend is valid until reversal signals appear.
It is important to be more careful with oscillators when the trend is strong; often false oscillator signals indicate the strength of the trend. If it is an uptrend then most of the time oscillators are in the overbought area, if it is a downtrend, they are in the oversold area. Overbought and oversold levels have to be defined for each indicator individually.
In the figures above Relative Strength Index (RSI) is used as an oscillator. If the indicator is above 70 then it is in the overbought area, if it is below 30 then it is in the oversold area.
When the trend is strong, the oscillator can be in the overbought (oversold) area for a long time and then it can exit the area but the trend will still be valid.
When the oscillator penetrates the overbought (oversold) area for the second time and then quickly goes back forming a bullish divergence/bearish convergence, there is a high chance that the trend will weaken.
In case, where the market is flat, it may be time to open a position once the oscillator leaves the overbought (oversold) area. Confirmation of the signal appears when the price is close to the upper (lower) border of the trading range.
Bullish divergenceHere the price is above and oscillator is below:
http://www.alpari.co.uk/images/bull_diver1.jpg Medium signal
The price may rise if the oscillator is within the lower range.
The price may fall if the oscillator is in the middle.
http://www.alpari.co.uk/images/bull_diver2.jpg Strong signal
Trend reversal or the price consolidation followed by trend reversal.
http://www.alpari.co.uk/images/bull_diver3.jpg Medium signal
Trend may strengthen if the oscillator is close to the lower border.
Price consolidation is possible if the oscillator is close to the upper border.
Both price increase and price consolidation are possible if the oscillator is in the middle.
Bearish convergenceHere the price is above and oscillator is below:
http://www.alpari.co.uk/images/bear_conver1.jpg Medium signal
The price may fall if the oscillator is within the upper range.
The price may stabilize if the oscillator is in the middle.
http://www.alpari.co.uk/images/bear_conver2.jpg Strong signal
Trend reversal or price consolidation followed by trend reversal.
http://www.alpari.co.uk/images/bear_conver3.jpg Medium signal
The trend may strengthen if the oscillator is within the upper range.
The price may rise if the oscillator is within the lower range.
Both price decrease and consolidation is possible if the oscillator is in the middle.
Parallel linesHere the price is above and oscillator is below:
http://www.alpari.co.uk/images/parall_1.jpg Medium signal
Strong uptrend.
http://www.alpari.co.uk/images/parall_2.jpg Strong signal
Trend may reverse soon.
http://www.alpari.co.uk/images/parall_3.jpg Medium signal
Strong downtrend.
Oscillators: Momentum IndicatorMomentum indicator value is defined as the difference between price levels after a specified time period. If, for example, we take period 5, then the Momentum oscillator will be defined as the difference between the current close and the close 5 bars before. All negative and positive values are displayed on the chart with a zero line in the middle.
In MetaTrader 4, the Momentum indicator is defined not as the difference, but the correlation between the current price and the price n periods before:
MOMENTUM = CLOSE (i) / CLOSE (i - n) * 100
Where:
[*]CLOSE (i) — current bar close;[*]CLOSE (i - n) — close n bars before.Momentum signals:
[*]if the indicator is below 100, then the market is bearish;[*]if above 100 then the market is bullish;[*]if the indicator is around 100, it signifies a flat market;[*]bullish divergence / bearish convergence - the main signal of the weakness of the prevailing trend;[*]in a flat market, exit from the overbought (oversold) areas is a signal to sell (buy).In order to add Momentum indicator to the active chart in MetaTrader 4, use the "Insert -> Indicators -> Oscillators -> Momentum" menu sequence.
Bullish divergence / bearish convergence is the main Momentum signal:
http://www.alpari.co.uk/files/pic/docs/1/89_138.gif Main Momentum signal
Oscillators: Commodity Channel Index (CCI)Commodity Channel Index (CCI) measures the price deviation of a particular instrument from its average traded price.
A very high index value (more than +100) indicates that the price is in the overbought area, and a very low value (lower than -100) indicates that the price is in the oversold territory.
Commodity Channel Index (CCI) calculations:
[*]1) Find a typical price: add high, low and close of each bar and divide it by 3:
TP = (HIGH + LOW + CLOSE) / 3[*]2) Calculate the simple moving average of the typical prices over n-periods:
SMA (TP, N) = SUM (TP, N) / N[*]3) Subtract SMA(TP, N) from the typical prices ( TP) of each preceding n periods:
D = TP - SMA (TP, N)[*]4) Calculate simple moving average of the absolute D values over n periods:
SMA (D, N) = SUM (D, N) / N[*]5) Multiply SMA (D, N) by 0,015:
M = SMA (D, N) * 0,015[*]6) Divide M by D:
CCI = M / D
Where:
[*]HIGH - bar high;[*]LOW - bar low;[*]CLOSE - close price;[*]SMA - simple moving average;[*]SUM - total amount;[*]N - the number of periods used for the calculation.Commodity Channel Index (CCI) signals:
[*]Bullish divergence / bearish convergence is the main signal. In distinction from another oscillators, Commodity Channel Index (CCI) is the most sensitive one, hence divergence / convergence is not always a signal of the weakness of the trend, but always quite accurately defines the beginning of the correction;[*]Under flat conditions exit from the overbought / oversold territory is a sell (buy) signal.In order to add the Commodity Channel Index (CCI) indicator in MetaTrader 4, use the "Insert ->Indicators -> Trend -> Commodity Channel Index" menu sequence.
http://www.alpari.co.uk/files/pic/docs/1/89_138.gif Examples of CCI's bullish divergence / bearish convergence
Oscillators: Relative Strength Index (RSI)Relative Strength Index (RSI) was developed by J. Welles Wilder in 1978. Nowadays, it is considered to be the most popular oscillator.
Relative Strength Index (RSI) formula:
RSI = 100 - (100 / (1 + U / D))
Where:
[*]U - average value of the positive price changes over a period;[*]D - average value of the negative price changes over a period.The most frequently used time periods are 8 and 14.
RSI indicator is considered overbought if it is above the 70 level, and oversold if it is below the 30 level.
Relative Strength Index (RSI) signals:
[*]If the indicator is below the 50 line, then the market is considered to be bearish;[*]If above the 50 level - bullish;[*]If the indicator is around the 50 line it signals that the market is flat;[*]Bullish divergence / bearish convergence – the main signal of the trend weakness;[*]Under flat conditions exit from the overbought (oversold) territory is a signal to sell (buy);[*]Different types of the trend analysis can be used to analyze Relative Strength Index (RSI): trend lines, support / resistance levels, chart reversal and continuation patterns.The figure below, for example, shows that the trend line on RSI being broken several bars before the analogical line on the price chart:
http://www.alpari.co.uk/files/pic/docs/1/91_140.gif
In order to add the Relative Strength Index (RSI) indicator in Metatrader 4, use the "Insert -> Indicators -> Oscillators -> Relative Strength Index" menu sequence.
Oscillators: Stochastic OscillatorThe aim of the Stochastic Oscillator is to determine price behaviour and reversals by monitoring close prices within the recent highs and lows. The method is based on the observation that when prices are rising their close levels tend to be closer to the top. If the quotes tend to move downwards, the close is usually near the bottom.
Stochastic Oscillator consists of two %K and %D lines calculated as follows:
%K = (CLOSE - MIN (LOW (%K))) / (MAX (HIGH (%K)) - MIN (LOW (%K))) * 100
Where:
[*]CLOSE – current close price;[*]MIN (LOW (%K)) – the lowest bottom within the number of %K periods;[*]MAX (HIGH (%K)) – the highest top within the number of %K periods.%D = MA (%K, N)
Where:
[*]N – smoothing period;[*]MA – moving average.To add Stochastic indicator in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Stochastic Oscillator» menu sequence. The window with the settings will appear:
http://www.alpari.co.uk/files/pic/docs/1/92_164.gif Stochastic Oscillator Settings
[*]%K period - number of bars used for Stochastic Oscillator calculation,[*]Slowdown - the degree of %K line inner smoothing. Value 1 gives a quick Stochastic Oscillator and value 3 – a slow one,[*]%D period - the moving average period along the %K line. It is used for %D calculation,[*]MA method - the %K line smoothing method (exponential, simple, smoothed, linear weighted) used for %D calculation.Once the Stochastic Oscillator parameters have been set and the OK button has been pressed, the indicator appears under the price chart:
http://www.alpari.co.uk/files/pic/docs/1/92_142.gif Stochastic Oscillator analysis
The %K line is usually displayed as a solid line and %D as a dashed line. At the level of 80% and 20% the overbought areas (higher than 80%) and oversold areas (lower than 20%) are indicated. Stochastic signals from these areas are considered to be more significant.
These are several basics of the Stochastic Oscillator analysis:
[*]Bullish divergence / bearish convergence is the main signal that shows that the current trend is weak;[*]If the solid line (%K) crosses the dashed line (%D) from below this is a signal to buy; if the solid line (%K) crosses the dashed line (%D) from above this is a signal to sell;[*]Two sequential opposite intersections of %K and %D lines mean that the first signal was premature and that the previous, stronger price movement may resume;[*]If both lines move in the same direction then they move in the trend direction;[*]In a flat market, exit from the overbought (oversold) area is a signal to sell (to buy).
Oscillators: Force IndexForce Index oscillator was developed by Alexander Elder. Its main function is to measure bullish force during each upward movement and bearish force during each downward movement.
The force of each market movement is defined by its trend, range and volume:
[*]If the close of the current bar is higher than that of the previous bar, the force is positive.[*]If the current close is lower than the previous one, the force is negative.[*]The greater the range the greater the force.[*]The greater the volume the greater the force.Force Index formula:
RAW FORCE INDEX = VOLUME (i) * (CLOSE (i) - CLOSE (i - 1))
FORCE INDEX = MA (RAW FORCE INDEX, N)
Where:
[*]VOLUME (i) - the volume of the current bar;[*]CLOSE (i) - close price of the current bar;[*]CLOSE (i - 1) - close price of the previous bar;[*]MA - any moving average: simple, exponential or linear weighted;[*]N - smoothing period.Smoothing by a short moving average (2 period) helps to find favourable moments to open and close positions. If smoothing is made by a long moving period (e.g. 13-period) the Force Index oscillator reveals if the trend changes or not.
The main Force Index oscillator signal is a bullish divergence / bearish convergence:
http://www.alpari.co.uk/files/pic/docs/1/93_143.gif Force Index
[*]To add Force Index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Force Index
Oscillators: Relative Vigor Index (RVI)Relative Vigor Index (RVI) calculation is based on the idea that in a rising market the closing price is usually higher than the opening price, and on the bearish market the closing is usually below the opening price.
To normalize the index the price fluctuation is divided by the maximum price range within the bar:
Relative Vigor Index (RVI) formula:
RVI = (CLOSE - OPEN) / (HIGH - LOW)
Where:
[*]OPEN - open price;[*]HIGH - the highest price;[*]LOW - the lowest price;[*]CLOSE - close price.To eliminate occasional price fluctuations (so called "noise") the Relative Vigor Index (RVI) oscillator is smoothed by the 10-period simple moving average. A signal line is also formed as a 4-period moving average on the oscillator values.
The basic signals of Relative Vigor Index (RVI) are:
[*]Bullish divergence / bearish convergence - the main signal pointing to the weakness of the current trend;[*]A good moment to open a sell / buy position is the crossing of the RVI line by the signal line from above/below once the bullish divergence / bearish convergence has appeared on the chart;[*]In a flat market an exit from the overbought / oversold area is a signal to sell / buy.To add Relative Vigor Index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Relative Vigor Index" menu sequence.
http://www.alpari.co.uk/files/pic/docs/1/94_144.gif How to use Relative Vigor Index (RVI)
Oscillators: Williams’ Percent Range (R)The values of the Williams’ Percent Range (%R) oscillator lie between 0 and 100.
If the oscillator is between 80% to 100%, it denotes an oversold condition, whereas values in the range from 0% to 20% signify an overbought condition.
The formula to calculate Williams’ Percent Range oscillator is similar to the one used to calculate the Stochastic Oscillator:
%R = (MAX (HIGH (i - n)) - CLOSE (i)) / (MAX (HIGH (i - n)) - MIN (LOW (i - n))) * 100
Where:
[*]CLOSE (i) - the current close price;[*]MAX (HIGH (i - n)) - the highest top over the previous n periods;[*]MIN (LOW (i - n)) - the lowest bottom over the previous n periods.Williams’ Percent Range (%R) oscillator signals:
[*]bullish divergence / bearish convergence – the main signals that point to the weakness of the current trend;[*]in a flat market an exit from the overbought / oversold area is a signal to sell / buy.To add Williams’ Percent Range index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Williams’ Percent Range, %R" menu sequence.
Williams’ Percent Range index:
http://www.alpari.co.uk/files/pic/docs/1/95_145.gif Williams’ Percent Range index
Oscillators: Average True Range (ATR)Average True Range (ATR) is a market volatility index developed and described by W. Wilder in his book "New concepts of the technical trading systems".
True Range is the greatest among three following volumes:
[*]the difference between the top and the bottom of the current bar;[*]the difference between the close of the previous bar and the top of the current bar;[*]the difference between the close of the previous bar and the low of the current bar.Average True Range (ATR) is the moving average of the true range values. To add Average True Range index in MetaTrader 4 use the "Insert -> Indicators -> Oscillators -> Average True Range" menu sequence:
http://www.alpari.co.uk/files/pic/docs/1/96_146.gif Average True Range (ATR)
Average True Range (ATR) oscillator analysis basics:
[*]The greater the oscillator value, the greater the possibility for trend reversal.[*]The smaller the value the weaker the trend.
Oscillators: Ichimoku Kinko HyoThe Ichimoku Kinko Hyo charting technique was developed by Japanese analyst Hosoda, who wrote under the name of "Ichimoku Sanjin".
The Ichimoku Kinko Hyo indicator consists of five lines:
[*]Tenkan-sen - the average price level, (High+Low)/2, calculated over the first time period;[*]Kijun-sen - the average price level over the second time period;[*]Senkou Span A / Up Kumo - midway between Tenkan-sen and Kijun-sen, shifted forward for the length equal to the second time period;[*]Senkou Span B / Down Kumo - the average price level over the third time period, shifted forward for the length equal to the second time period.[*]Chinkou Span - current bar close, shifted backward for the length equal to the second time period.http://www.alpari.co.uk/files/pic/docs/1/97_147.gif Ichimoku Kinko Hyo
The "cloud" known as the "Kumo", is the space between "Senkou Span A" and "Senkou Span B".
[*]If the price stays above the cloud then there is an upward trend.[*]If it stays below the cloud then there is a downward trend.[*]If the price is within the cloud then the market is flat.[*]If Tenkan-sen line moves sideways then it is a signal for a flat market.In order to add Ichimoku Kinko Hyo indicator in MetaTrader 4, use "Insert ->Indicators->Oscillators->Ichimoku Kinko Hyo" menu sequence.
Ichimoku Kinko Hyo indicator signals:
[*]When the price exits the cloud downward it is a sell signal, upward – buy signal: http://www.alpari.co.uk/files/pic/docs/1/97_148.gif Exit from the cloud
The price ranges before and after the cloud are often the same.[*]When the price and Chinkou Span (green line) intersect it is a signal to make a deal. If Chinkou Span crosses the price line from below it is a buy signal, if it crosses from above it is a sell signal: http://www.alpari.co.uk/files/pic/docs/1/97_149.gif Price and Chinkou Span cross
[*]If Tenkan-sen (red line) crosses Kijun-sen (blue line) from above it is a sell signal, and vice versa: http://www.alpari.co.uk/files/pic/docs/1/97_150.gif Tenkan-sen and Kijun-sen cross
[*]When the price is inside the cloud it tends to move in the direction of Tenkan-sen line (red line). If the Tenkan-sen line is directed downwards then the price tends to move to the lower edge of the cloud and vice versa: http://www.alpari.co.uk/files/pic/docs/1/97_150.gif Tenkan-sen and Kijun-sen cross
[*]Kijun-sen (blue line) and cloud edges are very strong resistance/support levels.
Volume Indicators: On Balance Volume (OBV)On Balance Volume (OBV) was developed by Joseph Granville. This indicator compares volume to price movements. Final bar volume is positive if the bar close price is higher than the close price of the preceding bar and vice versa. Cumulative value is calculated by adding and deducting volume depending on the movements of the close price.
http://www.alpari.co.uk/files/pic/docs/1/99_152.gif On Balance Volume (OBV) indicator
On Balance Volume (OBV) formula:
[*]1) If the current close price is above the preceding one, then:
OBV (i)= OBV (i-l)+VOLUME (i)[*]2) If the current close price is below the preceding one, then:
OBV (i)= OBV (i-l)- VOLUME (i)[*]3) If the current close price is at the same level as the preceding one, then:
OBV (i)= OBV (i-l)Where:
[*]OBV (i) - On Balance Volume (OBV) indicator current value;[*]OBV (i-l) - On Balance Volume (OBV) indicator value in the preceding period;[*]VOLUME (i) - current bar volume.Note that On Balance Volume (OBV) indicator interpretation is based on the direction of the curve not actual values:
[*]If a new price high is confirmed by a new On Balance Volume (OBV) indicator high it means that the bullish trend is strong.[*]If a new price bottom is confirmed by a new On Balance Volume (OBV) indicator bottom it means that the bearish trend is strong.[*]Bullish divergence (bearish convergence) warns of the weakness of the downtrend (uptrend).[*]A breakout of the trend line drawn on the On Balance Volume (OBV) indicator warns of a breakout of the trend line on the price chart.In order to add On Balance Volume (OBV) indicator in MetaTrader 4 use the "Insert -> Indicators -> Volume -> On Balance Volume" menu sequence.
Volume Indicators: Money Flow Index (MFI)Money Flow Index (MFI) is similar to the Relative Strength Index (RSI). It is calculated as follows:
[*]Define a "Typical Price" (TP) for the specified period:
TP = ( HIGH + LOW + CLOSE ) / 3[*]Calculate "Money Flow" value (MF):
MF = TP x VOLUME If "Typical Price" is higher than the preceding one then "Money Flow" is positive. If "Typical Price" is lower than the preceding one then "Money Flow" is negative.
[*]Calculate "Positive Money Flow" and "Negative Money Flow": "Positive Money Flow" is the total value of all positive money flows for the specified time period.
"Negative Money Flow" is the total value of all negative money flows for the specified time period.
[*]"Money Ratio" (MR) is calculated as follows:
MR = POSITIVE MONEY FLOW / NEGATIVE MONEY FLOW[*]Then using "Money Ratio" calculate "Money Flow Index":
MFI = 100 - ( 100 / ( 1 + MR ) )Where:
[*]HIGH - current bar top;[*]LOW - current bar bottom;[*]CLOSE - current bar close price;[*]VOLUME - current bar volume.Overbought territory: 80-100; oversold territory: 0-20.
Use the "Insert -> Indicators -> Volume -> Money Flow Index" menu sequence to add Money Flow Index (MFI) indicator in MetaTrader 4.
Money Flow Index (MFI) signals:
[*]if a new price high is confirmed by a new indicator high it means that the bullish trend is strong;[*]if a new price bottom is confirmed by indicator bottom is means that the bearish trend is strong;[*]bullish divergence warns of the weakness of the uptrend: http://www.alpari.co.uk/files/pic/docs/1/100_153.gif Money Flow Index
[*]bearish convergence warns of the weakness of the downtrend.
Volume Indicators: Accumulation / Distribution (A/D)Accumulation / Distribution indicator tracks the relationship between price and volume. The basic premise behind the indicator is that higher-volume moves in price are given greater emphasis than lower-volume moves (over the specified period of time).
If the bar close is near to its high, then part of volume is added to the Accumulation / Distribution indicator value (the closer the price the more percentage of volume is added). If the bar close is near its low, then part of volume is deducted from Accumulation / Distribution (the closer the price the more percentage of volume is deducted). If the close price is halfway between the bar high and low, then the value of the indicator is unchanged:
Accumulation / Distribution (A/D) indicator formula:
A/D = SUM (((CLOSE-LOW)-(HIGH-CLOSE))x VOLUME/(HIGH-LOW),N)
Where:
[*]CLOSE - a closing price;[*]LOW - bar bottom;[*]HIGH - bar top;[*]N - the number of period which are used for calculations;[*]SUM (...,N) - the amount for N periods.http://www.alpari.co.uk/files/pic/docs/1/101_154.gif Bearish convergence on Accumulation / Distribution (A/D) indicator
Accumulation / Distribution (A/D) indicator is similar in most aspects to the On Balance Volume (OBV) indicator but it is more complex. Accumulation / Distribution indicator signals are also similar to those of OBV indicator:
[*]if a new price high is confirmed by a new Accumulation / Distribution (A/D) indicator high this means that the bullish trend is strong;[*]if a new price bottom is confirmed by a new Accumulation / Distribution (A/D) bottom this means that the bearish trend is strong;[*]bullish divergence warns of the weakness of the uptrend;[*]bearish convergence warns of the weakness of the downtrend;[*]breakout of the trend line drawn on Accumulation / Distribution (A/D) indicator warns of the high possibility of the breakout of the trend line on the price chart.In order to add Accumulation / Distribution (A/D) indicator to the chart in MetaTrader 4 use the "Insert->Indicators->Volumes->Accumulation Distribution" menu sequence.
Elder Ray IndicatorElder Ray indicator is a mechanical trading system which measures buying and selling pressure over a specified period of time.
http://www.alpari.co.uk/files/pic/docs/1/102_165.gif Elder Ray indicator
The calculation is based on the following principles:
[*]Price is an agreement between sellers, buyers and square traders.[*]The Moving Average is the averaged price agreement.[*]The highest price is the maximum of the bullish force over a specified period of time.[*]The lowest price is the maximum of the bearish force over a specified period of time.Elder Ray consists of three horizontal screens:
[*]A chart with a 13-period exponential moving average. When the moving average rises there is a bullish trend. When the moving average falls there is a bearish trend.[*]A chart with a histogram of the Bullish Force.[*]A chart with a histogram of the Bearish Force.Bullish / Bearish Force is calculated as follows:
[*]Bull Power = High-EMA[*]Bear Power= Low-EMAwhere
[*]High - the maximum price over the period;[*]Low - the minimum price over the period;[*]EMA - exponential moving average.If the price top is higher than the moving average, then the Bullish Force is above zero, so the bullish trend is confirmed. Otherwise, bulls are weak. If the price low is below the moving average this means that the downtrend is very strong. Otherwise, bears are weak.
Elder Ray Buy signals[*]Moving average rises and Bullish Force indicator is below zero. The best time to buy is when the Bearish Force first falls below zero and then immediately rises.[*]If new price highs are confirmed by new Bullish Force indicator highs, then it is a good confirmation of the bullish trend.[*]Bearish convergence is another strong signal.Elder Ray Sell signals[*]Moving average moves downward and Bullish Force is above zero.[*]Bearish trend is confirmed if the price lows and Bearish Force indicator lows move downward in parallel.[*]Bullish divergence is another strong signal.Moving Average shows the direction of a deal, and when the price approaches the moving average it is time to enter the market.
Alligator and GatorThe AlligatorBill Williams describes the Alligator as being like a compass which keeps your trading in the right direction. The Alligator helps you spot a real trend and stay out of range-bound trading, which always result in losses. The Alligator is the combination of three balance lines:
http://www.alpari.co.uk/files/pic/docs/1/104_155.gif The Alligator
Alligator's Jaw (the blue line) - 13-period moving average at the mid price (High+Low)/2, which is offset 8 bars into the future;
Alligator's Teeth (the red line) - 8-period moving average at the mid price (High+Low)/2, which is offset 5 bars into the future;
Alligator's Lips (the green line) - 5-period moving average at the mid price (High+Low)/2, which is offset 2 bars into the future.
In order to build the Alligator in MetaTrader 4 use the "Insert -> Indicators -> Bill Williams – Alligator" menu sequence.
If all three lines are intertwined, the Alligator is asleep and the market is range-bound. The longer it sleeps, the hungrier it gets. When it wakes up from a long sleep it chases the price much farther, therefore price movements are much stronger. When the Alligator is asleep, stay square. Once the Alligator wakes up, it opens its mouth (Balance lines diverge) and starts hunting. Having eaten enough, it goes to sleep again (Balance Lines converge), so it's time to fix profits.
If the Alligator is not asleep, the market is either uptrending or downtrending:
[*]if the price is above the Alligator's mouth then it's an uptrend;[*]if the price is below the Alligator's mouth then it's a downtrend.The Alligator also helps to determine the character of the Elliot waves:
[*]if the price is outside the Alligator's mouth the wave is impulsive;[*]if the price is inside the Alligator's mouth the wave is corrective.The formula for the Alligator:
MIDPOINT PRICE = ( HIGH + LOW ) / 2
ALLIGATOR'S JAW = SMMA ( MIDPOINT PRICE, 13, 8 )
ALLIGATOR'S TEETH = SMMA ( MIDPOINT PRICE, 8, 5 )
ALLIGATOR'S LIPS = SMMA ( MIDPOINT PRICE, 5, 3 )
Where:
[*]HIGH - the highest bar price;[*]LOW - the lowest bar price;[*]SMMA (A, B, C) - smoothed moving average (A - smoothed data, B - smoothing period, C - move into the future),[*]ALLIGATOR'S JAW - blue line;[*]ALLIGATOR'S TEETH - red line;[*]ALLIGATOR'S LIPS - green line.The Gator OscillatorThe Gator Oscillator shows the degree of convergence / divergence of the Balance Lines:
http://www.alpari.co.uk/files/pic/docs/1/104_156.gif The Gator
In order to build the Gator Oscillator in MetaTrader 4 follow the "Insert -> Indicators -> Bill Williams - Gator Oscillator" menu sequence.
The Gator Oscillator is displayed as two histograms:
[*]the histogram above zero shows the distance between the blue and the red lines (between the Alligator's jaw and teeth);[*]the histogram below zero shows the distance between the red and the green lines (between the Alligator's teeth and lips).All the bars of each histogram are either green or red:
[*]histogram bar is red if it is lower than the preceding one;[*]histogram bar is green if it is higher than the preceding one.The Gator Oscillator clearly shows convergence and intertwining of the Balance Lines when the Alligator is asleep or awake thus helps identify a trend.
FractalsBill Williams says that it is better not to take trades before the first fractal is triggered.
A buy fractal is a series of five consecutive bars where the highest high is preceded by two lower highs and is followed by two lower highs. The opposite configuration would be a sell fractal. Both fractals (Buy and Sell) may share bars.
In order to add fractals in MetaTrader 4 use the "Insert -> Indicators -> Bill Williams – Fractals" menu sequence:
http://www.alpari.co.uk/files/pic/docs/1/105_157.gif Fractals
Fractals generate the following signals:
[*]if a buy fractal is above the Alligator's teeth (the red line) we would place a Buy Stop one tick above the high of the up fractal;[*]if a sell fractal is below the Alligator's teeth we would place a Sell Stop one tick below the low of the fractal sell signal.[*]We would not take a buy if a fractal is formed below the Alligator's teeth.[*]We would not take a sell if a fractal is formed above the Alligator's teeth.Fractals are valid until they are either triggered or a new fractal in the same direction appears (in this case the previous signal has to be ignored and the pending order has to be deleted).k
Fractals are objects of the first dimension. Only after the breakout of the first fractal can the following signals be accepted to open positions in the direction of the first signal. Signals from the consecutive fractals in the direction of the first deal can be used for adding on to the position.
Awesome Oscillator (AO)Awesome Oscillator (AO) OverviewAwesome Oscillator (AO) determines market momentum (the second of five market dimensions) at a given time on the last 5 bars,comparing them to the momentum on the last 34 bars.
Awesome Oscillator (AO) is simply the difference between the 34-period and 5-period simple moving averages of the bar's midpoints (H+L)/2. Awesome Oscillator (AO) is displayed on the chart as a histogram:
http://www.alpari.co.uk/files/pic/docs/1/106_158.gif Awesome Oscillator (AO)
In order to add Awesome Oscillator in MetaTrader 4 use the "Insert -> Indicators -> Bill Williams – Awesome Oscillator" menu sequence.
In MetaTrader 4 each histogram bar which is higher than the preceding one is green, each histogram bar which is lower than the preceding one is red.
Awesome Oscillator generates three buy signals and three sell signals, but we do not use them until the first fractal buy or sell signal is triggered outside the Alligator's mouth.
The Awesome Oscillator Saucer buy signalAwesome Oscillator Saucer buy signal is generated when the histogram which is above the zero line changes its direction from falling to rising:
http://www.alpari.co.uk/files/pic/docs/1/106_205.gif The Awesome Oscillator Saucer buy signal
Histogram “A” bar, of any color, should be higher than histogram “B” bar. Histogram “B” bar must be red. Histogram “C” bar (signal) must be green.
Once the signal has been generated, place a Buy Stop one tick above the high of the price bar that corresponds to the histogram “C” bar.
The most recent saucer signal cancels all previous ones (do not forget to delete pending orders after the signal is cancelled). Bear in mind that we buy only if the current histogram bar is green and we sell only if the current histogram bar is red.
Awesome Oscillator Saucer sell signalAwesome Oscillator Saucer sell signal is the opposite of the Awesome Oscillator Saucer buy signal (see above). This signal is generated when the histogram that is below the zero line changes its direction from rising to falling:
http://www.alpari.co.uk/files/pic/docs/1/106_206.gif The Awesome Oscillator Saucer sell signal
Histogram “A” bar, of any colour, should be lower than histogram “B” bar. Historgam “B” bar must be green. Histogram “C” bar (signal) must be red.
Once the signal has been generated, place a Sell Stop one tick lower than the low of the price bar that corresponds to the histogram “C” bar. The most recent Awesome Oscillator saucer sell signal cancels all previous signals.
Awesome Oscillator cross buy (sell)A buy (sell) signal is generated when the histogram crosses the zero line from below (above):
http://www.alpari.co.uk/files/pic/docs/1/106_207.gif The Awesome Oscillator cross buy (sell)
Place a Buy Stop (Sell Stop) one tick above the high of the price bar (below the low of the price bar) that corresponds to the first bar that crosses the zero line.
If there is a buy signal, histogram “B” bar (a signal one) is green, if there is a sell signal it is red.
Twin peaks signalsA buy (sell) signal called the Twin Peaks buy (sell) signal is generated when the histogram is lower (higher) than the zero line, and the last indicator's bottom is higher (last indicator's top is lower) than the preceding one. Between these two bottoms (tops) the histogram can never be higher (lower) than zero:
http://www.alpari.co.uk/files/pic/docs/1/106_208.gif The Awesome Oscillator Twin Peaks signal
The Twin Peaks buy signal is the only buy signal that is created below the zero line. Similarly, the Twin Peaks sell signal is the only sell signal that is created above the zero line.
Place a Buy Stop (Sell Stop) one tick higher than the top (lower than the bottom) of the signal bar. In the case of a buy signal, histogram “C” bar (a signal one) is always green, otherwise it is red.
Never buy on a red histogram bar and never sell on a green one. If an “unfriendly” histogram bar occurs before the execution of a pending order, which was placed in the direction of the Awesome Oscillator signal, the signal has to be ignored and the order has to be deleted.
Acceleration / Deceleration Oscillator (AC)Acceleration / Deceleration Oscillator (AC) measures the acceleration and deceleration of the current momentum (the third market dimension).
Acceleration / Deceleration Oscillator (AC) overviewBill Williams says that before the price behaviour changes, the momentum changes and, even before the momentum, we see the change in the acceleration.
Acceleration / Deceleration Oscillator (AC) histogram in MetaTrader 4 is the difference between 5/34 momentum histogram (Awesome Oscillator) and a 5-bar simple moving average on the Awesome Oscillator:
MIDPOINT PRICE = ( HIGH + LOW ) / 2
AO = SMA ( MIDPOINT PRICE, 5 ) – SMA ( MIDPOINT PRICE, 34 )
AC = AO – SMA ( AO, 5 )
Where:
[*]HIGH - the highest bar price;[*]LOW - the lowest bar price;[*]SMA - simple moving average;[*]AO - Awesome Oscillator.http://www.alpari.co.uk/files/pic/docs/1/108_166.gif The Acceleration / Deceleration Oscillator in MetaTrader 4
In order to add it use the "Insert -> Indicators -> Bill Williams – Awesome Oscillator" menu sequence.
Unlike the Awesome Oscillator, if the Acceleration / Deceleration Oscillator (AC) crosses the zero line, then it is not a signal. However, we still never buy if a histogram bar is red and never sell if it is green.
Buy above the zero line / sell below the zero lineA buy above the zero line signal is generated when there are two consecutive green histogram bars (a green histogram bar is a bar whose high is higher than the preceding bar's high):
http://www.alpari.co.uk/files/pic/docs/1/108_214.gif
The historgam is above the zero line. Place a Buy Stop one tick above the high of the price bar that corresponds to the second highest high («C»).
A sell below the zero line signal is generated when there are two consecutive red histogram bars (a red histogram bar is the bar whose low is lower than the preceding bar's low). The historgam is below the zero line. Place a Sell Stop one tick below the low of the price bar that corresponds to the second lowest low («C»).
Buy below the zero line / sell above the zero lineIf the histogram is below the zero line, a buy signal is generated when there are three consecutive green histogram bars. Place a Buy Stop one tick above the high of the price bar that corresponds to the third highest high (“D”).
If the histogram is above the zero line , a sell signal is generated when there are three consecutive red histogram bars:
http://www.alpari.co.uk/files/pic/docs/1/108_215.gif
Place a Sell Stop one tick below the low of the price bar that corresponds to the third lowest low on the histogram (“D”).
If histogram “B” or “C” bar crosses the zero line, then histogram “C” bar becomes a signal bar, and there is no need to wait for the “D” bar to occur.
[*]No matter what signal is created you must ignore it until the first fractal buy or sell signal is triggered outside the Alligator's mouth.[*]You should ignore signals that are not in the same direction as the first signal from fractal.[*]If Acceleration / Deceleration Oscillator generates a signal but the histogram changes its colour before the pending order is executed, then the signal has to be ignored and the order has to be deleted.
Balance Line TradesBalance Line trades overviewBalance Line trades is the fifth market dimension. The Balance Line is the line where the price would be if there were no new incoming information (Chaos) affecting the market. Mathematical calculations and computerised model analyses helped Bill Williams to find the Balance Line and build a histogram, which can be used to define the distance between the price and the Balance Line. To his surprise, Bill Williams found that this distance can be defined by the Awesome Oscillator histogram.
Whenever new information comes into the market, it is easier (takes less energy) for the price to move away from the Balance line than to move towards it ("it is easier to go downhill than uphill").
http://www.alpari.co.uk/files/pic/docs/1/110_169.gif New information on the price chart
The idea of the fifth dimension:
[*]Buyers are weaker on the "b" bar in comparison to the "a" bar. It proves that the "b" bar's high is lower than the "a" bar's high.[*]Why are sellers stronger on the "b" bar? The reason for this is that new information came to the market (on the picture it is shown as a dashed square) and changed the balance.[*]If buyers become stronger and raise the market (refer to the "c" bar) to the "a" bar's high, this means that the market balance is changing and it may be a first signal to make a deal within the fifth dimension.Bar "b" is the base bar:
[*]Base bar for a signal to buy is the most recent bar whose high is lower than the preceding bar's high ("b" bar in the figure above). It may be the current bar; for example, "b" bar when there is no "c" bar yet.[*]Base bar for a signal to sell is the most recent bar whose low is higher than the preceding bar's low (it may be the current bar).The first three principles of Balance Line trades:
[*]1) Read the chart from right to left.[*]2) If you are waiting for a buy signal, look at the highs only. If you are waiting for a sell signal, look at the bottoms only.[*]3) Establish the base bar first (as described above).If you have found a base bar for a buy or sell signal then you are halfway to making a deal within the fifth dimension.
Remember that you shouldn't open positions using signals from the 2-5 dimensions before the first signal is generated when the first fractal is triggered. Also, you should only use signals that are in the same direction of the first signal.
Buy signal above the Balance LineIf the price is above the Balance Line and you wait for a signal to buy, then you expect that the price will move away from the Balance Line (go "downhill").
Principle 4:
[*]4) if you move away from the Balance Line then you need one more new high (low) to buy (sell). If instead, you move towards the Balance Line, then you need two new highs (lows).http://www.alpari.co.uk/files/pic/docs/1/110_170.gif Buy signal above the Balance Line
Following this principle, for a buy signal you need to wait for the price to rise above the high of the closest preceding bar whose top is higher than that of the base bar:
Let's assume that on the price chart you see bar "1" and all the preceding bars. Hence, you cannot see bars "2", "3", "4" etc yet. At this point, bar "1" can be defined as the base bar for a signal to buy as it is the most recent bar whose high is lower than that of the preceding bar.
The main principle of the Buy signal above the Balance Line is that a Buy Stop order has to be placed 1 tick above the high of the bar that precedes the base bar (in our case it is bar "1").
Bar "2" occurs on the chart with the high that is lower than that of bar "1"; so, bar "2" becomes the base bar. The Pending order has to be deleted and a new Buy Stop must be placed 1 tick above the top of bar "1" (the bar that precedes the base bar "2"). The same happens on bar "3" and bar "B". Once bar "B" has appeared it becomes the base bar, and the pending order has to be placed 1 tick above the high of bar "3".
After that bar "4" occurs, but bar "B" is still the base bar, i.e. if you read from right to left, this bar is the first with the high lower than that of the preceding bar. The high of bar "4" is lower than the pending order, so you are not in the market yet. Bar "5" occurs, the base bar remains the same and the pending order is not triggered. But then bar "6" appears and its top is higher then that of the bar which precedes the base bar, so your Buy Stop is triggered and you enter the market following the Buy signal above the Balance Line.
Buy signal below the Balance LineObviously, if you buy below the Balance Line you hope that the price will move closer to the Balance Line (go "uphill"). Remember principle 4:
[*]4) If you move away from the Balance Line then you need one more new high (low) to buy (sell). If instead, you move towards the Balance Line, then you need two new highs (lows).This means that you need two highs to get the Buy signal below the Balance Line:
http://www.alpari.co.uk/files/pic/docs/1/110_171.gif Buy signal below the Balance Line
If bar "B" occurs it becomes the base bar, as it is the first bar whose high is lower than that of the preceding bar if you read the chart from right to left. In order to generate a Buy signal below the Balance Line you need two highs to the left of bar B. The first of these is bar "3". Bar "2" will not meet our requirements, as its high is lower that of bar "3". Bar "1" is the second high you are looking for because its high is above than that of bar "3". That is why you must place a Buy Stop 1 tick above the high of bar "1".
When bar "4" occurs nothing changes: the base bar is still bar "B" and the pending order has not been triggered. Bar "5" changes nothing again. When bar "6" occurs the pending order is triggered and the Buy signal below the Balance Line is generated.
Sell signal below the Balance LineSell signal below the Balance Line has the same principles as the Buy signal above the Balance Line. In both cases you hope that the price will move away form the Balance Line. Following principle 4 (described above) you need to have one low to generate a signal:
http://www.alpari.co.uk/files/pic/docs/1/110_172.gif Sell signal below the Balance Line
Let's assume that on the price chart you see bar "B" and all the preceding bars. If you read the chart from right to left, then bar "B" is the base bar, i.e. the most recent bar whose bottom is higher than that of the preceding bar. As you only need one lower bottom you can place a Sell Stop order 1 tick below the low of bar "1". Nothing changes when bar "2" occurs: bar "B" is still the base bar and the pending order has not been triggered. Bar "3" also does not change the situation.
You should remember that if any of the subsequent bars (before Sell Stop is triggered) becomes the base bar, the previous signal has to be ignored, and the previously placed pending order has to be deleted. In our case, this has not happened yet. When bar "4" occurs, the pending order is triggered and the Sell signal below the Balance Line is generated.
Sell signal above the Balance LineSell signal above the Balance Line has the same principles as Buy signal below the Balance Line:
http://www.alpari.co.uk/files/pic/docs/1/110_173.gif Sell signal above the Balance Line
In both cases you hope that the price will move towards the Balance Line (go "uphill"). Following principle 4, you need to have two lows to generate a signal.
Let's assume that on the chart you see bar "2" and all the preceding bars. Bar "2" is considered to be the base bar, i.e. it is the first bar (if you read the chart from right to left) whose bottom is higher than that of the preceding bar. As the price tends to move towards the Balance Line, you need to find two lows to generate a signal:
[*]First bar right to left, whose bottom is lower than that of the base bar. This is bar "1".[*]First bar right to left, whose bottom is lower than that of the bar "1". This is bar "0".This is why after bar "2" appears, you should place a Sell Stop order 1 tick below the bottom of bar "0". When bars "3" and "4" occur nothing changes: bar "2" keeps the status of the base bar and the pending order has not been triggered yet.
Once bar "B" appears:
[*]It becomes the base bar and the pending order, placed 1 tick below bar "0", has to be deleted.[*]A new Sell Stop order has to be placed 1 tick below the bottom of bar "1" (the bottom of bar "4" is lower than the bottom of the base bar "B", and the bottom of bar "1" is lower than the bottom of bar "4").[*]The pending order will be triggered on bar "6" and the Sell signal above the Balance Line is generated.No matter what signal is created you must ignore it until the first fractal buy or sell signal is triggered outside the Alligator's mouth.
You should ignore signals which are not in the same direction as the first signal generated from fractal.
For all the signals of the fifth dimension there are two principles which will help you recognize false signals:
[*]Never sell above or buy below Alligator's mouth.[*]If the current bar is in the Red or Green Zone (refer to the "Trading in the Zone" page), double the number of new higher tops (lower bottoms) that are required to create a buy (sell) signal.
Exit the MarketHow to place Stop Loss ordersBill Williams gives his recommendations in relation to Stop Loss orders:
[*]If on the opening the market is trending, then it is better to close positions if the bar's closing price crosses the Alligator's teeth (the red line).[*]If the market is volatile, use the Alligator's Lips (the green line) as the level to place a Stop Loss order. The market is characterised as volatile when the prices angle of inclination is more than that of the green line. In both the above cases, at the end of the current bar the Stop Loss is shifted to the level of the red or green line of the next bar.[*]Once the fifth histogram bar occurs in the Green Zone (Red Zone) place the Stop Loss (refer to the "Trading in the Zone" page).[*]Close all open positions if a signal in the opposite direction appears. Bullish divergence / bearish convergence between the Awesome Oscillator and the price signals that the trend is about to end: http://www.alpari.co.uk/files/pic/docs/1/112_174.gif Divergence between the price and the Awesome Oscillator is the signal that the current trend is weak
Market Facilitation Index (BW MFI)Market Facilitation Index (BW MFI) analyses the amount the price changes for each unit of volume.
Market Facilitation Index (BW MFI) is calculated as follows:
MFI = (HIGH – LOW) / VOLUME
Where:
[*]HIGH - the highest price of the current bar;[*]LOW - the lowest price of the current bar;[*]VOLUME - volume of the current bar.http://www.alpari.co.uk/files/pic/docs/1/111_175.gif Market Facilitation Index (BW MFI)
In order to add it use the "Insert -> Indicators -> Bill Williams -> Market Facilitation Index" menu sequence.
Market Facilitation Index (BW MFI) signals:
[*]When both BW MFI and Volume rise at the same time, it means that the market is moving primarily in one direction and that more people are participating in the market. It is a good time to already be in the market.[*]When both BW MFI and Volume decrease at the same time, it means that traders' interest starts to fade. Often it occurs toward the end of the trend.[*]When BW MFI is pointing higher and Volume is pointing lower, it means that the market primarily moves in one direction but there are no new participants to generate higher volume. Price movements are the result of speculation.[*]When both BW MFI goes down and Volume goes up, it means that there is a battle between bulls and bears (large volume) and their forces are almost equal (the price does not change significantly). This typically occurs prior to a significant move in the opposite direction. Close attention should be paid to the direction that the price moves when breaking out of this slowdown. Bill Williams called this a squat bar.In MetaTrader 4 all these Market Facilitation Index changes can be of different colors:
http://www.alpari.co.uk/files/pic/docs/1/111_176.gif Market Facilitation Index settings in MetaTreder 4
Judging from the COT data, the dollar may still have some downside potential. Turns occur when commercials (blue line) are extremely long and when speculators (red line) are extremely short. Also, turns are usually accompanied by very high levels of open interest). I would rather see open interest closer to the record of 47619 set in July (for the dollar index) before turning bullish. Markets can remain extreme and trend for a long time. While I do believe in approaching the market in a contrarian manner....I do not beleive in acting contrarian simply to act contrarian. I must have a good reason, and at this point I do not have a reason.
Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=8305&stc=1&d=1190643621
I think it was Jamie who posted a nzdusd chart and suggested that caution should be observed in this pair... Been watching that myself patiently. And at this point I see NZD could be either finishing the a-b-c correction from 0,663 (the bearish outlook) with both 'a' (0,663-0,727) and 'c' (0,682-0,747) being very equal in legth. If it's not the bearish count, the structure of the last few trading sessions at least suggests a short term relief to the overstretched NZD rally. The current state of the rally is very similar to the one displayed by eurjpy prior to it topping at 168,9 - this one a smaller scale though. It's possibly a diagonal triangle (v of 3) followed by a diagonal triangle (5 of c). A correction can be easily introduced in various bullish counts as well at this point. No reason to trade this prior to signs of a price breakdown though, but every reason to be cautious... Cause so far the trend is clearly up. But if it goes lower sharp, then retraces, it could be a good risk:reward trade at that point.
Attached Imageshttp://www.learncurrencytrading.com/fxforum/attachment.php?attachmentid=8312&stc=1&d=1190650554
Hey Spin,
I shorted it at the top too and kept my stops tight. Lo and behold, Im still in it with a decent profit (although nothing to write home about). I expect my stop to be hit tonight as my stop is super tight. I dont like the decent. I believe 1 of 2 things is happening. As you may already know, I too think its 5 of C or 3 I was waiting for since last week. We still have not substantially gone beyond the 78.6 % retracement from wave 2or B from the top at 165.38 to the very bottom at 149.22. As a matter of fact, we keep getting back to it.
Anyways, things are unfolding really slow so I'm looking for either diagonal or we might still be in an irregular flat wave iv of C or 3. I really like the wave iv count cause it puts the timing of iv in sync with the time cycle of wave ii. Heres what I mean.
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In my diagonal scenario, we would be in wave ii of V of (C) or (3). For now I'm going with the latter count being wave iv only cause if it is the case, it will take less time to unfold so I need to follow it closely. Heres, my other possible diagonal count.
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My stop was just hit on the short on the Eur/JPY trade although the decent from yesterday has been anything but intuitive. Personally, I think the yen pairs have nowhere to go but down from here. Bigger picture, the most intuitive of the Yen pairs is by far (in my eyes anyway) the Eur/JPY. However, shorter term I like the NZD/JPY cause the smaller lights (30 min) look much easier to read.
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Trap on the Euro/JPY
hey guys
Careful. if your expecting some kind of correction or up leg on the Euro/JPY, it may not come. I tried to label yesterdays decent as a down move and I may have found a trap.
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Wave 3 down?
Not another irregular flat! I know some of you dont like to look at a 1 min chart but sometimes its a necessary evil. If this is indeed the start of a wave 3 down, the this is my count.
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This is a pair that not many watch but I think that it is one of the best opportunities going forward (just take a look at a daily or weekly chart and you'll understand why I say this). Allow for a drop below .8600 (currently .8642) to complete an a-b-c correction. Risk would be at .8510 and objectives are much much higher (depending on how long term oriented you are).
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