Momentum Trading Strategy
By admin | May 19, 2009
Description: The momentum (M) is a comparison of the current closing price (CP) and a specific length of the previous closing prices (CPn).
Calculation:
M = Closing Price [today] – Closing Price [n days ago]
The Momentum indicator is a rate of change indicator that is designed to identify the speed of a price movement. Usually, the momentum indicator compares the most recent closing price to a previous closing price, but it can also be used on other indicators.
The majority of traders use a value greater than zero to indicate an increase in upward momentum and a value less than zero to indicate an increase in selling pressure.
Some of the most valuable signals are generated when the price action and Momentum are diverging, that means heading in opposite directions.
There are basically two ways to use the Momentum indicator:
Momentum Trading Chart
- As a trend-following oscillator: Buy signal when the indicator bottoms and turns up and sell signal when the indicator peaks and turns down. Useful is to plot a short-term moving average of the indicator to have a better indication of when it is bottoming or peaking. If the Momentum indicator reaches extremely high or low values, in relation to historical values, you should assume a continuation of the current trend. (See attached Chart)
- As a leading indicator: This momentum trading strategy assumes that market tops are typically identified by a rapid price increase, when everyone expects prices to go higher, and that market bottoms typically end with rapid price declines, when everyone wants to get out. As the market peaks, the Momentum indicator will climb sharply and then fall off, diverging from the price action. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of the price action. Both of the above-mentioned situations will create a divergence between the indicator and the price action.
Contributed by Toyogo00, Lori, Roberto, & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.
Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »
Trading with the QQE
By admin | May 14, 2009
QQE, which is actually Quantitative and Qualitative estimation is based on exponential moving averages of RSI or relative strength indicator. QQE can be used in many ways and based on many different levels of smoothing averages, most popular that I have seen used in my trading are 2, 5, 30 and 60, I employ 5 for my upper panel usage and 60 for my lower panel usage, this way I have a variety that is spread apart quite a bit.
This is helpful when looking to enter the market, as when both levels of QQE are moving in same direction, there is a very high (95%) chance of an ensuing move going forward and being successful. The key to QQE is not so much what the actual indicator does, but rather what it shows in relation to the EMA’S one employs in their upper panel in coordination with the candles or bars.
The key to the QQE is the smoothing factor of the QQE or the number placed for the smoothing of the indicator lines. The lower the number, the more bumpy of a line and certain confusion to what is really going on with the market, the higher the number, the smoother the line. So the best way to use the 2 different QQE lines is to place one in one panel of ones platform with a lower smoothing number and the next panel down place the 2nd QQE with a higher smoothing factor, so one can see and optimize what is going on in the market at both a shorter and longer term at same time.
I employ a factor of 5 for my upper QQE which has just a blue line and when it starts to move up, we start to look long, but no entry until QQE crosses the 50 line which is red and the exponential moving averages that I use start to cross over and upwards, the lower panel QQE is used with the higher factor of 60 for a smoothing factor.
Download my file for QQE in MetaTrader4.
With three lines employed in bottom QQE, we really want to see the cross of the dotted red and white lines by the solid blue line, so we have confirmation of the first panel QQE, it is not necessary to have all these lines cross the solid red 50 line. If it does, well then that is awesome for extra confirmation.
Remember, the key is to see upward movement by the QQE. Go along with upward movement of the exponential moving averages. I also place a volume indicator to help in trading, but the key to my trading is all in the QQE and exponential moving averages, simple and smart.
Contributed by Hlass, & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.
Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »
The gartley pattern part 2
By admin | May 10, 2009
In our last article, we discussed how the Gartley pattern is formed and where entries and stops should be placed for the initial trade. In this article we will discuss ways to profit from the pattern and maintain appropriate risk management.
Every trade should have targets. These can be fixed targets or dynamic ones specific to the current trade. In the case of this trade we have used Fibonacci retracements from the swing low of the AB=CD to the swing high or D point in order to set the targets. Managing a trade for profit taking is a good practice, as it allows initial profits while maintaining potential for further profits.
As seen in our example trade, our first target was hit (Chart 3). At this point two things happen. First, profits are taken on a percentage (scaling out) of the trade. Second, risk is reduced by moving the original stop which was located above the swing high of the larger move to just above the D point of our entry. This was done again for one reason; we don’t know anything for certain in trading!
As the trade developed through the London session we can see that a rally was established. Will it last? We don’t know. Therefore, our movement of the stop to just above D helps control our overall risk but still gives the trade room to work. See highlighted bars in Chart 4.
By allowing our trade to develop and giving it room to move, we have attained our profit targets in just less than a 24 hour day. The trade grossed near 100 pips on the first target followed by a slower move to our second target which gave us a profit of near 200 pips. Some traders also use a three part “peel” to capture further moves. If this is done, it is acceptable to move the stop loss to just above the 1st target, thus ensuring a profit on the third portion of the trade if it was used. This allows for two distinct targets with a third left to “run” with the trend. See Chart 5.
An intrical part of using the gartley is a better understanding of fibonacci ratios and how they work dynamically to assit a trader to see current market support and resistance. Details regarding these methods can be found at http://www.fibmarkets.com
Contributed by Toyogo00, Lori, Bert, & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.
Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »
The gartley pattern part 1
By admin | May 10, 2009
The Gartley pattern was outlined by H.M. Gartley in his book Profits in the Stock Market, published in 1935. Gartley reversals appear on all time frame charts. These patterns form near important support or resistance levels and are very powerful. It’s important to note that these patterns as with most patterns work best if found in harmony with a larger trend. As with any strategy, there are warning signs that the trade may not work, such as long range bars or gaps into the entry area. With that said, let’s look at an example trade that was done during the writing of this article In April of 2009. We followed a one hour trade on a bearish Gartley pattern on GBPJPY.
The Gartley Pattern is always preceded by a larger move prior to its formation. This move can be up or down and would therefore present opportunity for a bullish Gartley or a Bearish Gartley. This article focuses on the bearish Gartley. A visual of the patterns overall look is found in Chart 1.
The Gartley’s basic structure is an AB=CD retrace into the prior longer move. An AB=CD move is simply this; A is starting point at bottom/top, B is the first major swing point. The distance from A to B should be noted. The C point is found as a higher/lower swing than A followed by a move in direction of the A to B move and somewhat equidistant as A to B thus forming AB=CD. See Chart 2.
The D point of the AB=CD is complete at a 1:1 ratio, however, many times it moves 1:1.272 and occasionally 1:1.618. 1:1 or 1:1.272 are Fibonacci expansions found in AB=CD patterns and are preferred entry areas especially if it harmonizes with another Fibonacci (or FIB) ratio from the original larger move. (More on advance Fibonacci techniques can be found at http://www.fibmarkets.com) This creates the entry area with a stop above the swing high from the prior larger move.
This cannot be stressed enough; Appropriate risk management must be used to ensure stop loss is appropriate to trade. The reason is simply put; we don’t know anything for certain in trading! A trader must be able to carefully allocate their risk capital and establish a maximum stop loss that gives these patterns room to play out without damaging the trading capital, should you be wrong on your analysis.
In part II of this article, we will discuss trading targets, risk management, and appropriate ways to scale out of a trade and ensure profits.
Contributed by Toyogo00, Lori, Bert, & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.
Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »
Trading with the MACD indicator
By admin | May 5, 2009
The MACD (Moving Average Convergence/Divergence) is a trend-following momentum indicator that shows the relationship between two moving averages of price. The MACD was invented in 1979 by Gerald Appeal. This is probably the most popular indicator whether you trade Stocks, FOREX, or Futures. The MACD is commonly used as a trend or a momentum indicator.
The MACD indicator is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average (a trigger line) is displayed over of the indicator to show buy/sell opportunities.
Calculating the MACD
MACD = EMA(12) [p] – EMA(26) [p]
SIGNAL = EMA(9) [MACD]
p = price
The most popular ways to apply the MACD are:
1. Crossover signals
2. Overbought/oversold alerts
3. Divergence
4. Trend determination
MACD Crossovers
The basic trading rule is to sell when the indicator falls below its signal line. Similarly, a buy signal occurs when it rises above its signal line. It is also popular to buy/sell when it goes above/below zero.
MACD Overbought/Oversold Conditions
The indicator can also be used as an overbought/oversold indicator. When the faster moving average pulls away dramatically from the longer moving average (i.e., it rises), it is likely that the security’s price is overbought and will soon return to normal conditions. Overbought and oversold conditions vary from one forex pair to another.
MACD Divergences
An indication that an end to the current trend may be near occurs when the indicator diverges from the security. A bearish divergence occurs while MACD is charting new lows, and prices do not make new lows. A bullish divergence occurs when the MACD makes new highs and the price action does not make new highs. Beware of using divergences without confirming data– they fail more than they succeed. Both of these divergences are more significant when they occur at relatively overbought/oversold levels.
MACD Trend Identification
To find the trend, we need to calculate the difference between the MACD line and the signal line. The standard representation is to plot the MACD and signal lines on top of a histogram which represents the difference between the two. Most charting systems will display the histogram at the click of a button.
Since the MACD line is created from the 12-period and 26-period EMA lines and when the MACD histogram crosses zero from below, the shorter-term 12-period EMA simultaneously crosses the 26-period EMA from below. Since the faster 12-period EMA is more influenced by recent prices ( the crossing of the 26-period EMA from below), it indicates recent prices have trended higher; this is seen as a bullish signal.
When the 12-period EMA crosses the 26-period EMA from above, the MACD line will cross zero from above. This indicates that recent prices have trended downward and is seen as a bearish signal.
When the histogram is positive and rising, an up-trend is indicated, so long trades are favored. When the histogram is negative and declining, the chart is in a down-trend indicating that you should trade short.
Contributed by Toyogo00, Lori, Zorlev, Robma & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.
Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »
How to Determine the Direction of a Trend
By admin | May 4, 2009
Before you decide to go long or short, there are several criteria you should check:
I. Pick a time frame that you like to use as the trend time frame / chart.
An up trend on one time frame (eg: daily) can be a consolidation on the higher time frame (eg: weekly).It is also important to check direction from a bigger time frame to get the context of the overall trade.Check for the long term trend, intermediate trend, and short term trend. Know at what stage is the current price at your own time frame.Is the price in an up trend, sideways/consolidation, or down trend?
II. Check for trend.
There are multiple ways to check for a trend. Below are a few of them:
- Based on price action: A series of higher- highs and higher- lows for an up trend, a series of lower- lows and lower- highs for a down trend.
- Based on trend line /trend channel: Trendline and trend channel can act as a leading indicator. To draw the trendline, just connect the two lower-lows / pivot lows for an up trend and connect the higher-lows / pivot highs on the down trend.
- Trend Indicator: There are many popular indicators you can use to define trend: Moving average, MACD, Stochastic, RSI, etc. Most indicators are the lagging indicator. They lag the price. So the indicator should be used as the confirmation to filter when to get in and get out after you identify the trend using the price action.
Trend structure:
- Higher-highs and higher-lows or lower-highs and lower-lows are the building blocks of a trend. Supply and demand caused the price to fluctuate and form the higher-highs and higher-lows or lower-highs and lower-lows. – The price structure can also be the support and resistance area. – It can also become the objective entry and exit. – The price structure is the basis of trendlines and can exist on all time frames.
Trend reversal:
Breaking the trendline does not mean a trend is reversing. The price could do some consolidation or retracement and then continue the trend. Breaking the trendline could mean there is a trend change, and we must be prepared to act according to the price action after the trend-change situation. Trend reversal is a process; typically, you will see some pattern forming such as head and shoulder, double top / bottom, false breakout, etc. before the trend change occurs.
A simple method is usually the best; just use the price action and trend line to identify the trend and only use an indicator to confirm.
Contributed by Toyogo00, Lori, Iteng & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.
Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »
Trading for Forex profits
By admin | April 28, 2009
Why is it that very few traders succeed in the forex trading market while 95% of forex traders fail? Below are some pointers to help you:
1. Get Rich Quick
Obviously, forex trading is not a get rich quick scheme, it will not make you wealthy overnight. Becoming successful requires patience and knowledge. Success requires some forex education, patience, discipline, emotion control, etc. before you will be profitable.
2. The holy grail
People are always asking, What is the best forex trading system around? Unfortunately there is no trading method that will make you rich. Starry-eyed traders can waste time and money trying to find the holy grail forex trading formula but never achieve success. The main reason is that the markets changes every second and the forex markets can change suddenly.
3. Education is key
forex traders lose money is that they don’t have the right education or understanding of the markets. You need certain forex training education, seminars, a trading methodology and then a coach to guide you. This takes time and effort.
4. Discipline is the Vital to Success
Discipline is so important in FX trading. It will reward you by accumulating profits if you have it. Without discipline, losses are certain. Never trade emotionally, never break your rules, never lose sight of your risk control.
5. Don’t rush, give yourself a chance
Novices will chase after a trade because they do not want to miss a golden trading opportunity. If you miss a trade relax, wait for another, remember the Forex Markets are open all day 6 days a week they will be there for you tomorrow and next week too. Be careful not to add stress by being desperate.
6. Control your risk and trades
too often traders forget about risk and money management as they have the belief that they are never wrong and put all their money into every trade. The professionals never risk anymore than 3% per trade.
7. Trading Plan
Have a trading plan. Plan the trade and then trade the plan. Many traders have to quit because they fail to have a trading plan. A strategy is vital to your survival, and a trader’s ultimate outcome.
8. Be Realistic
With all the hype out there, Forex traders can be misled. You need enough capital. It takes time to absorb the knowledge. Keep a realistic perspective.
9. Find the knowledge you need
When you begin to trade, find a mentor, find trader who are willing to help. The more you learn, the better you will be. The most highly recommended trainer and mentor is “FibMaster” Neal Hughes. Study his trading video seminars and he also has daily forex calls.
Topics: Forex | No Comments »
Introduction to Forex Options
By admin | December 12, 2008
Forex options are a great way to invest in the forex. This introduction will give you the basic information you need to start understanding forex options and how they can be a great tool for risk control and speculation.
Forex options are available from certain forex dealers in over-the-counter versions, just like spot forex contracts. If you are interested in setting up a demo account with a dealer that offers forex options, click here. Forex options are also available as exchange-traded securities, which means you will need an options broker to trade them.
You can buy and sell forex options. When you buy, or go long, a forex option, your risk is limited to the amount you paid for the option. When you sell, or go short, an option, your risk is unlimited, just like going long or short a currency pair. In this section we will talk about using options as a long trade. In later sections, we will talk about how you can use options on the short side.
Types of basic forex options
Puts: Put options increase in value if the price of the currency pair drops. If the price of the currency pair rises the put will decrease in value. A put gives you the right to sell a currency pair for a specific price. That means if the price of the currency pair is dropping, your put is going to increase in value because you have the ability to sell the currency pair for a higher price.
Calls: Call options increase in value if the price of the currency pair rises. If the price of the currency pair drops the call will decrease in value. A call option gives you the right to buy a currency pair for a specific price. That means if the price of the currency pair is rising, your call is going to increase in value because you have the ability to buy the currency pair for a lower price.
Characteristics of forex options:
Expiration: Forex options are only good for a specific amount of time. You can choose the expiration date when you first purchase the option. For many of the strategies we use at PFX, buying an option that expires in 30 days is usually sufficient Sometimes you may need to sell the option before expiration to prevent it from expiring worthless.
Strike price: Forex options have a specific strike price attached to them. If you buy a call on the GBP/USD because you think it will rise in value, the strike price is the fixed price at which you could buy the GBP/USD. If your strike price was 2.0000 and the currency pair was priced at 2.0250, you would have the ability make a profit of 250 pips by exercising that option. But you don’t actually have to exercise the option to make a profit. You can simply sell the option back on the open market, and make the same profit.
Although there are many strike prices to choose from, in this lesson, we will concentrate on the at-the-money strike price, which is equal to the current spot price. In a later lesson, we will talk about out-of-the-money and in-the-money strike prices and how you can use these in other options strategies.
Leverage: Over-the-counter forex options enjoy the same flexible leverage you enjoy with spot forex contracts. The exchange-listed forex options described above control around 10,000 units of the base currency, just like a mini-spot contract. If a contract costs $190 your leverage is approximately 50:1. That is comparable with a forex spot contract.
Forex options strategies
Strategy #1—Speculating with a long option
Let’s assume that you think the EUR/USD is going to rise during the next week or two. To take advantage of this rise, you could buy the forex contract or buy a call option. The call is a good alternative because it has a fixed amount of risk associated with it but could still accumulated unlimited profits. In the video, we will cover this situation and show you how the call increases in value as prices change. If you are analyzing a pair that you think will decline in value, you could buy a put instead of a call to take advantage of the downside opportunity.
Because you cannot lose more than the amount you paid for the call or put option, the option acts like a stop loss. Most traders will not hold an option until it becomes worthless. But if you were determined not to exit the trade, at least you know that you won’t be surprised by the worst case scenario.
Strategy #2—Hedging risk with a long option
Assume you are long the AUD/USD and that the pair is close to resistance, but you believe it is going to break up through resistance and continue moving higher. A surprise decline could eat a lot of profits very quickly, and you want to protect your position. You could set a stop loss that is close to the market, but you have a very high chance of being stopped out on a whipsaw. This is a very common frustration for new and old forex traders. What if instead of setting a stop loss, you bought a put option?
If you buy the put and the pair drops, your gains on the put will offset the losses on the pair itself. This will caps your losses to the downside. If the pair rises, the put will lose value, which will partially offset some of your gains on the pair. But as long as the potential gains are greater than the cost of the put, the trade is still worth it.
article by www.learningmarkets.com
Topics: Forex, Options | No Comments »
« Previous Entries