Category: Advanced Forex Education

Educational Themes of Intermediate and Advanced Complexity. In this section, we include all that is needed to master technical analysis such as complete coverage of price action themes: Support-resistance, volume, volatility, breakouts, reversals, trend and range trading, candlestick and chart patterns and formations, Elliott wave and Fibonacci retracements and extensions, and harmonic patterns. It includes also a section covering all indicators from simple moving averages to the complexity of Ehlels Filters.
Another sub-section is dedicated to trading systems desing.

Forex Elliott Wave

How to Start a Wave Analysis – Part 1

Post author By Eduardo Vargas
Post date 13 January, 2020
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The wave analysis begins with a preliminary study of the basic patterns defined by the Elliott Wave Theory. In this educational article, we will view how to start to develop a wave analysis.

The Basic Concept

Glenn Neely, in his work “Mastering Elliott Wave,” introduces the concept “monowave” to describe a basic movement that develops the price within a price chart. However, by convenience, we will use the term “segment” hereafter to identify the basic move.

Waves Identification

The first step is the chart representation on the chart with which the entire wave study will be guided for it. The simplest way is to begin through a daily timeframe.

Concerning the type of chart, this could be a bar chart or a candlestick chart. This election does not be a limitation to advance in the wave analysis. In some cases, the use of a line chart could be useful in identifying structures.

Once chosen the asset to study, we will have to identify the lowest point, and the end of the first movement once identified these movements we identify the point where the move exceeds the end of the first wave.

The following chart corresponds to Copper in its daily range.

From the figure, we distinguish each segment that Copper develops in green, the upward move, and in red the downward movement.

The bullish sequence started in early January 2019, when Copper found buyers at $2.52 per pound. The red metal ended the upward path on April 17th, 2019, at $2.99 per pound.

Alibaba Still Moves Higher

The following example corresponds to Alibaba (NYSE: BABA) in its 2-hour timeframe. The chart exposes the rally developed by the e-commerce giant since October 08th, 2019, when BABA found fresh buyers at $161.92 per share.

Once the price found support at $161.92, BABA started to move upward, building the first segment. We identified this first move as “1” labeled in blue, the section ends at $178.59 on October 17th, when the price reacted retracing the first segment. This drop is identified as “2”.

The third segment is active after the surpass of the end of the first move at $178.59. The third movement finishes at $188.17 per share. From this segment, we distinguish that the third movement is extender than the first segment. In other words, the first upward movement advanced $16.89, while the third progressed $20.10.

However, we observe that the seventh segment rallied $28.17, which is the most significant move developed by the entire bullish sequence that started on October 08th to date.

Conclusion

Wave identification is a first step that allows us to recognize the trend of each market in a specific timeframe. Due to the fractal nature of market movements, this procedure will be valid in any range of time.

Fibonacci Confluence Zones

Post author By Arthur Simmons
Post date 13 January, 2020
5 Comments on Fibonacci Confluence Zones

Fibonacci Confluence Zones

Fibonacci Retracements drawn inside boxes

Fibonacci Confluence Zones

If you have not first read my article, ‘You’re still misusing Fibonacci retracements,’ please do so before reading this article. This article will continue where we left off in discussing the new and improved way of drawing accurate and efficient Fibonacci retracements using the Brown Method. I am going to use the same Forex pair that we used in the first article. The purpose of this article is to show you how you can create Fibonacci Confluence Zones to create natural price levels that act as future support and resistance. First, I am going to start my first swing using the March 2001 low and then retracing back to the confirmation swing high in March 1997. See below.

Fibonacci Retracement from low to confirmation lower swing high.

First, I want to know if this retracement is appropriate given how much time has passed – we’re 23 years from the March 1997 high and 19 years from the March 2001 low. Do these Fibonacci retracement levels still work? Do they remain valid? The black vertical line is the start of the retracement, so anything before the retracement is not used, it’s the data afterward that matters. Let’s look.

Fibonacci Retracement - testing of 20 year old retracement range. — Fibonacci Retracement – testing of 20 year old retracement range.

Are these Fibonacci retracement levels we drew still relevant? I would say so. A quick look at A, B, C, and D prove it. Especially for the most recent data at D on the AUDUSD weekly chart – seven-year lows bounce off of the 61.8% Fibonacci retracement level from 20+ years ago! But let’s look at some more Fibonacci retracements made off of other significant swings. Fair warning: there’s going to be several images here.

The Fibonacci retracement above is from the swing high in July 2018 to the confirmation swing low in October 2001. Like the previous Fibonacci image, we can see that prices have respected the retracement levels even a decade after the retracements were established. But we’re not done.

The above image is the first retracement we looked in this article (the same swing low in March 2001) using the same swing low; we draw more retracements to the next confirmation swing lower highs. I’ve drawn two additional Fibonacci retracements in Red and Orange. Notice how some of the Fibonacci retracements occur within proximity of one another. Letter A is shared retracement zones of the 50% and 61.8% of two different retracements. B has a confluence zone of three Fibonacci retracement levels, 50%, 61.8%, and 38.2%. And C has two overlapping retracements of 50% and 38.2%. Now let’s get to the fun part.

The previous image showed three Fibonacci retracement confluence zones at A, B, and C. Those confluence zones were just three of many that will appear on any chart on any time frame. What happens if we draw a series of retracements using major swings as the start point of the Fibonacci retracements and then retrace to the next confirmation swing highs and lows? We’ll get a chart that looks like the one below.

I’ve added some other letters to identify more confluence zones. I admit the chart does look like a mess. And it should. Not every Fibonacci retracement to a new confirmation swing high or low will coincide with shared Fibonacci levels, but they frequently do. Once we’ve drawn out a series of retracements, we should see a set of these confluence zones. Now begins the cleanup phase. We’re going to place horizontal lines where there are confluence zones of Fibonacci retracement levels.

Horizontal Lines replace confluence zones.

The letters A, B, C, D, and E show where the Fibonacci confluence zones have formed, and are represented by horizontal lines (black) on the chart. Now, you can either delete or hide all of the Fibonacci retracements so that we are left with only the horizontal lines at A, B, C, D, and E.

I know that the horizontal line at D represented the most confluence zones on the AUDUSD weekly chart, but it also represented some of the longest-lasting and respected Fibonacci retracement levels. Starting at the horizontal level at D, I draw a box from D down to the major low on the AUDUSD chart. Now, the width of this box doesn’t matter – just the range.

After I’ve established that box from D down to the major low, I can remove the horizontal lines. Then I start to copy the box all the way to the top of the range. All I’m doing here is copying and pasting the box so they ‘stack.’

Now comes the cool part. I’m going to treat each box like its own range and place Fibonacci retracements inside each box, moving from bottom to top.

Fibonacci Retracements drawn inside boxes

No matter how many times I’ve done this, it still blows my mind. But there is probably a lingering question. You’re probably looking at the chart and saying, ok, cool, but there are some massive gaps between these Fibonacci levels. You are correct if you are thinking about this. Now, Connie Brown never wrote about this next part; it’s something I discovered and developed on my own. The approach comes from the idea that markets are fractalized and proportional, so we should be able to break down like zones into smaller ranges. This is especially important and useful for traders who prefer to trade on faster time frames like four-hour or one-hour charts. Using price action that is more recent and relevant, I can draw a Fibonacci retracement from the 50% level at 0.71688 to the start/end of the box at 0.6368.

Letters a and b on the chart above identify the 50% Fibonacci level and start/end level described in the prior paragraph. The black horizontal lines represent the Fibonacci retracement drawn from a to b. I’ve also switched the chart from a weekly chart to a daily chart. When we see that daily chart, we get a real idea of how powerful the Brown Method of Fibonacci analysis is and how precise the study of these confluence zones can be.

In summary, to utilize the Brown Method, the followings steps are as follows:

Create Fibonacci retracements by using a major swing high/low and drawing to the confirmation swing with a strong bar – not the next extreme high/low.
After identifying Fibonacci confluence zones, place horizontal lines on the major price levels where multiple Fibonacci levels share the same price range.
Delete or hide the Fibonacci levels so that only the horizontal lines are present – make sure you identify which horizontal line had the most powerful collection of Fibonacci levels.
After identifying which horizontal line was the most potent and relevant, determine if it is closer to the all-time high or all-time low. Draw a box or a price range from that horizontal line to the all-time high or low – whichever is closest.
Repeat the boxes by copying the same box and ‘stack’ it to the all-time high/low – the opposite of whichever was used to establish the box/price range.
Draw Fibonacci retracements in the boxes.

Sources:

Brown, C. (2010). Fibonacci Analysis: Fibonacci Analysis. Hoboken: Wiley.

Brown, C. (2019). The Thirty-Second Jewell: Thirty Years Behind Market Charts From Price To W.D. Gann Time Cycles. Tyton, NC: Aerodynamic Investments Inc.

Tags Analysis, Confluence, Education, expert, Fibonacci, Forex, new, Technical, Technical Analysis, trading, zones

Forex Fibonacci

You’re still using Fibonacci Retracements Incorrectly

Post author By Arthur Simmons
Post date 13 January, 2020
No Comments on You’re still using Fibonacci Retracements Incorrectly

You’re still using Fibonacci retracements incorrectly Like any discipline or field of study, Technical Analysis goes through changes. Old theories and approaches are rigorously utilized and tested, new ideas are studied, and advancements in the field occur. And, like any discipline or study, it takes a while for people to adapt to the new way […]

Brown Method: Confirmation higher swing low

You’re still using Fibonacci retracements incorrectly

Like any discipline or field of study, Technical Analysis goes through changes. Old theories and approaches are rigorously utilized and tested, new ideas are studied, and advancements in the field occur. And, like any discipline or study, it takes a while for people to adapt to the new way of doing things. There is a shocking amount of updated theory and application in Technical Analysis that has yet to make its way down to the retail trader and investor – some of it is almost 25+ years old! One of the updates to old application and practice is how we use a tool known as a Fibonacci retracement. For many years, the method has been to draw a retracement from one extreme swing to the next (from swing high to swing low or swing low to swing high). In practice, there are a few incidents where this may work out just fine, but the new and better way shows how much more accurate and useful the update has been.

Old vs. New

I want to start off right away by showing you the difference between the old and new methods – I reference the new approach as the Brown Method. The AUDUSD Weekly chart below shows the old way of drawing Fibonacci retracements. With the old process, the Fibonacci retracement is drawn from the extreme swing high on the week of August 5^th, 2011, to the extreme swing low on the week of October 31^st, 2008. The vertical line delineates the starting point of the retracement, and no data to the left of that vertical line should be used to determine the efficacy of the retracement. It is only the data after the vertical line that is important and relevant.

Now, contrast the image above with the new Brown method below.

You will observe how much more accurate the Fibonacci retracement levels are on the Brown Method vs. the old method. What changed? Observe the swing low retracement on both charts – they are different. They both start at the same level, but the retracement end for the Brown method is drawn to the swing low on the week of February 6^th, 2009. But why? Why do you draw to a seemingly random or ‘off’ swing and not the extreme? The reason for this is based on the writings of W.D. Gann.

The Brown Method

I call this new Fibonacci retracement method, the Brown Method, after Connie Brown. It is Connie Brown who discovered this new theory and wrote about it in her 2008 book, Fibonacci Analysis. It is not a very large book, under 200 pages, but it is one of the single most important works in Technical Analysis of the past 15-years. Her discoveries of how confluence zones of Fibonacci retracements dictate the normal rhythm and pulse of the market are truly groundbreaking. But to the first question of why I did not draw the retracement to the extreme low? Connie Brown points out that W.D. Gann made the point that the end of a trend is not established by the extreme high or low – it is the secondary high/low that confirms the change in trend (sometimes known as the confirmation swing). This makes sense because the extreme is very rarely the level where the participants in a market agree that a trend is finished.

So how do we identify what swing to use? How did I identify what candlestick was the confirmation swing low on the weekly AUDUSD chart? Again, this goes back to Brown – but this information is from her penultimate work (her magnum opus in my opinion), The 32^nd Jewel. The first chapter of her massive book (it weighs about eight lbs., is three inches thick and nearly 1100 pages long) addresses some of the problems students of hers have had with the application of her updated Fibonacci retracement method. To identify the correct swing to use, we look for the strongest bar. Let’s take a ‘zoomed’ in look at the swing low used on the AUDUSD weekly chart above.

Brown Method: Confirmation higher swing low

It will take you some practice to find the swing bar (also, gaps are used, but that is for another article) that would be considered the ‘strong bar.’ What constitutes a strong bar? That can be somewhat subjective, but look at the candlestick that I’ve identified as the strong bar compared to the candlesticks before it and around it. Why did I pick this candlestick? First, it is a bullish engulfing candlestick on the weekly chart. Second, that candlestick rejected any further downside pressure after a consecutive four week period of weekly candlestick closes below the open. Third, the open and low of the candlestick created the support zone for the next five weeks. In a nutshell, the candlestick is massive, its sentiment overwhelmingly one-directional, and the lows of that candlestick were respected. That candlestick was the confirmation swing low because it confirmed the end to lower prices and was the most substantial candlestick before the new uptrend occurred.

Side note: Connie Brown also said to look for gaps in the price action as areas to draw the confirmation swing. Finding gaps is a much easier process when looking at traditional markets like the stock market. Forex data can vary from broker to broker as some data providers show gaps, and others do not.

The following articles will go into further detail on how to implement more of the Brown Method. I believe that what you will read and learn will be one of the ‘wow’ moments you experience in the study of Technical Analysis. To say that what Connie Brown has discovered is truly amazing is an understatement when we learn about the confluence of Fibonacci zones and how they create the natural price zones that an instrument swings to, it is a truly eye-opening experience.

Sources:

Brown, C. (2010). Fibonacci Analysis: Fibonacci Analysis. Hoboken: Wiley.

Brown, C. (2019). The Thirty-Second Jewell: Thirty Years Behind Market Charts From Price To W.D. Gann Time Cycles. Tyton, NC: Aerodynamic Investments Inc.

Tags Advanced, Chart, Fibonacci, Forex, retracements, Technical Analysis, Theory, trading

Forex Economic Indicators Forex Fundamental Analysis

How the Trade Balance Affects the Forex Market

Post author By Forex Academy
Post date 6 January, 2020
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We can define Trade Balance as the difference in value between exported and imported goods and services for a designated time period. It can also be referred to as trade deficit/surplus. A trade deficit occurs if more products and services are imported than exported. A trade surplus happens if there are more goods and services which are exported than imported.

Every country produces goods and services. These can be consumed locally or exported to other countries for foreign exchange earnings. No country is entirely self-sufficient. Therefore it will also import goods and services that are beneficial to their economy from other countries, thus, paying the cost using foreign exchange. That is is the trade process that countries engage in. The Trade Balance is the comparison between the amount earned from the exports and the amount spent on foreign exchange for its imports. This can also be referred to as the balance of trade.

What factors affect the Trade Balance

Factors affecting the balance of trade include:

a) Production costs, which includes land, labor, capital, taxes, incentives, etc. in the exporting country and the same applies to those in the importing economy;
b) The cost and availability of resources which include raw materials, intermediate goods, and other inputs;
c) Fluctuations in the exchange rate;
d) Taxes and limitations on trade;
e) Non-tariff barriers such as health, safety standards and environmental;
f) The availability (or lack of it) of foreign currency to pay for imports; and
g) Prices of domestic manufactured goods.

Why are Trade Balance Figures Relevant to Forex Traders?

Manufacturing, employment, and consumption are what make up international commerce and trade. Imports and exports attract demand and, as a result, are directly linked to the need for both local or foreign currencies. A country should use international currency reserves when they conduct international trade, and the dynamics between imports and exports will dictate which side employment will be generated. Consumer spending and habits will be affected by the kind of goods imported into a country and which are manufactured in a country for local consumption or export.

The Trade Balance report carries a high market impact as manufacturing, employment, and consumer spending/consumption are factors that significantly affect the state of a countries economy. Also, the trade balance has a direct impact on a country’s Gross Domestic Product (GDP).

How does a Trade Balance report influence the respective currencies?

Net Importers – A net importer country has more imports than exports. Therefore it will need access to a large amount of foreign currency to fund the cost of its imports. An increased supply of the local currency coupled with a growing demand for foreign money will lead to a depreciation of the local currency.

An imbalance in the Balance of Trade which sways towards importation will lead to layoffs in

the manufacturing sector and thus increase unemployment and will cause a depreciation in the value of the local currency.

Net Exporters – A country that is a net exporter will export more goods than they import and have a demand from foreign sources for the cost into the local currency. Increased demand in export will also lead to increased manufacturing, which creates jobs and drives consumer spending and consumption and will cause the value of the local currency to appreciate.

Summary

Increased deficit, when imports exceed exports, is bad for the local currency.
Increased surplus, when exports exceed imports, is good for the local currency.

The Trade Balance report

The Trade Balance report is issued on a monthly basis, and covers the period of the previous month, which is under review. The most important reports are released from the US, Canada, Australia, New Zealand, United Kingdom, European Union countries, and China. Below you can peruse the various data from the major players.

GBP (Sterling) – https://tradingeconomics.com/united-kingdom/balance-of-trade

AUD – https://tradingeconomics.com/australia/balance-of-trade

USD – https://tradingeconomics.com/united-states/balance-of-trade

CHF – https://tradingeconomics.com/switzerland/balance-of-trade

EUR – https://tradingeconomics.com/euro-area/balance-of-trade

CAD – https://tradingeconomics.com/canada/balance-of-trade

NZD – https://tradingeconomics.com/new-zealand/balance-of-trade

JPY – https://tradingeconomics.com/japan/balance-of-trade

In conclusion

It is important to keep an eye o Trade Balance reports, as they show the overall health of the respective country. A country that is facing a high rate of unemployment and falling into a bad state of affairs in manufacturing will benefit from a positive trade balance report more than a country where these are not huge concerns. The trade balance report is a crucial piece of fundamental analysis for a trader to use in order to maximise the effectiveness of his trades.

Tags balance of trade, Forex, Fundamental Analysis

Forex Elliott Wave

Basic Concepts of Wave Analysis

Post author By Eduardo Vargas
Post date 2 January, 2020
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The Elliott waves reflect the behavior of the masses, which characterizes by repeating itself over time. In this educational article, we will look at the basic concepts of wave analysis.

The Wave Concept

The first step before to start to analyze waves is to understand what a wave is? A wave is a movement that develops a market in terms of price over time. This move has its origin in the imbalance between the buying and selling forces that interact in the market.

Glenn Neely defines a “monowave” as a movement that begins with a variation in the direction of the price. This move ends when the next price variation occurs.

A monowave can have an ascending or descending diagonal direction. The speed with which it occurs in time can vary, but in no way will this be a vertical line.

The movement that develops the price through time can slow down and then gain momentum again. This variation is part of the same wave.

The Psychology of Participants

When a market moves for a large part of the time in the same direction, the interest of public participation tends to increase.

Different information media starts to pay more attention to the same time that the market movement progresses. In this stage, the general public seeks to participate and benefit from that movement. However, when it occurs, market movers tend to start to close their positioning.

R.N. Elliott, through his study, identified specific patterns that tend to repeat over time in different markets. However, these patterns do not have the same dimension; neither happens in the same way in the markets.

On the other hand, as patterns described by Elliott have specific similar characteristics. Its knowledge and identification allow making forecasts about the next movement with a high level of precision.

Types of Waves

There exist two types of basic wave movements; these are:

Impulses, that move in a defined direction. Impulsive waves characterize by composed of 5 segments, of which 3 of them move in the same direction of the trend.
Corrections move in the opposite direction of the motive movement. Generally, it tends to progress in a sideways sequence. These formations are composed of 3 segments.

Waves Identification

The market moves across time, and each movement developed can be grouped in different time ranges, from seconds to years. Elliott defined degrees and labels to ease the study of any market through time.

When a movement is grouped in a specific timeframe, each move should be considered in terms of the relationship between price and duration of itself over time, and not analyze it in absolute terms either price or time.

Once recognized, the wave to study, the next step is its identification. This stage will require the use of labels in each part of the sequence. Labels are a tool that allows distinguishing both the impulse as the correction and the degree to which it belongs each wave.

When the wave analyst carries on the labeling process, these should be used in waves of similar size and complexity. It means that waves should be identified in the same timeframe and kept proportionality between one and another measure. The labeling process will make it easier to ask where the market is going.

Another aspect to take into consideration is the complexity of waves. In other words, complex structures are the result of a combination of the combination of three or five waves; the result of this combination is the creation of a wave of a higher degree or timeframe.

The figure represents the concepts of wave (or monowave used by Glenn Neely), impulsive and corrective wave and label.

Conclusions

The study of Elliott waves lets us understand the path that a market develops. In this way, the study and the identification of patterns described by R. N. Elliott, allows the wave analyst to answer the question of where the price is and where it possibly goes with a considerably high level of precision.

Both, the use of degrees and the labels are tools that permit maintaining a logical order in the wave analysis.

Finally, when identifying wave patterns, there must be a level of proportionality in the structure being analyzed, that is, there must be consistency in terms of price ranges and time.

Tags Elliott Wave, Technical Analysis, trading, Wave Analysis

Forex Economic Indicators Forex Fundamental Analysis

What you should know about Government Debt to GDP

Post author By Forex Academy
Post date 26 December, 2019
No Comments on What you should know about Government Debt to GDP

What is the Government Debt to GDP?

The government Debt-to-GDP ratio is simply the ratio between the country’s total GDP (Gross Domestic Product) to its total debt. It is computed by dividing the total debt the nation has in a particular year to that of the GDP figure for that year.

As it is a ratio, this indicator is represented in percentage. The debt-to-GDP ratio indicates the country’s capability to repay its debts. If the debt-to-GDP ratio of a country is high, it means that the country might struggle to pay back the debt it has incurred. If this ratio is nominally high, then there is a high likelihood that the country is more likely to default on payments and fail to repay the debt. If the debt-to-GDP ratio is low, then the country is in a stable financial position to repay the debt.

This ratio is also useful to help determine the number of years that a country would need in order to pay back the debt if the total GDP is solely dedicated to the repayment. The debt-to-GDP ratio also measures the financial leverage of an economy.

What Does the Debt-to-GDP Ratio Tell You?

A financial panic in domestic and international markets is triggered when a country is unable to repay its debt. Governments will strive to lower their debt-to-GDP ratios. However, this can be difficult during periods of unrest or when the country is in an economic recession. When this occurs, governments like to increase borrowing in an attempt to stimulate economic growth.

Some economists adhere to the modern monetary theory (MMT), which argues that sovereign nations that are capable of printing their own money can’t go bankrupt as they can simply print more fiat currency to cover their debts. However, the nations of European Union (EU), who have to rely on the European Central Bank (ECB) to issue euros, do not apply to this rule because they do not control their own monetary policies.

A recent study by the World Bank found that countries whose debt-to-GDP ratios exceed 77% for extended periods will experience a slowdown in economic growth. It is important to note that every percentage point of debt above this level costs countries 1.7% in economic growth and is even more pronounced in the emerging markets, where each additional percentage point of debt over 64%, annually slows growth by 2%.

Sources of information on ‘Debt to GDP Ratio’ for Major currencies:

In the sources below, there is a lot of information with respect to the Debt to GDP ratio. You can acquaint yourself with the Debt to GDP ratio for the respective country in addition to the historical data related to that country’s Debt to GDP ratio. This graphical representation of the historical Debt to GDP ratio data will leave you with a clearer understanding of how these ratios can change over time.

World Bank – https://datacatalog.worldbank.org/dataset/quarterly-public-sector-debt

GBP (Sterling) – https://tradingeconomics.com/united-kingdom/government-debt-to-gdp

AUD – https://tradingeconomics.com/australia/government-debt-to-gdp

USD – https://tradingeconomics.com/united-states/government-debt-to-gdp

CHF – https://tradingeconomics.com/switzerland/government-debt-to-gdp

EUR – https://tradingeconomics.com/euro-area/government-debt-to-gdp

CAD – https://tradingeconomics.com/canada/government-debt-to-gdp

NZD – https://tradingeconomics.com/new-zealand/government-debt-to-gdp

JPY – https://tradingeconomics.com/japan/government-debt-to-gdp

Frequency of release

Public Debt figures are released quarterly by the World Bank and the International Monetary Fund (IMF), therefore, investors and agency ratings are able to compute this ratio on a quarterly basis.

What do traders care about the Debt to GDP ratio and its impact on the currency?

As we already know, the government debt to GDP ratio indicates the ability of a country to repay its debt, and a higher Debt to GDP ratio for an extended period of time means that the country is more likely to get default on its debt. This leads the foreign banks and governments to lend more money to these countries, and they increase their interest rates to mitigate the high risk involved. Aa a result, the economy of the country will slow down when there is a high debt to GDP ratio. A weak economy can indicate that there may be depreciation of that currency. This is why this ratio will be an essential factor for forex traders to consider when they trade on the Forex market.

The bottom line

If a country has a high debt-to-GDP ratio for an extended amount of time, it can indicate a recession as a country’s GDP will go down in a recession. This will also affect the people living in that country as governments tend to increase taxes to keep up the revenue. The lending governments will have more faith in the county to repay their debts if there is a high return on the debt that is borrowed. If there is a high risk involved due to less return on the debt that is acquired, this will question the lenders. Another important factor to consider is that the lending institutions earn a high rate of interest on the debt that is provided, So they won’t mind the country in question not paying back their debt, as the lending country can earn high interest from the debts they have provided.

From a traders’ point of view, it is better to have an overall view on what the country’s debt to GDP ratio is and to forecast if the specific country is likely to repay their debts or default on payments. If this fundamental analysis indicator factor is ignored when doing your due diligence for long term trades, then there is a high probability of the specific currency to depreciate in the long run, if that country defaults on its debt.

Tags debt, debt to gdp, Forex, Fundamental Analysis, GDP, trading

Forex Elliott Wave

Introduction to Wave Analysis

Post author By Eduardo Vargas
Post date 26 December, 2019
No Comments on Introduction to Wave Analysis

To think in a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

To think about a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

The Background

The Elliott Wave Principle is part of nature and can be applied to the financial markets as a socio-economic phenomenon. The result of this application is a graphic representation of mass psychology.

The interaction of different market participants reflects prices into identifiable patterns. These patterns tend to repeat across time and allow us to foresee the most likely next movement of the market.

In financial markets, the price does not have an absolute top or bottom. The application of the Elliott Wave can help to determine the time and price where a trend could start or end. The study and analysis of specific patterns or price structures support this analysis once formation ends.

Why the Wave Theory?

The comprehension of the psychology of the masses allows the trader to participate in any financial market. For example, stock markets, commodities, currency market, among others.

Compared with traditional technical analysis, the wave theory is based on the perspective of price behavior over time, not on the identification of a specific pattern, for example, a head and shoulders pattern, double or triple top or bottom, etc.

It should be noted that the wave theory is adaptable over time. Further, although wave patterns repeat over time, there are not two markets that make the same move at the same magnitude.

Pros and Cons

Panoramic overview, Wave theory knowledge provides an overview of the market and what should be the most probable next path.
To know the psychology of masses and the wave structures allows us to understand the market expectations. Further, it will enable us to identify the phenomena as fear and euphoria.
Complexity, the wave theory is probably the most complex method of analysis in its understanding.
Flexible mentality, the wave analysis requires to detach from the mass opinion, and comprehend what stage runs the market.
Time available to study and apply this method.
Indetermination when a price structure is incomplete. However, once the wave pattern is complete, the structure and the potential next move is clear.

Conclusions

The wave theory is a complete method that can represent the psychology of masses in identifiable patterns. This method provides a comprehensive perspective of the market situation and the most likely next move.

The difficulty in the application of wave theory requires not only to learn the basic concepts. It also is fundamental to develop the capacity of abstraction to visualize the movements in progress. This capability increases across time and continuous study of different markets and conditions.

Tags Elliott Wave, Forex, Technical Analysis, trading, Wave Analysis

Candlestick patterns Forex Daily Topic

Candlestick Trading Patterns V – The Long Black-bodied Candlestick

Post author By Fran S.
Post date 23 December, 2019
No Comments on Candlestick Trading Patterns V – The Long Black-bodied Candlestick

In the previous article, We talked about candles with long and white bodies and discovered how such a candle could provide us with very useful information about the hidden properties of the market situation and the psychology of its participants.

Actually, a black body in a currency pair is equivalent to a white body in the reciprocal pair. That is, the black body of the EUR/USD is the white body of the USD/EUR. In any case, in Forex, we can also operate with commodities, energy, or stock CFDs, therefore in this article, we will develop the properties and informative potential offered by the long-black candle bodies.

As we said in the article on long-white candles, the market can be described by two types of movement: impulsive movement and corrective movement. Large black-bodied candles (like the long-white candles) belong to the impulsive movement category, and as such, are indicators of a trend, in this case, a bearish one.

A black body in a topping area

As in the case of the white candle, a long black candle in a topping zone is a clear warning of the trend halt. For the warning to be stronger, the black candle must clearly be longer than the candles that preceded it. A black candle of this kind indicates that the bears have taken control.

Image 1 – The long black-bodied candle appearing after an uptrend.

In the previous image, we can see that the black body erased the gains acquired by the preceding five candlesticks showing a rush of close orders. Then, after the initial selloff, a short recovery but buyers were not able to move the price to new highs.

A long Black-bodied candle confirms resistance

If a top consolidation area appears, and, then, a black body shows up, it is an extra confirmation that the resistance area will hold, and the trend is reversing.

Image 2 – The long black-bodied candle appearing at a resistance level

On the picture above, the price topped and retraced, followed by a recovery touching but not exceeding the previous top close. Then the engulfing black body started up at the same level, but it created an exceedingly large body surpassing the previous retracement low and closing near it. That was the confirmation for bears to push the market down.

The Long Black-bodied candle breaks a support

The break of a support level by a long black candlestick is terrible news for bulls. This situation should be considered more bearish than other less evident breakouts.

Image 3 – The long black-bodied candle breaking support trendline and SMA 50-SMA

In the case of the preceding image, which corresponds to a 2H Euro Stoxx 50 chart, the large-bodied candle not only broke the ascending trend line but, also, the 50-Period SMA. This confirmation is what bears needed to move down the price.

Long Black-bodied Candle as Resistance

The top and open of a long black-bodied candle will act as resistance levels. That situation happens when the price retraces the complete impulse. According to Mr. Nison, it is more typical the retracement to stop near 50% of the candle’s body. In consequence, a typical strategy following the trend is to place a sell-short position at that level with a stop-loss level over the top of the candle.

Image 4 – The top of a black-bodied candle as a resistance

Conclusions

A large black body is a clear indication of a bear trend, especially if it appears at previous tops or resistance areas. We should always pay attention to a black body and analyze the implications of it in terms of market sentiment, and also its meaning as a new resistance area. Finally, from the point of view of a price-action trader, large black bodies are an opportunity to open a position with the trend, after waiting for a pullback. Not always the pullback will happen, but when it does, it is a low-risk place to create a short entry.

Tags black candle, black candlestick, Forex, Support and Resistance, Technical Analysis, trading

Elliott Wave Guide Forex Elliott Wave

Advanced Elliott Wave Principle Concepts Guide

Post author By Eduardo Vargas
Post date 23 December, 2019
No Comments on Advanced Elliott Wave Principle Concepts Guide

We have finished the section that covers advanced concepts of the Elliott Wave Principle. These concepts are unfolded, including the following aspects.

Correlations, also known as Intermarket Analysis. In this section, we reveal how to use the relationship between markets.
The use of technical indicators. This section divided two parts reveals two of the most popular oscillators used in the EW analysis.
1. Awesome Oscillator (AO).
2. Relative Strength Index (RSI).
Corrective Patterns. Divided into three parts, expands the concepts discussed in the essential section.
Markets and Speed. Every market vibes with speed. In this section unveiled into two parts shows how to analyze fast markets.
1. Price and Speed relationship.
2. How to Disclose the Speed.
How to Create Spreads. In this section, we expose how we can create spreads to find strength and weakness between different markets.
The Alternation Principle. This article shows how the market alternates across time.
Forecasting with the Elliott Wave Principle. In this part, we present a way of how to realize a forecast and to set different scenarios using key concepts of the EW Principle.
Examples. In this four-part section, we apply different concepts discussed in the real market to make forecasts.

Tags Advanced Topics, Crypto, Elliott Wave, Forex, Technical Analysis

Forex Daily Topic Point and Figure

Point & Figure: Profit Target and Stop-loss Settings Made Simple

Post author By Arthur Simmons
Post date 22 December, 2019
No Comments on Point & Figure: Profit Target and Stop-loss Settings Made Simple

Something new traders struggle with is trying to find appropriate profit targets and stop targets. Point & Figure charts make a process that is a struggle into something that is very, very easy. Two methods can be used to identify profit targets on a Point & Figure chart: Vertical Method and Horizontal Method. I am only going to show you the Vertical Method because the entire series I’ve done here has strictly been on the use of 3-box reversal Point & Figure charts.

The Horizontal Method can be found in Jeremy Du Plessis’s work. The Horizontal Method is more applicable to the most traditional form of Point & Figure – the 1-box reversal chart. There’s a formula for calculating the profit target on Point & Figure. Don’t get freaked about the word formula – the process is very simple.

Buy/Long Profit Target = (number of Xs in prior column * box size) * (reversal amount) + lowest O of the current O column.

Short Profit Target = (Number of Os in prior column * box size) * (reversal amount) – highest X of the current X column.

Stops

Regarding stops, I always stick with the reversal amount – so my risk is always, no matter the trade, 3-boxes worth. On my standard 20-pip box size Point & Figure charts, 60 pips are my max loss on any trade. Some authors suggest putting the stop one box below (or above) the reversal amount, but I’ve always stuck with the reversal amount being my stop.

The Blind Entry Trading System

I want to tell you something that might be a little mind-boggling. I’ve been teaching Point & Figure to another class this year, and we’ve focused on live testing the ‘blind entry’ trading strategy in Point & Figure – which is nothing more than taking every single multiple-top or multiple-bottom break without any other filter. We focused on the following pairs:

GBPUSD, AUDUSD, USDCAD, USDJPY, GBPJPY, EURGBP, EURUSD, and AUDJPY.

We did not use any profit targets. We exited trades only when the reversal column appeared. So our losses were always limited to just 60 pips on a 20-pip/3-box reversal Point & Figure chart. We traded from March 1^st, 2019 through December 7^th, 2019. The results below detail the net pips at the end of our trading period:

GBPUSD = +1,060 pips

AUDUSD = -60 pips

USDCAD = +200 pips

UDSJPY = +1060 pips

GBPJPY = + 2,620 pips

EURGBP = +480 pips

EURUSD = -280 pips

AUDJPY = +1,200 pips

Net Total pips = +6,280 (the average for the class was +5443 pips).

To put that into perspective, with a 0.1 (10,000 unit) Lot size, that’s a net $6,280.00. A full Lot would have equaled a net $62,800. I had one woman who traded an odd 3.33 Lots as her standard position size (I guess it is not that odd if you think about it). She led the pack with her real net pip count at +6,880 – with a 3.33 lot size that meant she made a net $229,104. I was and remain very envious of her performance – she should probably be teaching!

Sources:

Dorsey, T. J. (2013). Point and figure charting: the essential application for forecasting and tracking market prices (4th ed.). Hoboken, NJ: John Wiley & Sons.

Kirkpatrick II, C. D., & Dahlquist, J.R. (2016). Technical Analysis: The Complete Resource for Financial Market Technicians (Third). Old Tappan, NJ: Pearson.

Plessis, J.J. (2012). Definitive Guide to Point and Figure – a comprehensive guide to the theory (2^nd ed.). Great Britain: Harriman House Publishing.

DeVilliers, V., & Taylor, O. (2008). Point and figure charting. London: Financial Times/Prentice Hall.

Tags Analysis, Education, figure, Forex, fx, P&F, point, signals, Technical, Technical Analysis, trading

Point and Figure

Point & Figure: Applied Trading Strategies and Theory

Post author By Arthur Simmons
Post date 20 December, 2019
No Comments on Point & Figure: Applied Trading Strategies and Theory

Of all the chart styles and trading styles I’ve used in my years of trading, Point & Figure is by far the least stressful and most profitable I’ve ever used. Point & Figure, for a trader, I believe, is the most stress-free form of charting available.

Bearish Catapult Pattern

There is no need for economic reports or balance sheets. Point & Figure is concise, logical, and it eliminates guesswork and emotion. It is the most scientific and fact-based chart form. From an analysis perspective, I believe chart forms that include time, volume, and price are superior to Point & Figure (Japanese Candlesticks and American Bar Charts). From a trading perspective, Point & Figure is superior to all. I believe this because trading is an emotional career, and the more we can filter out the stimuli that cause emotional reactions, the better traders we become.

This section will review common patterns and strategies for Point & Figure charts. These are limited to 3-box reversal charts. I have debated whether to write about 1-box and 2-box reversal charts, but I have decided against it. The reason is that I do not use them, I stick with 3-box reversal charts only for Forex markets.

The following are chart patterns, as described in the books I’ve identified as sources at the end of these articles. Many of these patterns I’m going to show are from Dahlquist and Kirkpatrick’s phenomenal book, Technical Analysis – The Complete Resource for Financial Market Technicians (3^rd Edition). If you want to get an understanding of how vital and powerful Point & Figure is, compare the size of the Point & Figure chapter against all the other sections in that book (consequently, that book is part of the required reading for the CMT certification.

I have ping-ponged the idea of skipping some of the patterns in Dahlquist’s and Kirkpatrick’s book because some of the patterns were determined to be ineffective in their cited research. The sources Kirkpatrick and Dahlquist’s reference showed pattern results in equity markets. Equity markets and Forex markets are not the same, so while some of the patterns described in Technical Analysis indicate they should be ignored, I am going to include them because they may work better in Forex markets. You will find this a constant throughout technical analysis literature: the positive expectancies of patterns, strategies, and theories have almost exclusively been tested in equity markets.

Trap Patterns

I am starting off our study with a pattern that you will frequently encounter. Trying to avoid them is near impossible, but because losses are extremely limited in Point & Figure, even successive traps generate minimal losses compared to gains. But I believe it is imperative to understand that traps do occur, they can be frequent, and you will have to get used to them. There are two types of traps, bull traps, and bear traps. Traps occur when a breakout from a multiple top or bottom creates an entry, but price changes direction, and the next column generates a trade entry on the opposite side of the trade.

Bull Trap: Bull traps occur when price breaks a multiple top and creates a buy entry, but then the X column reverses to an O column that creates a new short entry.

Bear Trap: Bear traps occur when price breaks a multiple bottom and creates a short entry, but then the O column reverses to an X column that creates a new buy entry.

Rising Bottoms

A rising bottom pattern may look like a regular double top pattern, but it is different. It is different because of the columns of Os in this pattern. The Rising Bottoms pattern has at least four columns with sequential higher lows. The last O column must have a higher low than the first column of Os, and the previous X column must have a higher low than the first X column. The long entry occurs when the double top is broken.

Declining Tops

The Declining Tops pattern is the inverse of the Rising Bottoms pattern. The Declining Tops pattern has at least four columns with sequential lower highs. The last X column must have a lower high than the first column of Xs, and the previous O column must have a lower high than the first O column. The short entry occurs when the double bottom is broken.

Split Tops and Bottoms

Split Tops and Bottoms generally occur in the form of Split Triple Tops and Split Triple Bottoms. Split Tops and Bottoms have a ‘gap’ in between the tops and bottoms. How many columns do you consider in the formation of a Split Top or Bottom? It is generally believed that 6 to 10 columns are appropriate for finding Split Tops and Bottoms. We trade Split Tops and Bottoms patterns the same way we trade any other multiple top or bottom.

Triangles

Triangles are common patterns you will find on Point & Figure charts. But it is important to remember that just because price breaks through a triangle, that doesn’t mean that we take an immediate entry on the break – we still have to wait for a multiple top or bottom to be broken.

Catapults

Catapults can be a somewhat confusing pattern, but they are compelling. The Catapult Pattern was one of the few patterns in Technical Analysis that generate equally positive returns on the short side of equity markets as it did on the long side. The strength of these patterns is related to the psychological component of trading. Catapults generally show up after a trendline break or after multiple top or bottom (at least a triple top/bottom or a split triple top/bottom). Catapults are most often pullback/throwback trades, and that is why they are so powerful.

Spike Patterns

Spike Patterns (along with Pole Patterns) are the only patterns that have a small amount of subjectivity and interpretation. Even Dalquist and Kirkpatrick could not identify consensus from other Point & Figure experts on what constitutes a Spike Pattern. A spike pattern is a massive column that is around 15 to 20 boxes in length. This is my absolute favorite pattern because it has such an enormous reward and minimal risk. This is also only one of two patterns (the other being the Pole Pattern), where the entry does not require a multiple top or bottom. Spike patterns are entered immediately on the reversal column.

Pole Patterns

Pole Pattern

Pole patterns are hands down the most subjective pattern in Point & Figure. The problems with identifying with what qualifies as a Pole comes down to broad interpretation. A Pole is very much like a Spike Pattern in that it’s a substantial column, but it is smaller than a Spike. Poles are any column that is less than sixteen boxes but also more significant than ‘normal’ size columns. One of the identifying factors of a Pole Pattern is the same as a Spike Pattern: they show up at the end of swings. Trading a Pole Pattern is relatively simple. All we do is measure the length of the Pole with a Fibonacci retracement tool (doesn’t matter where you start) and then enter long or short when price moves beyond the 50% level.

Sources:

Dorsey, T. J. (2013). Point and figure charting: the essential application for forecasting and tracking market prices (4th ed.). Hoboken, NJ: John Wiley & Sons.

Kirkpatrick II, C. D., & Dahlquist, J.R. (2016). Technical Analysis: The Complete Resource for Financial Market Technicians (Third). Old Tappan, NJ: Pearson.

Plessis, J.J. (2012). Definitive Guide to Point and Figure – a comprehensive guide to the theory (2^nd ed.). Great Britain: Harriman House Publishing.

DeVilliers, V., & Taylor, O. (2008). Point and figure charting. London: Financial Times/Prentice Hall.

Tags figure, Forex, point, point&figure, Technical Analysis, trading

Forex Elliott Wave Forex Market Analysis

DAX Could Keep Making New Highs- An Elliott Wave Scenario Planning

Post author By Eduardo Vargas
Post date 18 December, 2019
No Comments on DAX Could Keep Making New Highs- An Elliott Wave Scenario Planning

The German index DAX 30 contains the 30 biggest German public companies traded in the Deutsche Böerse. In this article, we will review what to expect from the German index for the coming weeks.

The Big Picture

DAX 30, in its two-week chart, shows the price action progress of the index from the lowest level it touched in early March 2009. Once the DAX found buyers at the 3,585.8 points, the price rallied until 13,602 points when the German index completed the wave III labeled in black.

Since the March 2009’s low, the price moved in a bullish impulsive sequence that is still incomplete. The German index has already completed three waves of Primary degree, labeled in black. Currently, the price is running in its wave IV, also labeled in black.

The First Scenario

As we discussed in a previous article, scenarios allow us to analyze the likelihood of different “what if?” viewpoints.

The first possible scenario showed on the daily chart consists if wave IV is complete with the corrective move as an (A)-(B)-(C) sequence ended at 10,279.1 points.

Thus, a first approximation to the current path could be a possible ending diagonal pattern in progress. If this scenario is valid, the DAX should be moving in a wave (3) (labeled in blue), and we must assume that this wave is incomplete.

Consequently, the next leg should have a limited decline, and bringing the way for a new bullish movement as a wave (5).

The Alternative Count

The second scenario proposes an alternative count. In this case, the daily chart shows the price action moving in an incomplete wave (B), labeled in blue.

In this context, as the wave (B) is incomplete, the price action is running in an internal leg identified as wave C labeled in green. At the same time, wave C is incomplete and should finish the waves ((iv)) and ((v)) of Minute degree labeled in black.

According to the Elliott Wave Principle, under this scenario, DAX could be developing an irregular flat formation. This structure is characterized by following an internal sequence divided into 3-3-5, and the price tends to surpass the previous relevant high, in this case, located at 13,602 points.

If this scenario is valid, the price should develop a downward wave (C), which could drive to DAX to re-test the zone of the last Christmas low at 10,279 points.

The Conclusion

Both scenarios proposed to grant us the likelihood of a marginal upside and, then, a corrective move. However, the extension of the next path will confirm the Elliott wave structure that corresponds.

Probably, DAX will extend its gains over the 14,000 points, reaching a new all-time high before starting a deeper corrective move. This movement to the upside could emerge as a three or five wave structure, depending on which scenario is right, as stated above.

Tags DAX 30, Elliott Wave, Forex, Technical Analysis, Wave Analysis

Forex Economic Indicators Forex Fundamental Analysis

Forex Fundamental Indicator – What you need to know about the GDP & GDP Growth

Post author By Forex Academy
Post date 17 December, 2019
No Comments on Forex Fundamental Indicator – What you need to know about the GDP & GDP Growth

There are several components that make up fundamental analysis, but one of the most influential indicators is The Gross Domestic Product and the GDP growth rate. GDP is a well-known metric of economics and is one of the most important components when doing your fundamental analysis due diligence of a currency pair.

What is GDP

The Gross Domestic Product is defined as a “monetary measure of the market value of all the final goods and services produced in a specific time period, often annually”- Wikipedia

This is the total economic activity generated by both private and public companies within a country in a specific time period.

Nominal GDP vs. Real GDP

Nominal GDP is the market value of all goods and services produced in an economy with inflation adjustments. Real GDP is the Nominal GDP, which has been adjusted for inflation.

Components of the GDP

The GDP is broken down into four components and is an indication of what a country is good at producing: Personal consumption expenditures of goods and services, business investments, government expending, and net exports of goods and services.

Personal Consumption expenditures

Consumer spending is one of the main contributors to production and is the best way to compare using data from different years. This is subdivided by the BEA into goods and services.

Goods are further subdivided into durable and non-durable goods. Durable goods are cars and furniture, for example, and have a lifespan of three or more years. Non-durable goods are fuel, clothing, food, etc.

Services include commodities that cannot be stored are consumed when purchased.

Business investments

This includes purchases that companies make to produce consumer goods, and not every purchase is counted as purchases must go to creating new consumer products. Again the BEA divides this component into two subcomponents;

Fixed Investment – It is a non-residential investment that consists of business equipment like software, capital goods, and manufacturing equipment, and this also includes commercial real estate construction and residential construction. This component is based on monthly shipment data from the BEA durable goods order report.

Change in private inventory – this is how many companies will add to their inventories of goods they plan to sell. As orders increase, companies may not have enough goods in stock and therefore order more to ensure supply and the increase in private inventories contributes to GDP. If there is a decrease in inventory orders, then companies will halt manufacturing, and if it persists, then staff reductions are next.

Government spending

This is an indication of the size of government across countries. There is a large variation in this indicator and highlights the countries’ approach to delivering public goods and services.

Net exports of goods and services

Imports and exports have an opposite effect on GDP as exports add to the GDP and imports subtract from the GDP data.

The economic reports

The economic reports of the GDP cover quarter or annual data periods, and this data is reviewed periodically until the final GDP data is released. There are some countries that release this data on a monthly basis, like the USA. However, the majority opt to release this data quarterly and annually.

Analyzing the DATA

The economic reports of the Gross Domestic Product are such an integral measure of economic activity that it is a vital component of fundamental analysis in a currency pair. The GDP data is a key measure in determining the strength of a country’s economy and hence the strength of its currency. By comparing the two sets of data on both currencies and comparing each set of GDP data to that of previous releases. This comparison helps to determine which of the two currencies is stronger, and enjoying a strong economy.

When analyzing this data, it is necessary to compare like for like economies as each country is at a different level of development. When we look at developing economies, we can anticipate seeing annual growth rates that exceed the norm, and for the emerging economies, annual growth rates can climb to double digits.

What is the GDP Growth Rate

The GDP growth rate measures how fast an economy is growing and is the next comparison, which is necessary in order to evaluate the previous years’ data is in line with the previous years for the same period. This collection of data shows the expansion or contraction of economic activity within a country.

What determines growth

A nation’s GDP growth rate determines its economic health. If the growth rate is positive, it indicates that the wealth of the nation is improving, and the economy is doing well. If the GDP growth rate is negative, meaning it has fallen below the previous period, it is a clear indication that the economy is declining. This decline in the GDP growth rate has serious ramifications as unemployment rises with the downturn of production.

Economic reports

The GDP economic reports are a vital measure of economic activity and integral to the fundamental analysis for any currency pair you wish to trade. This data is vital in determining the benefits of a particular economy and the strength of its currency. By comparing this data to previous years or periods, one is able to ascertain the progression of the expansion or contraction of the economic activity and thus evaluate if it is equivalent to the same period of previous years.

Impact on currency

The GDP growth rates are a massive driving factor in a currency’s performance because of the results that economic activity has on a currency. This means that higher levels of economic activity will generate a higher demand for a specific currency, and an increase in economic activity will also generate an increase in the total value of that economy. The more value that a specific country’s economy has, the higher the value of its currency. What traders are looking at when analyzing this data is the difference found between the two currencies’ growth rates. As a rule of thumb, the currency which has a higher growth rate will generally experience an appreciation of its currency.

Sources of information on GDP

Most nations release their GDP data on a monthly, quarterly, and annual basis, and in the U.S., it is the Bureau of Economic Analysis (BEA) that publishes an advanced release of this data.

When one is contemplating doing their own fundamental analysis, it is imperative to take into account the effect that a country’s GDP will have on its currency strength and the importance of measuring the data rate from previous periods. The GDP data is closely monitored as it defines the movements of an economy is a straightforward way.

Links to GDP information resources:

Point & Figure Charts: Introduction

Post author By Arthur Simmons
Post date 17 December, 2019
No Comments on Point & Figure Charts: Introduction

Point & Figure Charts

Months on Boxes

Point & Figure Charts

If the only chart style you have ever been familiar with is Japanese candlesticks or American bar charts, then no doubt Point & Figure charts will look very foreign. They have the appearance of random and new while also being very organized and very old looking. Point and Figure charts are the earliest known forms of technical charting that we know of, and many civilizations have generated some Point and Figure charts out necessity. Another concept that may be difficult to grasp if you are new to price action only chart styles is that Point and Figure charts are an intraday charting style, but is void of any time component. Live data is necessary when using Point and Figure charts. The fact that Point and Figure is an intraday chart style will confound most people who are familiar with charts that utilize the component of time, like Japanese candlesticks. Most of you who are learning about Point and Figure charts will assume that Point and Figure is a long term chart form. It is tough to create the mindset that time is not a factor in Point and Figure. But let’s get to the chart.

Point & Figure Chart Basics – Box Size and Reversal Amount

Point & Figure charts are represented by a Box Size and a Reversal Amount. Boxes are represented as Xs and Os. The trader or analyst determines the Box Size. Depending on the market you are trading and the Reversal Amount, the Box Size will vary from one market and instrument to the next. I will provide a table with the box sizes I use in my trading at the end of this article. On a Point & Figure chart, Xs and Os represent price direction. Xs, often colored green, represent price moving up. Os, usually colored red, represent price moving down.

The trader or analyst also defines the Reversal Amount. Historically, Point & Figure charts were 1-box Reversal charts. Today, 3-box reversal charts are the most common. There is no limit on the number of boxes required for a reversal. I only use 3-box reversal charts – they perform exceptionally well in Forex markets. The Reversal Amount dictates how many boxes price needs to move to print a new column of Xs or Os. Let’s look at the Box Size and Reversal Amount on the chart below.

Box Size & Reversal Amount

Pair	Box Size (in pips)	Pair	Box Size (in pips)
AUDCAD	20	GBPAUD	40
AUDCHF	20	GBPCAD	40
AUDJPY	20	GBPCHF	20
AUDUSD	10	GBPJPY	20
CADJPY	20	GBPNZD	40
CHFJPY	20	GBPUSD	20
EURAUD	40	NZDCAD	20
EURCAD	20	NZDJPY	20
EURCHF	20	NZDUSD	20
EURGBP	20	USDCAD	20
EURJPY	20	USDJPY	20
EURNZD	40	USDCHF	20
EURUSD	20

How much time does it take for a column to change from X to O?

Your transition to a price action only chart from a Japanese candlestick chart is going to continually be hampered by continuing to think that ‘time’ has someplace on a Point & Figure chart. You will look at a chart and say to yourself, ‘Well, that column of Xs has been there for a while, it can’t move anymore, it will probably reverse.’ While the concept of time is not used, some pieces of software will allow you to imprint the month on the chart where the month’s number will appear at the price level it was trading at when the month started. This can give those who are transitioning to Point & Figure as a new chart style some ‘grasp’ of time. See below.

Some traders may find having the month displayed as a benefit. Is it useful? I think so. It does at least give a sort of perspective of time and how long something has remained in a single column or how many reversals have been printed on the screen. Additionally, cycle analysis teaches that we often see some of the highest probabilities of trend changes or corrective moves occurring at the start of a new month. If we observe a new month starting near an extreme high or low, we could be looking at an imminent reversal with at least a high probability short term trade option.

Trend Lines and Patterns

Another concept that people new to a price action only chart style might find difficult to understand is that P&F charts are always in a bear or bull market. And depending on the time frames you trade on a Japanese candlestick chart, Point & Figure charts may change bull and bear trends frequently or infrequently. Two types of trendlines can be drawn on a Point & Figure chart:

Objective (requires only one point to draw).
Subjective (requires two or more to draw).

Objective Trend Lines or Dominant Angles are also called 45-degree angles. Dominant angles only require one point to be drawn, and they are always drawn from O to X or X to O (in 3-box reversal charts) – and always to the column right next to eachother. The software I am using for these articles is called Optuma by Market Analyst. In Optuma’s software, they auto-draw some of the dominant trend lines. Subjective trendlines are drawn the same way you would draw any other trendline on a Japanese candlestick chart. I rarely, if ever, utilize subjective trendlines. In some of the strategies I will go over, the dominant/45-degree trendlines are useful in determining the direction of the trading you should take.

Patterns such as flags and pennants will show up on Point & Figure charts just like you would see on Japanese candlestick charts. The same principles that we would apply in trading continuation patterns like flags and pennants are the same on a Point & Figure chart. There are some stark differences between the breakouts of a pattern on a candlestick chart versus a Point & Figure chart. There is a primary difference between how we treat breakouts of patterns and trendlines on a Point & Figure chart versus a candlestick chart.

Most Important Rule To Follow

There is one primary rule that must be followed when trading on Point & Figure charts.

Only Enter Trades After Multipletops/Multiplebottoms have been broken.

I’ve said that Point & Figure charts are unambiguous. The entry rules in Point & Figure reinforces that statement. When a multiple top appears, the entry is always on the next X above the multiple top. When multiple bottoms appear, the entry is always on the next O below the multiple bottom. See the charts below:

A question often arises when an X or O breaks a trendline: do you enter a trade when the trendline is broken? It depends. The entry rules of multiple tops and multiple bottoms still apply. Even if the price breaks a trendline, a multiple top or bottom needs to be broken to take an entry. Further discussion into entry rules and entry strategies will be discussed in further articles.

Sources:

Dorsey, T. J. (2013). Point and figure charting: the essential application for forecasting and tracking market prices (4th ed.). Hoboken, NJ: John Wiley & Sons.

Kirkpatrick II, C. D., & Dahlquist, J.R. (2016). Technical Analysis: The Complete Resource for Financial Market Technicians (Third). Old Tappan, NJ: Pearson.

Plessis, J.J. (2012). Definitive Guide to Point and Figure – a comprehensive guide to the theory (2^nd ed.). Great Britain: Harriman House Publishing.

DeVilliers, V., & Taylor, O. (2008). Point and figure charting. London: Financial Times/Prentice Hall.

Tags Analysis, Education, figure, Forex, P&F, point, technial

Forex Elliott Wave Forex Market Analysis

Dollar Index Long Term Wave Analysis

Post author By Eduardo Vargas
Post date 16 December, 2019
No Comments on Dollar Index Long Term Wave Analysis

The US Dollar Index (DXY) from last October shows signs of exhaustion of the bullish cycle that started in February 2016. What says us the Elliott Wave Principle about the next path of the US Dollar? In this article, we will discuss what to expect for the Greenback.

Fundamental Perspective

The Federal Reserve, during the last FOMC meeting, realized on December 11, decided to keep the interest rate at 1.75% by letting it unchanged for the second consecutive month.

The FED’s Chairman Jerome Powell, in his latest statement, indicated that the current monetary policy is adequate to sustain the expansion of economic activity in the United States. On the other hand, the labor market conditions remain stronger, and inflation continues in the 2% target.

In its projections for next year, the committee members do not visualize any further cut changes in the reference rate.

Technical Perspective

Dollar Index (DXY), in its weekly chart, shows the price action developing a downward corrective structure. This bearish structure began on January 03, 2017, when the DXY reached the level 103.82.

Until now, DXY has carried out two internal waves, which we identified as wave ((A)), and ((B)) labeled in black. In the weekly DXY chart, we observe that wave ((A)) progressed in five waves.

According to the Elliott Wave Principle, the formation developed by DXY should correspond to a corrective structure that presents the characteristics of a zigzag pattern. A zigzag formation is characterized by a 5-3-5 internal sequence.

The graph below shows the daily DXY chart, which reveals a bullish sequence that develops into three internal waves, labeled in blue as (A), (B), and (C), which corresponds to the complete movement of upper-degree, identified as wave ((B)).

Likewise, we recognize how the price developed a structure in the form of an ending diagonal, that in terms of the Elliott Wave Theory, appears typically in waves “5” or “C.”

On the other hand, the pierce and closing below the August 2019 low at 97.17, make us suspect that the price could be making a change from the upward cycle started in February 2018 to a downward trend.

This movement could start the third internal move of the corrective wave, which should be developed in five waves.

Our Forecast

The 4-hour chart shows DXY has completed its first bearish motive wave labeled as (1) in blue. Once its five internal segments has ended, the price bounded off from the level of 96.59 on December 12.

Short term, we expect a bullish rebound in three waves that could reach the zone between 97.94 and 98.44. From this zone, the Greenback could find sellers waiting to activate their short positions.

The long-term target is located in the zone of the 90 points as a psychological round-number level. Further, this zone is the area of the 2018’s lows. This target area coincides with the lower line of the downward channel.

The invalidation level of the bearish scenario is located at level 99.67, which corresponds to the highest level reached in early October 2019.

Tags DXY, Elliott Wave, Forex, Price Action, Technical Analysis, trading, US Dollar Index, Wave Analysis, Zig-zag pattern

Forex Price Action Point and Figure

Point & Figure Introduction: The Problem with Japanese Candlesticks

Post author By Arthur Simmons
Post date 15 December, 2019
No Comments on Point & Figure Introduction: The Problem with Japanese Candlesticks

Problems with Japanese Candlestick Analysis

One of the big buzz words or methodologies used in trading over the past ten years has been the term and/or style called ‘Price Action Trading.’ It is also known as ‘Naked Trading’ or, much less known as ‘Dynamic Impulse Trading.’ Price Action Trading is a style and methodology that teaches students to utilize candlesticks charts with no lagging indicators or oscillators. Students learn to utilize very little in the form of any tools beyond trend lines, subjective horizontal support/resistance, and pattern recognition. Not surprisingly, many people fail at Price Action Trading. I would venture that out of all the methodologies taught to new traders and analysts, Price Action Trading with Japanese candlesticks causes more new trader accounts to go bust than almost any other trading style or system.

The problem with Price Action Trading using Japanese candlesticks gets exacerbated the faster the time frame used. Japanese candlesticks are, believe it or not, a very advanced form of analysis that requires a significant amount of study to interpret and apply today’s financial markets properly. Traditionally, the application of Japanese candlesticks did not occur on fast time frames. Instead, they were limited to longer time frames such as weekly and monthly charts, and those are timeframes where the analysis, interpretation, and execution of Japanese candlesticks have very few equals. To make Japanese candlesticks work on fast time frames in modern markets requires the use of a myriad of supporting tools such as oscillators and indicators. The use of oscillators and indicators with Japanese candlesticks is necessary is because Japanese candlesticks are three-dimensional: price, time, and volume. Point & Figure only records price.

Point & Figure Analysis

For the Price Action Trader, no chart style is purer than Point & Figure because Point & Figure records only price. In Point & Figure Analysis, time is not measured or used, and volume is anecdotal. That may seem anathema to many traders, but it makes perfect sense from the perspective of a Point & Figure user. Because Point & Figure only records price moves, it makes sense why volume is anecdotal and not significant. If you think about it, the volume itself isn’t relevant unless there is a corresponding price move. Price is the only thing that matters. One of the greatest authorities and written works of Technical Analysis is de Villiers and Taylor’s Point and Figure Charting. They make a compelling case for the weight and authority of this chart and analysis style.

Point & Figure is logical in its application.
Simple and easy to master.
Point & Figure is void of mystery, guessing, and complications caused by subjective analysis.
News, economic reports, and other sources of market noise are not necessary.
Losses are limited while profits accrue – easy stop and profit target calculations.
Point & Figure signals are clear and unambiguous.
The method avoids and dismisses manipulation.
Inside information not necessary.
Volume manipulations are pointless and irrelevant.
Solo traders outperform professional money, proprietary trading firms, and traditional buy and hold investors with this method.
Insignificant price moves are ignored.
Support and resistance easy to identify.

Sources:

Dorsey, T. J. (2013). Point and figure charting: the essential application for forecasting and tracking market prices (4th ed.). Hoboken, NJ: John Wiley & Sons.

Kirkpatrick II, C. D., & Dahlquist, J.R. (2016). Technical Analysis: The Complete Resource for Financial Market Technicians (Third). Old Tappan, NJ: Pearson.

Plessis, J.J. (2012). Definitive Guide to Point and Figure – a comprehensive guide to the theory (2^nd ed.). Great Britain: Harriman House Publishing.

DeVilliers, V., & Taylor, O. (2008). Point and figure charting. London: Financial Times/Prentice Hall.

Tags Price Action, Technical Analysis, trading

Forex Elliott Wave Forex Market Analysis

NZDUSD Long Term Wave Analysis

Post author By Eduardo Vargas
Post date 15 December, 2019
No Comments on NZDUSD Long Term Wave Analysis

The NZDUSD pair has shown signs of recovery in recent weeks. Have we to think in the buy-side for the coming weeks? In this article, we will review the probable next movement from the oceanic pair.

Fundamental Perspective

The Reserve Bank of New Zealand (RBNZ), realized in November its last monetary policy decision, from where the policymakers kept the Official Cash Rate unchanged at 1%.

In the decision statement, Governor Adrian Orr stated that employment remains at high levels; however, inflation remains below the 2% target. Moreover, the RBNZ projections for the coming year 2020 pointed to stable interest rates at low levels so that inflation can be ensured to reach the target level.

The next meeting of the reserve will be in February 2020. As a consequence, the fundamental traders will have to closely monitor the evolution of macroeconomic data during the following two months.

Technical Perspective

From the technical point of view, the NZDUSD in its weekly chart moves sideways in a corrective process that found the first support in August 2015 at 0.61968.

During 2019, NZDUSD approached the lowest level of 2015, developing Elliott’s ending diagonal pattern, which found support at 0.62037 in early October.

According to the Elliott Wave Principle, a diagonal ending formation is an impulsive pattern that has an internal structure that is divided into 3-3-3-3-3. In turn, this formation can be found in a wave ‘5’ or ‘C’ within a corrective structure.

Once NZDUSD touched the level 0.62037, the pair found buyers and began to realize a bullish movement in three waves. The completion of this upward sequence makes us foresee the possibility of a new decline. Probably the next move will be in three waves.

Our Forecast

The NZDUSD pair in its 4-hour range shows the possibility of a corrective move to the area between 0.64647 and 0.64078. This zone could bring us the opportunity to incorporate us in the potential long-term next rally.

The invalidation level is placed at 0.62028, which corresponds to the lowest level reached by the NZDUSD in October 2019. Our long-term target is at 0.7558 level.

Finally, depending on the retracement level of the NZDUSD, the corrective sequence will reveal to us the strength or weakness for the next path.

Tags Elliott Wave, Forex, NZDUSD, Price Action, Technical Analysis, trading, Wave Analysis

Candlestick patterns Forex Daily Topic

Candlestick Trading Patterns IV – Long White Bodies

Post author By Fran S.
Post date 13 December, 2019
2 Comments on Candlestick Trading Patterns IV – Long White Bodies

There are two kinds of price movements in the markets: Impulsive movements and corrective movements. The ideal impulsive action is characterized by a continuous rise or decline from the opening level to the closing one, this being the highest or lowest point of the period. The ideal corrective movement is described by a lateral movement in a short-range and close opening and closing levels.

Most trading candles can be separated into those two moves. When impulsive movement prevails, the candle shows a large body, and only visible traces of the corrective action are perceived as upper and lower wicks. Corrective-motion candles have a short body and relatively long wicks at one or both ends.

A white and large-bodied candle body is indicative of a bullish impulse, whereas a black and large-bodied one shows a bearish or selling impulse. Therefore, when one of these appears at a critical level showing the opposite direction to the prevailing trend, we have to take notice of it.

Long White Candle at a low price level

A single candlestick Is mostly not enough for a proper forecast. However, a large candlestick at the end of a severe drawdown is a warning sign that the trend might have ended. If the candlestick shows its low, touching resistance levels, that is a second clue for a reversal, and also serves as a confirmation of the support level. A white candlestick bouncing off a trendline gives credibility to that line.

In the above chart, we see the retracement of the price touch the trendline and then bounce with a white candle, that might have served as a good entry point to trade long. Further up, we see that the price still obeys the line in the second retracement, in this case, with a candle with a large lower wick.

Long White body breaking resistance

A Long white-bodied candle breaking resistance levels are usually a good confirmation of that fact. As we see in the chart below, the price crossed the resistance level decisively and never looked back. This is the kind of confirmation for a bullish continuation traders need.

Long White Body as Support

A long white body sometimes is retraced to test the bulls. But, on the occasions, the price retraces all the previous candle’s advance, its body bottom acts as a support level to hold the price and maintain the trend alive. It is more common that a Fibonacci level of the candle’s retracement would stop the pullback. According to Mr. Nison, the middle of the candle body is a usual support zone.

Once the underlying trend is established, a suitable method to enter the trend is to buy at 50% retracement, with a stop-loss below the white body. That way, the risk of entry is halved while profiting from mild retracements.

Takeaway

A single white-bodied candlestick can depict great information value to a savvy trader. This impulsive candle warns about potential trend changes, confirms breakouts when breaking resistance levels, and acts as support during retracement periods, thus, also showing potential levels to jump in and profit from the newly discovered trend.

Candlestick patterns Forex Basic Strategies Forex Trading Strategies

Pairing The Hanging Man Candlestick Pattern With MACD Indicator

Post author By Reddy Shyam Shankar
Post date 13 December, 2019
2 Comments on Pairing The Hanging Man Candlestick Pattern With MACD Indicator

Introduction

The Hanging Man is a visual candlestick pattern which is used by traders and chartists in all type of markets. The term ‘Hanging Man’ refers to the shape of the candlestick. Visually the hanging man looks like a ‘T,’ and it appears in an uptrend. The formation of this candlestick is an indication that the uptrend is losing its strength. Meaning, sellers started showing interest, and the current trend of an asset is going to get reversed. Anyone can easily predict from the name of this pattern that it is viewed as a bearish sign.

The Hanging Man candle composes of a small body and a long lower shadow with little or no upper shadow. The vital point to remember is that the hanging man pattern is a warning of the upcoming price change, so do not take it as a signal to go short. Also, trading solely based on one pattern is risky. To confirm the sign given by the Hanging Man pattern, traders must pair it with support resistance or any other trading indicator.

This pattern is not confirmed unless the price falls shortly after the Hanging Man. If the next candle closes above the high of the Hanging Man, this pattern is not valid. After the pattern, if the very next candlestick falls, then it’s a clear indication of the reversal. Now, if you see a Hanging Man candlestick and the above-discussed rules apply, you can go ahead and take the trade. But since it is crucial to have an extra confirmation, let’s pair this pattern with a technical indicator.

Pairing the Hanging Man Pattern With MACD Indicator

In this strategy, we have paired the Hanging Man pattern with the MACD indicator so that we can filter out the low probability trades. MACD stands for Moving Average Convergence and Divergence, and it is one of the most popular indicators in the market. It is essentially an oscillator that is used for trading ranges, trend pullbacks, etc. Also, this indicator identifies the overbought and oversold market conditions. In this strategy, we are using the default setting of the MACD indicator to identify the trades.

Step 1 – Confirm the uptrend first on your trading timeframe

We can’t use the Hanging Man pattern to take the buy trades. Since it is a reversal pattern, it only signals the selling trades. So first of all, find out the uptrend in any currency pair. One more primary thing to remember when trading this pattern is this – After finding a clear uptrend, if you see the market printing the Hanging Man, then try not to trade that pair. Because, in a strong trend, it’s not easy for a single candle to change the direction of the entire trend. But if you find this pattern when the uptrend is a bit choppy, it has higher chances to perform. As we can see in the image below, the uptrend in USD/CHF was not strong enough.

Step 2 - Find out the Hanging Man pattern on your trading timeframe

Some traders use two or three timeframes to trade patterns. But that’s not the right way of pattern trading. If you are an intraday trader, use only lower timeframes to identify the pattern. So the next step here is to find out the Hanging Man in this chart. Also, apply the MACD indicator. For us to go short, the MACD indicator must be in the overbought area.

As you can see in the image below, the USD/CHF Forex pair prints a Hanging Man pattern. This is the first clue for us that the buyers aren’t able to push the market higher. Soon after the crossover happened on the MACD indicator, we can say that this forex pair is in the overbought condition. So now, two forces are aligned, and they are indicating us to go short. Within a few hours, the pair rolls over, and it prints brand new lower low.

Step 3 – Entry, Take Profit & Stop Loss

We go short as soon as we see the Hanging Man candlesticks and MACD indicator at the overbought area, we can go short. In this pair, buyers were quite weak, and this is an indication for us to place deeper targets. As we suggest in every strategy, often close your position at significant support/resistance area, or when the market starts to print the opposite pattern. In this pair, we closed our full trade at 0.9844. Overall it was 7R trade, and we made nearly 140+ pips.

Placing the stop loss depends on what kind of trader you are. Some advanced traders use their intuition to close their positions, while some use logical ways such as checking the power of the opposite party. In this trade, we know that the buyers are not strong enough, so there is no need to use the spacious stop loss.

Difference Between Hanging Man and Hammer Patterns

The Hanging Man and Hammer both look the same terms of size and shape. Both of these patterns have long, lower shadows and small bodies. But the Hanging Man forms in an uptrend, and it is a bearish reversal pattern. Whereas the Hammer forms in a downtrend, and it is a bullish reversal pattern. These two patterns appear in both short and long term trends. Do not use these patterns alone to trade the market. Always use them in conjunction with some other reliable indicators or any other trading tool.

Bottom Line

Most of the professional traders never see this pattern alone as a predictor of a potential trend reversal. Because there will be times when the price action continues to move upward even after the appearance of the Hanging Man. Hence technical indicator support is required to confirm the reversal of the trend. Make sure to stick to the rules of the pattern so that you can use it to your advantage. This pattern forms in all the timeframes, but we suggest you master it on a single timeframe first. Cheers!

Tags candlestick patterns, candlesticks, Forex, Forex Trading, hammer pattern, hanging man, MACD, Technical indicators, trading, Trading Strategies

Forex Economic Indicators Forex Fundamental Analysis

Fundamental Analysis – A Brief Introduction

Post author By Forex Academy
Post date 10 December, 2019
No Comments on Fundamental Analysis – A Brief Introduction

Most traders just focus and use technical analysis (TA) to make trade decisions, but they forget that trading is connected with value. The perceived value of an asset is what makes the market move up and down. And the perception of that value by the market is directly related to the fundamental information available.

Fundamental Analysis is simply a type of market analysis which involves studying the economic or political position of a country in order to be able to assess the relative value of currencies more effectively. In a nutshell, Fundamental analysis is the study of economic factors that influence foreign exchange rates to predict future prices.

Traders studying macroeconomic data of the major economies and try to interpret the economic events, news, and press releases with the aim of predicting future moves a currency can make. Traders must also take into account the microeconomics of a country, such as supply and demand, consumer expending, and unemployment to assess the macro trends in the currency markets and always be on the right side when trading.

Also, the different scheduled news releases that are the benchmark for fundamental analysis can create price shocks in the market when the figures do not match the analysts’ consensus. Therefore, it is critical, also, to keep track of the Economic Calendar to avoid the potential volatility the news event can produce.

So when embarking on doing your own fundamental analysis, there are a few economic indicators considered key underlying drivers. Let’s have a short glance at these basic economic indicators.

The Gross Domestic Product (GDP)

The GDP data is used primarily to gain insight into a country’s economic strength, is calculated annually, and the broadest measure of a country’s economy. It is a representation of the value of all goods and services produced within that country over a defined period of time. The GDP data is one of the Economic Indicators which is closely monitored as it represents a countries contraction or expansion in a straightforward way, allowing the Trader to see whether a country is experiencing rapid growth or going into recession. The GDP growth rates from quarter to quarter can be the driving factors in the performance of a given currency.

Interest rates

The interest rate is one of the most critical factors that drive the Forex market. The interest rate of a country helps us to determine how the central bank is responding to the economic factors present in that country at the time. When a country is experiencing consumer inflation, the central bank will increase interest rates to curb inflation. When a country’s growth weakens, it will reduce the interest rates to spur economic growth. When a central bank changes interest rates, it creates movement in the market. It causes volatility, and if you are armed with an accurate prediction can lead to a beneficial outcome on a specific trade.

Inflation rate

Another piece of fundamental analysis data that one needs to look at is the inflation rate. This is the rate at which goods and services are valued, which changes over time. We measure inflation at both the consumer level and producer level. The producer level is defined as wholesale companies, and the consumer level is defined as households and consumers. A high rate of inflation can cause a currency value to rise as traders anticipate a rise in interest rates. The central bank, to protect consumers from excessive inflation, tends to increase the interest rates. This reduces the spending power that consumers have and thus reducing the price of goods and services.

Unemployment Rate

The unemployment rate is an indication of that country’s workforce that is actively seeking employment or are currently unemployed. If a country has a high unemployment rate, then it would be considered a weakening economy and lead to the currency deprecating. Low unemployment rates indicate a strong economy and increase the demand for the currency.

The Debt-to-GDP Ratio

The debt to GDP ratio is the ratio of the public debt that a country has compared to its Gross domestic product. If a country is unable to pay back its debt, it will default, and a financial panic may erupt. The usual bar set for GDP growth is 77% if it exceeds this amount over an

Balance of trade (BOT).

The balance of trade is defined as the difference between the value of a country’s imports and exports over a set period of time. The BOT is used by economists to measure the strength of a country’s economy. A Sustained trade deficit is considered bad for the economy. Therefore, it will also hurt the valuation of its currency, whereas a strong surplus on the BOT will drive the price of the country’s currency higher.

Current account to GDP

Two components make up a country’s Balance of Payments, the current account, and capital account. The current account consists of the trade balance, the net factor income, and net cash transfers, which are all measured in the domestic currency.
When the account balance of a country is positive, that country is referred to as a net lender to the rest of the world. When the account balance is in the negative, then the country becomes a net borrower to the rest of the world. This ratio of the current account balance to the Gross Domestic Product (or % of GDP) provides the country’s ability to pay back its debt and is an indication of the country’s competitiveness in world markets.

In conclusion, when fundamental analysis data is used correctly, it is an invaluable resource for any forex trader. By looking at the bigger picture of how a country is performing, it gives an insight into how the market will move, allowing you to profit from your trades.

Tags Forex, Fundamental Analysis, trading

Candlestick patterns Forex Daily Topic

Candlestick Trading Patterns III – The Doji, The Most Critical Candle

Post author By Fran S.
Post date 9 December, 2019
No Comments on Candlestick Trading Patterns III – The Doji, The Most Critical Candle

The Doji

The Doji is a special candle, not only because of its striking appearance but also because it is one of the most vital signals in trading. This figure is so important that we need to understand it very well, as it is one of the safest trading signals when properly applied.

Fig 1 – A Doji on a chart

The Doji is characterized by having the open and close at the same level while standing out for its elongated upper and lower shadows. The figure of the Doji has a precise meaning. Buyers and sellers are in a state of mental indecision. The Doji is a powerful sign of trend change. The probability of a turn increases if in addition to the Doji:

The next candles confirm the Doji’s signal
The market is overextended
The chart does not have many Doji.

The perfect Doji has the same open and close values. Nevertheless, if both levels are separated a few pips, and the candle can still be seen as a single line, it can be considered as Doji.

The Doji is a powerful signal to detect market tops. Steve Nison says that a dog is a sign of indecision by buyers, and an upward trend cannot be sustained by undecided traders. Nison also points out that, from his experience, the Doji loses some reversal potential during downtrends. That observation may apply to the stock market but is useless in pairs trading, as they are symmetric. In this case, a bullish trend of a pair is a bearish pare on the inverse pair and vice-versa. So a Doji will always have a similar meaning: The trend is compromised. When trading commodities, indices, or stock ETFs the trader should take this into account, though.

In view that a Doji is such a powerful signal, it is better to act upon it. Better to attend a false signal than ignore a real one. Therefore, dojis are signals to close positions, since a Doji alone does not mean a price reversal.

The Northern Doji

The northern Doji is called a Doji that shows up during a rally. According to Mr. Nisson, ” The Japanese say that with a Doji after a tall white candle, or a Doji in an overbought environment, that the market is “tired.” Therefore, as said, a Doji does not mean immediate market reversal. It shows the trend is vulnerable.

FIg 2 – Down Jones Industrial Average showing northern Doji.

As we can see in the chart above, a Doji after a large candle, as in the first case, is followed by a gap and a drop to the base of a previous candle that surged after a gap. The next Doji we see was an inside bar that just acted as a retracement and continuation. In the third case, we can see two Dojis, the second being a kind of hanging man with no head. In this case, we notice that the third bearish candle is the right confirmation of the trend reversal. It is not uncommon to observe tops depicting several small bodies, one of which is a Doji.

The Long-legged Doji

Fig 3 – Long-legged Doji in a SPY Daily chart.

We already know that a small body and long upper and lower shadows is called a high wave candle. If the figure doesn’t have a body is called “long-legged Doji,” and also called “rickshaw man.” As it happens with high-wave candles, it reflects great confusion and indecision.

Gravestone Doji

The gravestone Doji is the Doji that begins and ends at the low of the day. According to Stephen Bigalow, the Japanese name is set to represent “those who died in the battle.” Gravestone Dojis are a rarity.

Fig 4 – Long-legged Doji in the UK-100 Daily chart.

Dragonfly Doji

The Dragonfly Doji occurs when the price moves down since the open, and then it comes back and closes at the open. When it happens after an uptrend is a variant of a hanging man.

Fig 5 – Long-legged Doji in the DAX-30 Daily chart.

Conclusions

Dojis are important figures that warn trend reversals, especially if it happens at support or resistance levels.

Dojis need confirmation for trend reversals. When that happens, they create morning star and evening star formations. They also are followed by other small bodies, creating a flat top or bottom.

A safe precaution when encountering these figures while a trade is active is to close or reduce the position or, alternatively, tight the stops.

Sources:

Japanese Candlestick Charting Techniques, Second Edition, Steve Nison

Stephen Bigalow, Profitable Candlestick Signals

Tags Candlestick, doji, dragonfly doji, Forex, gravestone doji, long-legged doji, northern doji, Technical Analysis, trading

Forex Elliott Wave

Forecasting with the Elliott Wave Principle

Post author By Eduardo Vargas
Post date 9 December, 2019
No Comments on Forecasting with the Elliott Wave Principle

The analysis and forecast process of any financial asset can support the decision process to take any positioning on the market. However, the time dedicated to developing it could increase the cost of the trade as this grows on time. In this educational article, we will review how to analyze and make a forecast by applying the main concepts of the Elliott Wave Principle.

The Elliott Wave Principle in a Nutshell

R.N. Elliott, in his work The Wave Principle, identified a nature’s law that governs everything, from nature to human socio-economic activities. Elliott comments that the financial markets are the most important socio-economic activity, so, when someone understands that law, he can get forecasts about the phenomena under study, the financial markets, in this case.

In this context, Elliott described that price moves in two types of movements impulses and corrections, and at the same time, the price tends to repeat some specific structures and sequences.

On the one hand, impulsive movements create trends and follow a sequence of five waves. On impulses, three waves move in the direction of the primary trend and two in the opposite direction.

On the other hand, a corrective movement consists of three waves; two of them will be in the opposite move to the main trend.

This eight-waves movement creates a cycle, and when it is complete, a new cycle of the same degree will start. In other words, when a five-waves and three-waves movement is complete, a new cycle of the same extension will take place.

Elliott gave intensive importance to corrections and told us the position of the market and the outlook. Elliott’s experience drove him to identify four main types of corrections as zigzag, flat, irregular, and triangles.

Making Simplifications

In the two latest articles, we discussed how we could simplify corrective patterns in the wave analysis using some chartist patterns as flags and triangles. Also, we commented on how it can help us in our study, reducing the time elapsed to develop a forecast and, finally, a trading plan.

The Analysis Process

The basic methodology to carry on the market analysis is to analyze from a higher to lesser time frame. In other words, we can start the study from a monthly range and finish in the hourly chart. Once we have identified the market structure, we begin to define scenarios that have a probability of occurrence. The scenarios are relevant to the analysis process because, using them, we can evaluate all possible price paths and decide which one of them is the most probable.

The Heating Oil Triangle

The following chart corresponds to Heating Oil in its weekly timeframe. In the figure, we observe the bullish sequence developed in three waves, which began on January 17, 2016, at $0.8552 per gallon. The energy commodity reached its highest level on October 03, 2018, at $2.4496 per gallon.

Once Heating Oil reached its high at $2.4496, the price started to make a bearish move, that found support at $1.6436 per gallon on January 02, 2019.

After that descent, the asset found buyers at $1.6436, Heating Oil’s traders started doing market swings. We can observe this as a triangle structure, as shown in the next daily chart.

According to the Elliott Wave Theory, we know that a triangle structure has five internal segments which follow a 3-3-3-3-3 sequence. However, there is the possibility that the triangle pattern does not build a fifth inner leg.

Now, let us identify some scenarios for the next path on Heating Oil.

Scenario 1:The price moves down and crosses the base-line of the triangle (dark orange arrow), with a first potential profit target at $1.6719, and a second target at $1.4339 per gallon.
Scenario 2 (blue arrow) considers that Heating Oil drops and, then, bounces off from the base-line, but does not surpass the previous high at $2.0994. From there, the price action begins a new bearish wave that would drive the energy commodity to $1.6719 per gallon.
Scenario 3 (black arrow), considers that the price overcomes the resistance determined by the upper-line of the triangle and the invalidation level at $2.1374.

Conclusion

As we discussed in this article, the time dedicated to analyze and forecast a financial market is a valuable resource that could increase or reduce the hidden cost of the potential trade. As occurs in mathematical models, valid simplifications can help the analyst to reduce the time to a decision process.

Flags and triangles are simple and basic formations that can ease the market study.

Finally, the formulation of different scenarios provides a wide range of options about the next potential paths of the price action. Also, these scenarios create different answers facing the question of what if the market does that?

Tags Analysis, Elliott Wave, Forex, Heating Oil, Market Forecast, Technical Analysis, trading

Candlestick patterns Forex Daily Topic

Test your knowledge about Candlesticks

Post author By Fran S.
Post date 5 December, 2019
No Comments on Test your knowledge about Candlesticks

After our discussion about short-bodied candlestick in our article

Candlestick Trading Patterns II – Everything you need to know about Single Candlestick Signals

Here you can test your newly acquired knowledge about the matter. If you haven’t read it, please do so before the quiz.

[wp_quiz id=”51631″]

Reference: The Candlestick Course – Steve Nison

Tags Candlestick, Forex, Quiz, spinning top, Technical Analysis

Forex Daily Topic Forex Elliott Wave

Analysis and Trading with Triangles

Post author By Eduardo Vargas
Post date 5 December, 2019
No Comments on Analysis and Trading with Triangles

In our previous article, we discussed how we could simplify the zigzag and flat pattern by the chartist figure known as a flag. In this educational article, we will see how triangles can be used in wave analysis.

The Background

Within the Elliott wave theory, triangles represent one of the three basic corrective formations. Similarly, in traditional technical analysis, triangles represent consolidation and continuation formations of the trend.

Elliott defined triangles as a formation that have an internal structure subdivided into five waves following a 3-3-3-3-3 sequence. At its time, Elliott identified two triangle variations, which are classified as expansive or contractive.

In general terms, triangles represent the market indecision or the balance between the buying and selling forces.

The following chart shows the model of the triangles in their contractive and expansive variants, under the Elliott Waves theory and Traditional Technical Analysis perspective.

According to the point of view of the traditional technical analysis, we can observe that the triangle pattern is not forced to have five internal segments, as in Elliott’s wave theory. In consequence, a truncated zigzag or truncated flat structure could be simplified by a triangle pattern.

The Trading Setup

The trade configuration of a contracting triangle pattern has the following characteristics:

Entry Level: A buying (or selling) position will be activated if the price exceeds and closes above the swing of the previous top.
Profit Target: The first profit target level will take place at 78.6% of the Fibonacci expansion, while the second will be at 100%, and finally, the third profit target level will be at 127.2%.
Protective Stop: The invalidation level of the trade setup will be located below the lowest swing of the triangle pattern.

The trade configuration of an expansive triangle pattern has the following properties:

Entry Level: The trade will be activated if the price exceeds the height of the expanding triangle.
Profit Target: The first profit target level will be at 100% of the Fibonacci expansion. The second profit target level will be at 127.2%.
Protective Stop: The level of invalidation will be located below the lowest low of the expansive triangle pattern.

Examples

The following chart corresponds to the AUDUSD pair in its 12-hour timeframe. We can observe that the price action developed an expanding triangle formation, which began from mid-May 2019 and culminated in mid-July 2019.

From the chart, we detect that the expanding triangle reached its highest level at 0.70821, which corresponded to a false breakout. Subsequently, the price action resolved the next movement with a drop that took it to plunge until 0.66771.

The sell-side entry was activated once the price closed below the lowest level of the expanding triangle at 0.68317. Once activated the sales position, the price reached the first target at 0.67080.

Another possibility of entry that could be considered would be the closing below the last relevant swing, that is, the closing below 0.69105. This option could provide the trader with a higher profit compared to the risk taken compared to the original entry setup.

The next example corresponds to Silver in its daily chart. From the figure, we observe that the price made a record high early July 2016, reaching $21,225 per ounce, after this, the price action performed a corrective movement, once its found support, Silver built a tight contractive triangle.

After breaking below $18,715, Silver activated a bearish scenario that drove the price to fall to the third bearish target at $15.66 per ounce.

After having fulfilled the third bearish target, the price fell and reached $18.435 on April 17, 2017, where Silver began to build a contractive triangular structure that lasted until the end of June 2018.

Once the downward break of the long-lasting triangle occurred, we see that the price made a limited downward movement, which did not yield below $14 per ounce.

Conclusion

Based on the discussion of this article, we can conclude that regardless of the corrective structures that have three or five internal waves, these can be simplified as triangular patterns. Also, we can observe that a corrective wave or a short-range narrow triangle is likely to have an extended move that, in terms of Elliott’s wave theory, could correspond to an extended wave.

On the other hand, extensive triangular formations, or of a wide range, could lead the price to move in a range not as broad as in the previous case.

Finally, in the last example, we recognize how the alternation principle works in Elliott’s wave theory. Just as the first observed triangle is simple, and has a short duration, and the second corrective formation is extensive and complex.

Tags Chart patterns, Contracting Triangle, Elliott Wave, Expanding Triangle, Forex, Technical Analysis, Trade Setup, trading, triangles

Candlestick patterns Forex Daily Topic

Candlestick Trading Patterns II – Everything you need to know about Single Candlestick Signals

Post author By Fran S.
Post date 4 December, 2019
1 Comment on Candlestick Trading Patterns II – Everything you need to know about Single Candlestick Signals

This article is to be dedicated to single candlestick key figures. The majority of patterns are created by more than one candle, but some particular candlestick shapes are key figures to gauge the market sentiment and spot reversals.

In every one of them we will deal with the following aspects:

Identification of the candlestick
Marker psychology interpretation
Criteria and use

Key Single Candlestick Figures:

Doji
Spinning top
High Wave Candlestick
Hammer
Hanging man
Shooting star

The Japanese traders call the real body “the essence of the price action.” A scientist might call it the Signal part of the message, while the shadows are the nose of the market. The relation between the body and the shadows delivers unique insights into the sentiment of the traders. Shadows show the fight between buyers and sellers to control the price. A large body and small shadows denote that one of the sides has won the battle during that interval. A short body with large shadows after an extended trend indicates the winning herd is losing steam.

Spinning tops and high wave candles

Fig 1 – Spinning tops and High Wave candles

A spinning top is a visual clue for a candle with a tiny body. The color of the body does not matter. A spinning top without a body is called Doji, such as the second one in the figure above. The fourth one is very close to it too.

Market sentiment in spinning tops

A the smaller the body, the larger the fight between bulls and bears. It shows that no one had control of the price during this period, as the sellers pressure the price down and buyers up, a small body means no one could outweigh the other party. The demand is counteracted by fresh supply, and vice-versa, so the market is unable to move.

High Wave Candles

Steve Nison also mentions a close relative to the spinning top, called High Wave Candle. High Wave candles also have very small bodies, but to qualify as High Wave, the formation must also have large shadows on both sides. Shadows need not be of the same size, but they must be large.

Market sentiment in a High Wave Candle

According to Mr. Nison, If indecision is the crucial sentiment on spinning tops, High Wave candles represent “downright confusion.” That is evident because, in the same period, the market goes from the euphory of an extended high to the fear of a large drop, and then to close very near to its opening value. That means total confusion.

Trends and spinning tops

A large white body is like a green light for bulls in an uptrend. A large red body is also a green light to sell. But finding a spinning top in an uptrend means that the buyers do not have the complete control of the price. Therefore, such tops are a warning sign that the trend might be ending. Spinning tops acquire more importance when the price is overextended or close to resistance levels.

Spinning tops during ranging markets do not have any power to warn a trend change, as these stages are too noisy, and filled with lots of small bodies, anyway. Therefore, spinning tops and high waves during horizontal channels have no trading value.

Hammers, Hanging Man, and Shooting stars

Three special cases of spinning tops are the Hammer, the Hanging Man, and the Shooting Star.

Hammer

Fig 2 – Hammer

The hammer has a small real body and a large lower shadow. It is the equivalent of a reversal bar. The price went from the open to the bottom, then it recovered and closed near or at the high of the session. The color of the body has less importance, although a close above the open has more upside implications. The signal is confirmed with a followthrough candle next to it.

Criteria:

The occurrence is after a lengthy downward movement, and the price is overextended.
The real body is at the upper top of the trading range
The shadow must be two times the length of the body. The longer, the better.
No upper or just a tiny shadow
Confirmation with a strong bullish candle, next
A large volume on the candle confirms a bottom.

Hanging Man

Fig 3 – Hanging Man

The hanging man has a similar shape of the hammer, but it shows up after an uptrend. The Japanese named that way because it is similar to the head and body of a man hanging by the neck.

Criteria:

The occurrence is after a significant upward move, and/or the price overextended.
The body is at the upper end of the trading range.
The lower shadow at least two times the height of the body. The color is not essential, but a bearish finish is preferred. the longer the shadow, the better
Tiny or no upper shadow.
Confirmation with a large bearish candle
High volume on the candlestick is indicative of a potential blowoff.

Shooting star

Fig 4 – Shooting Star

The shooting star is a top reversal candlestick and is the specular image to the hanging man. In the case of a shooting star, it began great for buyers, but after the euphory of new highs, it came to the deception of the selling pressure with no demand to hold the price. The close happens at the lower side of the trading range. A bear candle next confirms the trend change.

Criteria:

The upper shadow should be two times the height of the body. The larger, the better.
The real body is at the bottom of the trading range.
Color is less important, although a red candle implies more bearishness.
Almost no lower shadow.
A large volume would give more credibility to the signal.
A bear candle next is the confirmation of the change in the trend.

Reference: Steve Nison: The Candlestick Course

Profitable Candlestick Trading, Stephen Bigalow

Tags candle, Candlestick, doji, Forex, hammer, hanging man, high wave, shooting star, spinning top, Technical Analysis, trading

Candlestick patterns Forex Daily Topic

Candlestick Trading Patterns I – The Story

Post author By Fran S.
Post date 3 December, 2019
No Comments on Candlestick Trading Patterns I – The Story

The Financial markets are an exciting place for many people, attracted by dreams of infinite wealth. However, these markets are one of the most complicated environments on earth. The fact that millions of people exchange assets in financial markets makes them very difficult to predict, as each of the participants has its own vision, interests, and objectives.

Fundamental versus Technical

In the past, fundamental analysis was the only tool that allowed investors to detect whether a value was overvalued or undervalued. That gave them the keys to future trends, and to be able to overtake other investors with less information.
Then, at some point, the theory arises that the analysis of price history shows everything necessary for an informed investment. According to this theory, launched by Charles Dow, the price is already included in the fundamental analysis, since the chart is the trace left by investors about the consensus value of the good.

That said, there is a consensus that fundamental analysis is still necessary to detect the macro trend and to position the buying and selling actions in favor of the primary trend, while technical analysis is essential to generate the timing of trading activities.

Fig 1- Old NY Stock Exchange price table and Average chart. Source (https://pix-media.priceonomics-media.com/blog/1230/image04.png)

Chartism was encouraged in the early 1970s and 1980s by the emergence of personal computers, which allowed graphs to be automatically generated, instead of manually drawn, and also analyzed in time frames shorter than the daily.

The OHLC Chart

The technical analysis popularized the use of OHLC graphs that not only indicated the closing value of each interval but also gave the opening, maximum, and minimum data. This allowed chartists to observe the range of movements of the period and obtain an assessment of the volatility.

Fig 2- OHLC Chart in its classical B&W style.

The use of OHLC charts was a big advancement in the analysis of the price action. Soon analysts began to define profitable patterns such as reversal bar, key reversal bar, Doble and triple tops and bottoms, head and shoulders pattern round bottoms, Cup and handle, and many more.

Candlestick Charts

A centuries-old hidden way to analyze the markets came from Japan helped by Steve Nison’s studies of candlestick charting methods. According to him, centuries back, Japanese merchants were at the bottom of Japan’s social scale, well below soldiers, artisans, and farmers. But a prominent merchant began rising in status by the XVIIth century. His name was Munehisa Homma. At that time rice was a medium of exchange. Feudal Lords would store it in Osaka’s warehouses to, then, exchange the receipts when it was convenient for them, thus, becoming a de-facto futures market. Homa’s trading techniques, which included analysis through a primitive form of candlestick charts to gauge the psychology of the marker would earn him an immense fortune.

Fig 3- Candlestick Chart in its modern colorful style.

The major advantage of a candlestick chart over an OHLC chart is the ability to assess at a glance the overall trend and, also many hints about the current sentiment or psychological mood of the trader collective. Color is key to assess the current trend. Also, large bodies signify genuine momentum, short bodies and large wicks mean indecision and fight between buyers and sellers to control the price action.

Candlestick Patterns

Many of the western analysis methods can be applied also to candlestick charts, but these Japanese charts have brought a brand new batch of new patterns to assess market turns and continuations. We will try to cover most of them, including obviously all major trading candlestick patterns such as Morning and evening stars, haramis, engulfing, three soldiers, and so on.

To refresh your basic knowledge of candlesticks, we recommend the following articles:

https://www.forex.academy/all-you-need-to-be-introduced-to-trading-charts-part-1-line-bar-and-candlestick-charts/

https://www.forex.academy/facts-about-candlesticks-you-never-knew/

https://www.forex.academy/dissection-of-candlestick/

https://www.forex.academy/candlestick-charts-and-its-advantages-in-financial-trading/

Tags candlesticks, crypto analysis, Forex, Technical Analysis, trading

Forex Elliott Wave

Corrective Waves and the Flag Pattern

Post author By Eduardo Vargas
Post date 3 December, 2019
No Comments on Corrective Waves and the Flag Pattern

Is it possible to simplify the wave analysis and compare it with classic chartist patterns? Identifying Elliott Wave patterns can seem confusing, especially if you are looking to differentiate between a flat or a zigzag pattern. In this educational article, we will look at some of Elliott’s patterns and compare them to traditional chartist figures.

The Normal Zigzag, Flat and the Flag Pattern

In the Elliott wave theory, the zigzag and the flat pattern are formations built by three internal waves. At the same time, depending on the strength of the corrective move, these could be more or less profound. The following figure shows the comparison between a normal corrective wave, which can be a zigzag or flat, and the flag pattern.

If we remember the wave theory, a zigzag pattern follows a 5-3-5 sequence, and the flat structure, a 3-3-5 internal subdivision. However, both formations can be simplified as a three-legs formation. Now, as we can see in the previous figure, the normal Zigzag and Flat structures can be simplified by a flag pattern.

The flag pattern is a chartist figure that represents a pause of the market trend and usually resolves as a continuation of the previous movement. The same situation occurs with the zigzag and flat pattern.

The flag pattern is spotted by a descending (or ascending) move, which connects in a tight range, its highs, and lows within a parallel channel.

The following chart exposes a series of flag formations detected on the GBPJPY cross in its 12-hour range.

On the figure, we observe that Flag patterns are commonly found in financial markets. According to Thomas Bulkowski’s publication, the flag pattern has a break-even or failure rate below 4%, which converts it as a “pretty nice” pattern to trade.

Flag Pattern Trade Setup

The flag trade setup is similar to the zigzag of flat configuration.

Entry: The trade is triggered once the price surpasses the end of wave “B,” or the previous swing high or low.
Protective Stop: The trade will be invalid if the price drops below the low of the flag.
Target: We will determine the profit target level using the Fibonacci expansion tool. The first target will be at the 100% level, as a second target at 127.2%, and the third profit target level will place at 161.8%

Putting All-together

The following chart illustrates the GBPCHF in its 8-hour range. In early January 2019, the cross developed a rally from 1.2248, which drove to the price until 1.2573. Once reached this high, the price action formed a corrective move in three waves. The bullish position was activated once price action surpassed the previous swing at 1.2524.

After the breakout, the price rallied over the three profit targets proposed. Note how the price runs when the flag pattern is tight and high, and the difference when the flag is broad in terms of price and time.

Conclusion

From the analysis realized, we conclude that a corrective structure as a normal zigzag or flat formation can be simplified as a flag pattern. This simplification could aid the traders in reducing the time analysis elapsed to the decision process before to place an order.

The confidence level of this pattern as a continuation figure could contribute to reducing the risk in the trading process.

Tags Chart patterns, Elliott Wave, Flag Pattern, Flat Pattern, Forex, Technical Analysis, trading, Trading setup, Zig-zag pattern

Forex Psychology

What Wastage of Time!

The H4-H1 combination is one of the best combinations to trade for intraday traders. The H4 chart is the most consistent intraday chart in the Forex market. The H1 chart integration with the H4 chart offers many reliable entries. However, it is often seen that the H4 chart doest its part, but the signal never comes on the H1 chart. In today’s lesson, we are going to demonstrate an example of an H4-H1 chart combination, which is about to give us entry, but it ends up not producing a trading signal. Let us find out how the story goes.

The price after being bullish on the H4 chart, it has several rejections at a level. The last bearish candle gets rejected at a Double Top resistance. The sellers are to flip over the H1 chart and wait for the H1 consolidation and H1 bearish breakout to go short. However, it is an Inside Bar. It may not attract the sellers that much. Let us proceed to the next chart.

This is the H4 chart, as well. The price does not head towards the South on the H1 chart. It rather produces an H4 bullish candle followed by an H4 bearish engulfing candle. This time it may attract more sellers to be keen on selling opportunities. They are to flip over to the H1 chart again. Let us have a look at how the H1 chart looks.

This is the H1 chart. The last candle comes out as a bearish engulfing candle. The sellers are to stick with the chart to wait for consolidation and to get a breakout to go short. The waiting game starts.

The price keeps going towards the South without having any consolidation. Since the sellers do not find new resistance, thus there is no entry for them yet. Let us not give up but wait for consolidation.

The consolidation starts, but it does not make any H1 breakout to make the new lowest low. It rather finds a level of support where it has several bounces. It is a ‘Double Bottom’ support. The way things look now, it may head towards the North if the price breaches the neckline. All anticipations and hopes have gone in vain. Some traders may think, “what wastage of time.”

If you think it is a wastage of time, you are far away from being a professional trader. 70% of your trade setup like this may end up not offering an entry. Never think it is a waste of time. Take it easy. Each potential setup does not offer an entry. Concentrate and find out more setups in other pairs. It must be round the corner.

Tags Breakout, consolidation, Forex, Forex price action, Price Action, Technical Analysis, trading

Forex Market Forex Risk Management

These Are Some Of The Best Position Sizing Techniques You Should Know!

Post author By Reddy Shyam Shankar
Post date 2 December, 2019
No Comments on These Are Some Of The Best Position Sizing Techniques You Should Know!

Introduction
In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which

Introduction

In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which are very important. In this article, let’s determine how one can position themselves in the forex market based on three different models. Each of these has its own merits that impose some sort of position sizing discipline in traders.

The three core position sizing techniques in terms of risk are:

Fixed lot per amount
Percentage margin
Degree of volatility

These models can be applied to all the asset classes and are time frame independent.

We suggest you stick to one model to estimate the position size or at most two position sizing techniques. Following every given method will increase complexity, and that is not good for a trader.

Fixed Lot Per Amount

This is a fairly simple model. It requires a trader to simply state how many lots he is willing to trade for a given amount of capital. For example, let us assume a trader is having $2000 in his trading account, and he trades only the major currency pairs like EUR/USD, GBP/USD, GBP/JPY, USD/JPY, etc.

The trader simply needs to make a thumb rule that he/she will not trade more than one standard lot of futures (of major currency pairs) per $2000 at any given point.

The lot size can also be determined based on their risk appetite and money management principles. This technique of ‘fixed risk’ is based more on the discipline than strategy.

Percentage Margin

This position sizing technique is more structured than the ‘Fixed lot per amount’ technique, especially for intraday traders. It requires a trader to position themself based on the margin. Here, a trader essentially fixes an ‘X’ percentage of their capital as margin amount to any particular trade. Let’s see how this works with the help of an example.

Assume a trader named Tim has a trading capital of $5000; with this, he decides not to expose more than 20% as margin amount on a particular trade. This translates to a capital of $1000 per trade.

Now, if Tim gets an opportunity in another currency pair, he would be forced to let go of this margin as it would double to 40% (20% + 20%). This new opportunity will be out of his trading universe until and unless he increases his trading capital. Hence, one should not randomly increase the margin to accommodate opportunities.

The percentage margin ensures a trader pays roughly the same margin to all positions irrespective of the forex pair and volatility. Otherwise, they would end up in risky bets and therefore altering the entire risk profile of their account.

Degree Of Volatility

The degree of volatility accounts for the volatility of the underlying asset. To measure volatility, we make use of the ATR indicator, as suggested by Van Tharp. This position sizing technique defines the maximum amount of volatility exposure one can assume for the given trading capital.

Below we have plotted the ATR indicator on to the USD/JPY forex chart.

The 14-day ATR has a peak and then a decline, which shows a decrease in volatility. As you know that high volatility conditions are the best times to trade (less slippage, high liquidity, etc.), you can risk up to 5% of your trading capital on the trade while one should not risk more than 1% when the ATR is at the lowest point. Do not forget the risks involved while trading highly volatile markets. Only use this position sizing technique when you completely trust your trading strategy.

Conclusion

A trader should not risk too much on any trade, especially if their trading capital is small. Remember, your odds of making a profit are high when you manage your position size and risk the right amount on each of the trade you take.

Beginners should trade thin to get experience with open positions, so they can assess the stress of a loss and gradually increase the position size as he is comfortable with the strategy results and performance. As a matter of fact, this is also the right way to proceed when trading live a new strategy, be it a beginner or an experienced trader.

Cheers!

Tags ATR, money management, Percentage Margin, Position Size, risk, Risk management, RRR, slippage, Volatility

Forex Elliott Wave

How to Use ETFs to Create Spreads

Post author By Eduardo Vargas
Post date 29 November, 2019
No Comments on How to Use ETFs to Create Spreads

Exchange-Traded Funds, or better known as ETFs, are investment instruments that are traded in a centralized market. In this educational article, we will see how we can use them to

Exchange-Traded Funds, or better known as ETFs, are investment instruments that are traded in a centralized market. In this educational article, we will see how we can use them to create negotiating opportunities.

Exploring Markets and Diversification

In financial markets, there are virtually unlimited possibilities for investment. Decisions such as what to buy? What to sell? As well as the geographical region, level of risk, liquidity of the market or assets, expected profitability, among other aspects, are factors that an investor can face when planning his future investment.

Use of Intermarket Spreads

In simple words, a spread is a strategy on which the investor buys one market and sells another market simultaneously. For example, in the currency market, an investor could buy a contract of €100,000 and simultaneously sell a 100,000 euro on pounds sterling. In other words, this trade is equivalent to go long in the EUR/GBP spread.

Creating a Spread with ETFs

We can create different spreads according to the market in which we are interested in investing. To this end, the decision criteria will be those ETFs with higher liquidity. The following tables represent ETFs that are associated with commodities, particularly Gold and Silver.

Table 1 – ETFs Based on Gold

Table 2 – ETFs Based on Silver

From tables 1 and 2, we see that ETFs GLD and SLV record the largest size in each group. Consequently, they will be used for the construction of the GLD/SLV spread.

The GLD/SLV spread in its daily chart shows both precious metals developing a corrective structure as a B wave. Therefore, the Gold/Silver spread could see a new low. In other words, we expect a decline in GLD and an upside in SLV.

The following example shows the spread between SPY and QQQ in its daily chart. The ETF SPY is characterized by replicating the S&P 500 index, while QQQ replicates the NASDAQ 100 index.

In the spread graph SPY/QQQ, we detect that the price is developing an Ending Diagonal structure in a bearish cycle. Also, although QQQ continues to push downwards in front of the SPY, it should be noted that this pattern is an exhaustion formation. Thus, it is likely that these markets reverse soon. In this case, the positioning strategy would be a long position in SPY and another short position in QQQ.

Conclusion

After the analysis made here, you may see that everything traded, including pairs, can be considered as spread bets between an asset the underlying payment method. It is just that, considering the relative stability of fiat money it makes more sense to use the term spread when exchanging two volatile assets, as one of the main objectives of spread bets is to tame the overall market volatility since the investor is selling and buying volatility at the same time.

According to what here is exposed, the creation of spreads can help explore the strength/ weakness situation between markets. Likewise, the exercise could help to make decisions on which assets to choose. It should be emphasized that before entering a market, the spread’s price action must confirm the movement that is predicted.

Finally, this type of analysis can be extended to the futures market between futures contracts with different or similar expirations. This kind of analysis can also be applied in the stocks market, bonds, etc.

Tags Elliott Wave, ETFs, Forex, GLD, Intermarket Analysis, QQQ, SLV, Spreads, SPY, Technical Analysis, trading

Forex Psychology

Having the Mindset to Deal with a Frustrating Situation

Post author By Tareq Sikder
Post date 29 November, 2019
No Comments on Having the Mindset to Deal with a Frustrating Situation

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out

Patience is one of the most essential components of Forex traders. Traders are to keep patience in every single second. Before triggering an entry, a trader is to find out a trend, key levels, momentum, news events, etc. After all this hard work, he may not be able to take the entry. It is frustrating, but for Forex traders, it is a usual thing. A trader must accept it simply. In today’s lesson, we are going to demonstrate an example of that.

The price heads towards the South; it consolidates and heads towards the North. The price breaches a level of resistance, which the buyers are to keep an eye at for a bullish reversal. Let us proceed to find out how the next chart looks.

The buyers were waiting for the red-marked level to hold the price and produce a bullish reversal. If the level had held the price and pushed the price towards the North breaching the highest high, the buyers would have taken a long entry. They must have waited eagerly, but all went in vain.

The price headed towards the South further and found its support. After finding the support, it heads towards the North again. On its way, it makes a breakout at the highest high of the last bearish wave. The buyers are to keep an eye on this pair again to find a long entry. To take the long entry, the price is to come back at the breakout level, to produce a bullish reversal candle, and to breach the highest high of the last wave.

This time it looks good. A candle closes within the level of support. The buyers are to keep an eye to get a bullish reversal candle first. This means they have to be patient again. Let us proceed to find out what happens next.

The level produced a bullish reversal candle, but it did not breach the highest high. It instead came down and breached the support level. In a word, all efforts have gone in vain. What wastage of time!

The Bottom Line

If you want to take trading seriously as a business or a consistent source of income, you must not think that it is a wastage of your time. It is an investment. Traders must be patient and not be frustrated when opportunities are lost or do not come as per expectation. They must deal with it professionally.

The bad thing is it does not come with practice or experience. The good thing is it is all about mindset. Even a beginner may have a mindset to deal with a situation like this, whereas it might frustrate a trader with five years of experience. We must remember that if it frustrates too much, it hurts trading performance.

Tags Basics of Forex, Breakout, Forex, forex education, Forex psychology, Resistance, Technical Analysis, Trade Setup

Forex Elliott Wave

The USDJPY and its 3-Year Triangle

Post author By Eduardo Vargas
Post date 27 November, 2019
No Comments on The USDJPY and its 3-Year Triangle

The triangle is one of the three basic corrective patterns along with the Flat structure, with more variations within Elliott’s Wave Theory. In this educational article, we will review the

The triangle is one of the three basic corrective patterns along with the Flat structure, with more variations within Elliott’s Wave Theory. In this educational article, we will review the basic concepts of the triangle pattern and then apply it to the USDJPY pair.

The Fundamentals

Triangles are one of the three basic corrective formations described by R.N. Elliott. Five internal segments characterize them. The inner legs overlap and follow an internal sequence as 3-3-3-3-3.

The following figure shows the different types of triangles. By simplification, we omitted the internal structure of each segment that composes the triangle pattern.

We should consider the nature of the triangle, a balance between the buying and selling forces. In this context, and under a conservative approach to trading, it is not desirable to trade within this internal structure. However, the breakout of price action across the wave (D) can provide a reliable entry to the market with reduced risk.

The 3-Year Triangle of USDJPY

The following chart corresponds to the USDJPY pair in its weekly timeframe, using a log scale. We observe the price action on the Japanese currency developing a Contracting Triangle structure that began at the end of 2016.

The next chart shows the USDJPY moving in a 12-hour timeframe. The pair shows the last internal segment corresponding to a wave (E) of Intermediate degree labeled in black.

At the same time, in the last figure, we can distinguish the price action developing an Expanding Triangle formation in a wave C of Minor degree labeled in blue. However, the RSI oscillator reveals in its progress the shape of a contractive triangle pattern.

It should be noted that when the price action develops an Expansive Triangle in a wave C, the pattern should correspond to an Expansive Diagonal formation. Remember that a diagonal pattern has five internal waves overlapped one with another. At the same time, each inner leg holds three segments.

Trading the USDJPY Triangle

The USDJPY pair in its 12-hour chart shows an incomplete expansive diagonal. Consequently, positioning on the long-side could still have endeavored with a short-term objective placed in the upper trendline of the diagonal. A likely target area would be between 109,716 and 110,551.

Considering that the invalidation level of the bullish segment is the bottom of the wave ((iv)) in green at 108,242, the breakdown and close of the price below this level could give us the first bearish scenario with a target at the end of the wave B labeled in blue located at 106,625.

Now, if the USDJPY price continues extending its falls below the end of wave C in blue and (D) in black located at 104,446, a major-degree bearish scenario would be activated. Under this context, the pair could see the psychological support of 100 yen per dollar.

Conclusions

Depending on the trader’s style and its risk aversion, the internal structure of the triangle pattern could be traded one timeframe shorter than the time frame in which the triangle has been identified.

We must remember that the internal structure of the triangle follows a sequence 3-3-3-3-3. Under this context, a three-wave corrective structure can be a Flat pattern (which has a subdivision 3-3-5); or it can also be a zigzag pattern (5-3-5). Therefore, an internal wave C could give a trading opportunity. However, knowing the nature of the triangle pattern, and considering it is formed by the struggle between buyers and sellers, the targets of the movements anticipated should be limited by the triangle formation.

Tags Contracting Triangle, Elliott Wave, Expanding Diagonal, Expanding Triangle, Trading setup, Triangle Pattern, USDJPY

Forex Psychology

Experiencing a Losing Trade

Post author By Tareq Sikder
Post date 25 November, 2019
No Comments on Experiencing a Losing Trade

A losing trade hurts. Beginners find it tough to encounter losing trades. However, in the Forex market, losing is inevitable. The market is so action-packed that even an experienced trader

A losing trade hurts. Beginners find it tough to encounter losing trades. However, in the Forex market, losing is inevitable. The market is so action-packed that even an experienced trader often makes mistakes. Sometimes, even a good entry may not get us any profit. In today’s lesson, we are going to demonstrate an example of a good entry, which ends up being a losing trade in the end.

The price heads towards the North and makes a pullback. Traders are to wait for an upside breakout to take a long entry. A bullish Engulfing candle follows a Doji candle. As things stand, the buyers are to take the control soon upon an upside breakout.

Things are different now. The price comes down instead, by making a Double Top. It starts having the correction as well. Consolidation and bearish breakout shall attract the sellers to go short on the pair. Let us see the next chart.

The chart shows that the price is having a correction, where it had a bounce earlier. The equation is very simple here. A bullish reversal attracts the buyers, and a bearish breakout attracts the sellers to go short.

It makes a bearish breakout. The breakout candle looks good. As far as price action and candlestick pattern are concerned, this is an A+ short entry. Concentrate on the marked Stop Loss and Entry levels.

The next candle comes out as a bullish candle. The price may take out some of our entries because of the spread factor. With some brokers, traders pay more spread. Some of our trade (the same entry) may still survive. However, let us not get into this argument but proceed to the next chart. The following chart has an interesting scenario to present.

This should conclude the argument. The price hits the Stop Loss and heads towards the South again. The entry looks to be an A+ entry, but it has ended up bringing us a loss. As usual, beginners with average knowledge of price action may think that something must be wrong with his strategy.

This is not the case. An entry like this would bring us profit at least on 70% occasions. It hurts more since the candle, which hits our Stop Loss itself a strong bearish candle. This is how this market plays. We have to accept it. We must not let our losing trades occupy our thoughts. It is a game of probability of winning and losing. With knowledge, experience, and hard work, a trader can increase the likelihood of winning for sure.

Tags Breakout, Forex, Forex price action, Price Action, stop-loss, Technical Analysis, trading

Forex Elliott Wave

Dollar Index and the Alternation Principle

Post author By Eduardo Vargas
Post date 24 November, 2019
No Comments on Dollar Index and the Alternation Principle

In our article “Impulsive Waves Construction – Part 1,” we introduced the concept of “alternation.” In this educational article, we’ll apply this concept to the Dollar Index Analysis.
The

In our article “Impulsive Waves Construction – Part 1,” we introduced the concept of “alternation.” In this educational article, we’ll apply this concept to the Dollar Index Analysis.

The Alternation Principle

Just as the Wave Principle obeys a law, alternation is also the law of nature. We can observe this law both in the universe as human activities. Just as the seasons of the year or the phases of the Moon alternate, socio-economic activities also alternate.

There is probably no other activity that has devoted as many resources to its study as financial markets. An example where we can observe the principle of alternation is in the U.S. Dollar Index.

Application in the Dollar Index

The U.S. Dollar Index (DXY), in its daily chart, illustrates the bullish sequence he developed since it found buyers on February 16, 2018, and drove to the price from 88.25 until 99.67 on October 01, 2019.

From the chart, we can observe how DXY performed the rally in two stages. In each phase, we see how the advance alternates in both price and time. In particular, the first rally was run in 180 days and advanced by about 9.9%. The second tranche lasted 376 days and increased by 6.22 percent.

Our reader can observe the same situation in the daily chart of the EURGBP cross, which was discussed in the educational article “How to analyze a fast market using the Elliott Wave Principle.”

Looking at the second chart, our reader can appreciate how price and time alternate their relationship in the EURGBP cross.

Alternation and the Analysis Process

An approach to simplify the analysis process consists of identifying different parts of the movement developed by the market and analyze it part by part. The next DXY daily chart illustrates this process.

The following 4-hour chart exposes the advance developed by the Dollar Index once it found buyers at level 88.25.

From the chart, we observe a first impulsive upward movement labeled ((i)) in black, which developed five waves of a lesser degree. Once DXY completed the first wave, the price corrected by a wave ((ii)), which is divided into three internal segments labeled as (a), (b), and (c) in blue.

Within the corrective structure, alternation over time can be distinguished. For example, the wave (a) in blue ended in 23 bars, the wave (b), in turn, was developed in 57 bars. Finally, the wave (c) took 26 bars to finish. This time difference reflects the principle of alternation in terms of simplicity and complexity of each segment that composes the price movement.

The following chart shows how the action of the price alternates in the waves (ii) and (iv) in blue. In the wave (ii), the corrective movement of DXY developed in 43 bars, while the wave (iv) was completed in only 19 bars.

Conclusions

Based on the case studied, we can recognize how the principle of alternation is reflected in the financial markets and different temporalities. This application in different time frames allows us to identify the concept of “market fractality.”

On the other hand, we can observe how the market alternates not only in a price dimension but also in time. In other words, the progress of the market must be studied concerning both price and time.

Finally, if the range of a movement is narrow and has a relatively long duration, the next move will likely be broad in terms of price motion and shorter in length.

Tags Alternation, Case Study, Elliott Wave, Forex, Fractality, Technical Analysis, trading, US Dollar Index

Forex Risk Management

Basics of Risk To Reward Ratio In Forex Trading

Post author By Reddy Shyam Shankar
Post date 22 November, 2019
No Comments on Basics of Risk To Reward Ratio In Forex Trading

Introduction
The Risk to Reward Ratio is one of the most critical aspects of risk management in Forex trading. Traders with a clear understanding of what RRR is can improve

Introduction

The Risk to Reward Ratio is one of the most critical aspects of risk management in Forex trading. Traders with a clear understanding of what RRR is can improve his/her chances of making more profits. In this article, let’s discuss the fundamentals of Risk to Reward ratio with examples and also the ways through which it can be increased while taking your trades.

What is the Risk to Reward Ratio?

Before getting right into the topic, let’s define the meaning of ‘Risk’ here. Risk is the amount of money that a trader is willing to lose in a trade. If you have read our previous money management articles, we mentioned that a trader should not be risking more than 2-3% of their trading capital in each trade. It means when they find a trade setup, they should choose their position size in such a way that if the market hits their stop-loss, they lose a maximum of 2-3% of their trading capital.

Now, the Risk to Reward Ratio is simply the ratio between the size of your stop-loss to the size of your target profit. Let’s say your stop-loss is five pips away from your entry price and your target profit is ten pips away from the entry. In this case, your risk to reward ratio is 1:2 (5 Pips/ 10 Pips).

The larger the profit against the stop loss, the smaller the risk to reward ratio. Which means your risk is a lot smaller than your reward.

What is the recommended risk to reward ratio in the forex market?

Typically, a minimum of 1:1 or 1:2 RRR is recommended for novice traders. There are super conservative traders where they look for a minimum RRR of 1:5.

The risk to reward in every trade cannot be fixed as it varies depending on the market condition. For example, 1:3 or 1:5 RR ratio is achievable when the market is trending, and you enter the market at the right time. Whereas when the market is not very volatile, we should be happy with a risk to reward ratio of 1:1.

How to increase the risk to reward (RR) ratio?

🏳️ Raising target and putting stop-loss to breakeven

A trader can think of raising the target if the market moves to the initial take-profit quickly. This is because when the market moves so fast, it has the potential to move further, thereby increasing the profits.

🏳️ Finding trade setups from the larger time frame

Another way to increase the risk to reward (RR) ratio is by taking the strong trade setups from the higher time frames like daily, weekly, and monthly. We need to wait for such strong trade setups to form. Once formed, the price will move for hundreds of pips, and so we can have wide targets.

Final words

Higher the RRR, the better it is, and of course, higher RRRs are more challenging to achieve. So, do not forget to keep the expectations real and the risks appropriate. You do not have to avoid perfect trades just because the RRR is not as high as 1:5. Make sure to do proper risk management before placing a trade. Never trade with a risk to reward ratio that is too less and try to maximize it as much as possible. Cheers!

Tags money management, Position Size, ratio, Risk management, Risk To Reward, RR, RRR, stop-loss

Forex Basic Strategies Forex Fibonacci

Perfecting The Fibonacci Retracements Trading Strategy

Post author By Reddy Shyam Shankar
Post date 22 November, 2019
No Comments on Perfecting The Fibonacci Retracements Trading Strategy

Introduction
The Fibonacci tool was developed by Leonardo Pisano, who was born in 1175 AD in Italy. Pisano was one of the greatest mathematicians of the middle ages. He brought

Introduction

The Fibonacci tool was developed by Leonardo Pisano, who was born in 1175 AD in Italy. Pisano was one of the greatest mathematicians of the middle ages. He brought the current decimal system to the western world ( learned from Arab merchants on his trips to African lands). Before that, mathematicians were struggling with the awkward roman numerical system. That advancement was the basis for modern mathematics and calculus.

He also developed a series of numbers using which he created Fibonacci ratios describing the proportions. Traders have been using these ratios for many years, and market participants are still using it in their daily trading activities.

In today’s article, we will be sharing a simple Fibonacci Retracement Trading Strategy that uses Fibonacci extensions along with trend lines to find accurate trades. There are multiple ways of using the Fibonacci tool, but one of the best ways to trade with Fibonacci is by using trend lines.

With this Fibonacci trading strategy, a trader will find everything they need to know about the Fibonacci retracement tool. This tool can also be combined with other technical indicators to give confirmation signals for entries and exits. It also finds its use in different trading strategies.

Below is a picture of the different ratios that Leonardo created. We will get into details of these lines as we start explaining the strategy.

Strategy Prerequisites

Most of the charting software usually comes with these ratios, but a trader needs to know how to plot them on the chart. Many traders use this tool irrespective of the trading strategy, as they feel it is a powerful tool. The first thing we need to know is where to apply these fibs. They are placed on the swing high/swing low.

A swing high is a point where there are at least two lower highs to its right
A swing low is a point where there are at least two higher lows to its right

If you are uncertain of what the above definitions meant, have a look at the below chart.

Here’s how it would look after plotting Fibonacci retracement on the chart.

In an uptrend, it is drawn by dragging the Fibonacci level from the swing high all the way to swing low. In case of a downtrend, start with the swing high and drag the cursor down to the swing low. Let’s go ahead and find out how this strategy works.

The Strategy

This strategy can be used in any market, like stocks, options, futures, and of course, Forex as well. It works on all the time frames, as well. Since the Fibonacci tool is trend-following, we will be taking advantage of the retracements in the trend and profit from it. Traders look at Fibonacci levels as areas of support and resistance, which is why these levels could be a difference-maker to a trader’s success.

Below are the detailed steps involved in trading with this strategy

Step 1 – Find the long term (4H or daily time frame) trend of a currency pair

This is a very simple step but crucial, as well. Because we need to make sure if the market is either in an uptrend or a downtrend. For explanation purposes, we will be examining an uptrend. We will be looking for a retracement in the trend and take an entry based on our rules.

Step 2 – Draw a line connecting the higher lows. This line becomes our trendline.

The trend line acts as support and resistance levels for us. In this example, we will be using it as support.

Step 3 – Draw the Fibonacci from Swing low to Swing high

Use the Fibonacci retracement tool of your trading software and place it on swing low. Extend this line up to the swing high. Since it is an uptrend, we started with a 100% level at the swing low and ended with 0% at the swing high.

Step 4 – Wait for the price to hit the trend line between 38.2% and 61.8% Fibonacci levels.

In the below-given figure, we can see that the price is touching the trend line at two points (1 and 2). There is a significant difference between the two points. At point 1, the price touches the trend line between 78.6% and 100%, whereas, at point 2, the price touches the trend line between 38.2% and 61.8%.

The region between 38.2% and 61.8% is known as the Fibonacci Golden Ratio, which is critical to us. A trader should be buying only when the price retraces to the golden ratio, retracements to other levels should not be considered. Therefore, point 2 is where we will be looking for buying opportunities.

Step 5 – Entry and Stop-loss

Enter the market after price closes either above the 38.2% or 50% level. We need to wait until this happens, as the price may not move back up. However, it should not take long as the trend should continue upwards after hitting the support line.

For placing the stop loss, look at previous support or resistance from where the price broke out and put it below that. In this example, stop loss can be placed 50% and 61.8% Fibonacci level because if it breaks the 50% level, the uptrend would have become invalidated. The trade would look something like this.

Final words

The Fibonacci retracement tool is a prevalent tool used by many technical traders. It determines the support and resistance levels using a simple mathematical formula. Do not always rely only on Fibonacci ratios, as no indicator works perfectly alone. Use additional tools like technical analysis or other credible indicators to confirm the authenticity and accuracy of the generated trading signals. One more important point that shouldn’t be forgotten is not to use Fibonacci on very short-term charts as the market is volatile. Applying Fibonacci on longer time frames yield better results.

We hope you find this strategy informative. Try this strategy in daily trading activities and let us know if they helped you to trade better. Cheers!

Tags Fibonacci, Fibonacci ratios, Forex Trading, Leonardo Pisano, retracements, Strategy, Swing High, Swing Low, Trading Strategies

Forex Daily Topic Forex Psychology

A Strategic Plan for Trade Management

Post author By Fran S.
Post date 20 November, 2019
No Comments on A Strategic Plan for Trade Management

I’ve already stated my view that most wannabe traders put their focus in technical analysis of the market and on trading signals, mostly provided by others, hopefully, more knowledgeable than

I’ve already stated my view that most wannabe traders put their focus in technical analysis of the market and on trading signals, mostly provided by others, hopefully, more knowledgeable than themselves.

The issue is that any advice, no matter how good it is, is worthless to most of the beginners because the problem is 10% of the success as a trader is entries, 20% exits, including stops and targets, and 70% is the rest of overlooked themes.

The overlooked themes, all of them has to do with the trader’s psychology:

Lack of a strategy
Overtrading
Not following the plan
- Skipping entries or exits
- let losses grow to wait for a reversal
- cut profits short, afraid of a reversal…

Every one of these subjects is critical, but if you make me choose, I’d say that overtrading is the worst evil that happens to a novice trader. Improper position sizing kills the majority of the Forex trading accounts. This trait is also linked to the cut profits short, let losses run character flaw, so let’s do create a basic strategic plan to help traders with a basic trade management plan.

Emotional Risk

For the following plan to work, the trader needs to accept the risk. It is easy to say but challenging to do. Mark Douglas, in his book Trading in the Zone, explains that “To eliminate the emotional risk of trading, you have to neutralize your expectations about what the market will or will not do at any given moment or in any given situation.”

That is key. You cannot control the market. You can only control yourself. You need to think about probabilities. Create a state of mind that is in harmony with the probabilistic environment. According to Mark Douglas, a probabilistic mindset consists of accepting the following truths:

Anything can occur.
To make money, there is no need to know what will happen next
It is impossible to be 100% accurate. Therefore there is a win/loss distribution for any strategy with a trading edge.
An edge is just a higher probability of being right against a coin toss (if not, the coin toss would be a better strategy)
Every moment in the market is unique. Therefore
A chart pattern is just a very short-term approximation to a statistical feature, therefore less reliable than a larger data set pattern. We trade reliability for speed.

The idea is to create a relaxed state of mind, ultimately accepting the fact that the market will always be affected by unknown forces.

The Casino Analogy

Once that is understood and accepted, we can approach our trading job as if the trading business were casino bets. When viewed through the perspective of a probabilistic game, we can think that trading is like roulette or slot machines, where you, the trader, have a positive edge. At a micro level, trade by trade, you will encounter wins and loses but looked at a macro level, the edge puts the odds in your favor. Therefore, you know only need to manage the proper risk to optimize the growth of the trading account.

A plan to manage the trade

Lots of traders enter the Forex market with a rich-quick mentality. They open a trading account with less than 5,000 USD and think that due to leverage, they can double it week after week. This is not possible, of course, and they get burned within a month.

Our plan consists of three ideas

Profit the most on the winners, while let die the losers
let profit run, or even, pyramid on the gains.
Reach as soon as possible a break-even condition, for our mind to attain a zero-state as quickly as possible.

The Strategy and Exercise

Pick a forex pair.

Choose one actively traded pair. All major pairs fit this condition, but then choose the one that provides the best liquidity of your time zone.

Choose your favorite strategy, that you think it works and fits you.

The strategy must include the following components:

An Entry: The entry method should be precise. No subjective evaluations or decisions. If the market shows an entry, you have to take it. Of course, you can condition it with a reward-to-risk ratio filter, since this is an objective fact. Really, having a reward-to-risk ratio filter is quite advisable. A 3:1 ratio would be ideal, but 2:1, which is more realistic, can work as well.

A Stop-loss: Your methodology should define the level at which set your stop loss.

Timeframes: You need to choose a couple of timeframes: A short timeframe to create low-risk trades, and a longer timeframe to be aware of the underlying trend and filter out any signal that does not go with that trend.

Profit Targets: This is the tricky part. We will define at least three take profit points: One-third very-short, one-third defined bt the short-term timeframe, and the rest of the position specified using the longer-term timeframe.

The trade size: Choose a total trade size such that the entire initial risk is no more than 2 percent of your account. So if your account is $3,000, the total risk of the trade will be $60.

Accepting the risk. The smaller dataset needed to get any statistical information is 30. Therefore, you should accept the loss equivalent of 30X the average loss per trade. Think that to analyze and decide about changing any parameter, you must move in chunks of 30 trades.

How it works

1.- Compute the trading size

- - Measure the pip distance between entry and stop-loss.
  - Compute the value in dollars of that risk
  - Calculate how many mini or micro-lots fit in that amount.

2.- Trade that size and mentally divide it into three parts

3.- take profits of1/3 of the position as soon as you get 5-6 pips profit or 10% of your main profit target. This will help you tame the risk if the trade is a short-term gainer that, next, tanks.

4.- As soon as you get a profit equivalent to the size of your risk (1:1), move your stop-loss to Break-even.

5.- Take profits of the second third of the position when your second target is hit

6.- Let the remaining 1/3 run until your third target (from the longer timeframe) trailed by your stop loss. Use a parabolic approach to the stop loss, as the risk-reward diminishes when approaching the target.

7.- Alternatively, use the profits of the last winning trade and add it to the risk of the following trade. That way, on a combination of two trades, you can gain 4X with a risk of just one trade since the added risk was money taken from the market.

8.- The next trade should start with the basic dollar risk, but computed over the newly acquired funds.

Reference: Trading in the Zone by Mark Douglas.

Tags Forex, psychology, Strategy, trade management, trading

Forex Harmonic Forex Trading Guides

Harmonic Pattern Guide – Walkthrough

Post author By Arthur Simmons
Post date 19 November, 2019
No Comments on Harmonic Pattern Guide – Walkthrough

Harmonic Pattern – Walkthrough
[caption id="attachment_48985" align="aligncenter" width="3682"] Bearish Butterfly Pattern against 180-degree Square of 9 angle.[/caption]

The chart above is the AUDJPY Forex pair on its 6-hour

Harmonic Pattern – Walkthrough
[caption id="attachment_48985" align="aligncenter" width="3682"] Bearish Butterfly Pattern against 180-degree Square of 9 angle.[/caption]

The chart above is the AUDJPY Forex pair on its 6-hour

Harmonic Pattern – Walkthrough

Bearish Butterfly Pattern against 180-degree Square of 9 angle.

The chart above is the AUDJPY Forex pair on its 6-hour chart. If you are unable to identify this pattern without referencing notes or the prior articles, you are not ready to use this form of technical analysis. Regardless, the pattern above is a Bearish Butterfly Pattern.

Harmonic Patterns are by there very nature indicative of imminent price reversals. The PRZ (Potential Reversal Zone) is, in my opinion, the most critical level when determining whether to utilize a Harmonic Pattern in my trading. A Harmonic Pattern itself is not a sufficient enough form of analysis to decide whether or not to take a trade. Harmonic Patterns, in my opinion, should not be used as a primary form of analysis, but rather a complementary or confirmatory form of analysis. The chart above is an excellent example of this.

The horizontal levels on AUDJPY’s chart are derived from W.D. Gann’s Square of 9 – natural number values that represent angles. The methods and theories in Gann Analysis are an entirely different topic and require years of study and research – but for this article, one component of his work will help make my point. The red horizontal line at the top is a 180-degree Square of 9 angle. The 180-degree Square of 9 angle is already a strong and naturally powerful level of resistance. When I see price is near the 180-degree Square of 9 angle, I know one thing is for sure:

There is a high probability that the AUDJPY will have difficulty crossing this level and a high probability of price, at least initially, being rejected from moving higher.

So I would naturally look to be taking a short trade if the market shows rejection at that level. That is where the presence of a Harmonic Pattern is desirable. The Bearish Butterfly Pattern is one of the most reliable and most powerful reversal patterns in all Scott Carney’s work. I know that the Butterfly Pattern typically shows up at the end of a swing – not necessarily a trend, but the end of a swing. If I see a Bearish Butterfly Pattern, I know one thing is for sure:

The Bearish Butterfly Pattern is a reversal pattern. I also understand that the Bearish Butterfly Pattern appears at the top of a swing, indicating an extended and overdone market.

After seeing price approach, the naturally strong reversal level of the 180-degree Square of 9 angle, and then the completion of a Bearish Butterfly Pattern, I believe that there is a sufficient amount of analysis to risk taking a short trade. A short trade is further validated by the completion of a bearish engulfing candlestick, as well as some lengthily bearish divergence on the RSI.

Tags bear, Bearish, bull, Bullish, buy, Education, Forex, gartley, guide, harmonic, patterns, reversal

Forex Harmonic Forex Trading Guides

Harmonic Patterns – Start Here

Post author By Arthur Simmons
Post date 19 November, 2019
No Comments on Harmonic Patterns – Start Here

Harmonic Patterns – Start Here

Harmonic Patterns are an advanced form of analysis and require more than a basic understanding of the technical analysis of financial markets. For those of

Bearish Butterfly Pattern against 180-degree Square of 9 angle.

Harmonic Patterns – Start Here

Harmonic Patterns are an advanced form of analysis and require more than a basic understanding of the technical analysis of financial markets. For those of

Harmonic Patterns – Start Here

Harmonic Patterns are an advanced form of analysis and require more than a basic understanding of the technical analysis of financial markets. For those of you who have familiarized yourself with the application of Fibonacci levels, Harmonic Pattern Analysis will, perhaps, be of use to you. The following is a list of the Harmonic Patterns available for learning here at Forex Academy. The suggested order of learning about these patterns is below.

Phase One – Basic Harmonic Patterns

AB = CD

The Gartley Pattern

Phase Two – Advanced Patterns

The Butterfly Pattern

The Bat Pattern

The Alternate Bat Pattern

The Crab Pattern

The Deep Crab Pattern

The Shark Pattern

The Cypher Pattern

The 5-0 Harmonic Pattern

Phase Three – Application

Harmonic Pattern Walkthrough

The article above provides an example of how to use Harmonic Patterns in your own analysis and trading.

Sources: Carney, S. M. (2010). Harmonic trading. Upper Saddle River, NJ: Financial Times/Prentice Hall Gartley, H. M. (2008). Profits in the stock market. Pomeroy, WA: Lambert-Gann Pesavento, L., & Jouflas, L. (2008). Trade what you see: how to profit from pattern recognition. Hoboken: Wiley

Tags Analysis, Education, Forex, guide, harmonic, Learning, patterns, Technical Analysis, trading

Forex Elliott Wave

How to Analyze a Fast Market Using the Elliott Wave Principle – Part 2

Post author By Eduardo Vargas
Post date 19 November, 2019
No Comments on How to Analyze a Fast Market Using the Elliott Wave Principle – Part 2

In our previous article, we introduced the concept of “fast market.” Also, we commented about the importance of watching the big-picture to support the market’s general overview. In this educational

Disclosing the Speed

Once the market moved following our forecast, the price action developed its next sequence in a fast way. To aid in building our analysis in the EURGBP cross, we’ll use the RSI indicator to identify each swing.

From the EURGBP hourly chart, we observe the bullish sequence started on May 05. The RSI use, allows us to identify each swing of waves 2 and 4, and divergences the end of waves 3 and 5.

Until now, the movement developed by EURGBP corresponds to a 5-3 sequence; thus, the next path should develop in five waves. In consequence, our new hypothesis could be the next move a wave three or be the second leg of a zigzag pattern.

The second EURGBP chart exposes the progress in an ending diagonal pattern. This Elliott wave formation is a motive wave built by five internal legs that overlap each other.

On the other hand, the new big-picture structure observed on the EURGBP cross unveils a 5-3-5 sequence. Thus, according to the Elliott wave principle, this formation corresponds to a zigzag pattern.

Another observation comes from the alternation between the first and second bullish leg. Both segments moved on a different relationship price and time. In other words, while the first leg ascends in a fast step, the second one progress at a slower price/time relation.

Now, from the Elliott wave principle, the next path from the EURGBP should be a corrective move in three waves. If the price breaks below the invalidation level, the correction should be more profound.

On the following chart, we observe an incomplete corrective move developed in two internal waves labeled in black. In consequence, the next movement should be a wave ((c)) in black. The completion should complete a new wave A labeled in green.

Until this moment, the price action bounced above the invalidation level, which makes us observe two things:

The EURGBP cross is running in a complex corrective structure, likely a double three pattern. This Elliott wave structure is labeled as WXY, follows a 3-3-3 sequence, and develops seven swings.
Probably according to the alternation principle, the next corrective structure could be a flat pattern.

The following chart exposes the waves A and B labeled in green completion. As can be noted, wave A holds three internal legs, wave B retraces between 81% and 100% of A. Thus, the Elliott wave structure should correspond to a regular flat pattern.

Finally, the next EURGBP chart illustrates the end of the last segment of the wave C from the regular flat pattern, which is part of a complex corrective sequence, in this case, the formation corresponds to a double three structure.

As a learned lesson, the use of the RSI indicator is useful to support the wave identification process. Similarly, to apply the Elliott Wave Principle is essential to know the basic corrective patterns to follow any market. Finally, remember that the market has only two ways to move: it moves in three or five waves.

Tags Analysis, Elliott Wave, Fast Markets, Forex, Technical Analysis, trading

Forex Psychology

A Lesson from a Failed Entry

Post author By Tareq Sikder
Post date 19 November, 2019
No Comments on A Lesson from a Failed Entry

In today’s lesson, we are going to demonstrate an example of a failed entry. We usually explain winning trade setups in our lessons. It teaches us how to win a

In today’s lesson, we are going to demonstrate an example of a failed entry. We usually explain winning trade setups in our lessons. It teaches us how to win a trade on a setup like that and gives us more confidence as well. We are going to talk about a failed entry, which may hurt our confidence. However, the lesson that it teaches that may help us be a batter trader.

The price heads towards the North with good bullish momentum. Ideally, we shall look for long opportunities here upon consolidation and at a breakout at resistance. Let us find out what happens next.

The price consolidates, but it does not make any breakout. The last candle looks very bearish. The door is open for both the bull and the bear. Traders shall go long on an upside breakout and go short on a downside breakout. Let us find out which way it makes its next breakout.

The price heads towards the downside after making a breakout at support. It is a different ball game now. Traders are to look for short opportunities upon consolidation and downside breakout. Let us proceed to the next chart to find out what happens next.

Here comes the corrective candle. It is an Inside Bar. Thus, to sum up, the whole equation, the price consolidates after being bullish, makes a breakout at the support, the trend continues, produces a corrective candle (an Inside Bar). A bearish engulfing candle closing below the lowest low is the signal to go short here.

This is what I have meant. A bearish engulfing candle forms right after the corrective candle. The candle closes below the support, where the price reacted three times recently. If we consider the momentum of the last bearish candle, that gets ten on ten as well. Let us trigger a short entry.

Oh! The price goes another way round than our expectations. It hits the Stop Loss. We are to encounter a loss here. The first thing we shall do after a losing trade, we shall write all the details about the trade in our journal. If there is anything that we have missed from our trading strategy, we must find that out and write it in our journal.

As far as I am concerned, there is not anything wrong with the entry. It is an entry; I would take ten times out of ten opportunities. I have been working with the strategy for a long time. Thus, I can assure you I would win at least six entries out of those 10. This is the faith that a trader needs to have. A trader must not lose his faith in his proven strategy.

The Bottom Line

Never lose your faith in yourself and in your proven strategy. Do not let a losing trade hurt you psychologically.

Tags Basics of Forex, Forex, Forex price action, Technical Analysis, trading

Forex Psychology

Do Not Change Your Demonstrated Strategy Out of the Blue

Post author By Tareq Sikder
Post date 18 November, 2019
No Comments on Do Not Change Your Demonstrated Strategy Out of the Blue

Forex market is appealing to the traders. It operates 24/5, and it is the most liquidate financial market. It offers numerous trading opportunities to traders of all sorts. Since it

Forex market is appealing to the traders. It operates 24/5, and it is the most liquidate financial market. It offers numerous trading opportunities to traders of all sorts. Since it has so much to offer, investors love investing in the market. However, these benefits often work against traders. Statistics suggest that 95% of traders lose their money in the Forex market.

A question may be raised here why most of the investors are unsuccessful in this market. There are quite a few to mention. However, today, I am going to talk about a very common factor that makes many traders unsuccessful.

We know winning trade and losing trade go hand by hand in the financial market. In the Forex market, it goes more frequently than other financial markets. Ideally, if a trader wins his 60% trades even with a 1:1 risk-reward ratio, he is considered a good trader. At the end of the day, he is making profit matters. By losing 40% of trades, he is still able to make money. It is simple math. Let us now dig into this simple math and find out how it could make a trader unsuccessful.

Let us assume a trader has learned or found out a strategy that offers 1:1 risk-reward with a 60% winning rate. He takes six entries in a week, and all of them hit Take Profit. In the following week, he takes four entries, and all of them hit Stop Loss (For the sake of statistics). He starts thinking something must be wrong with his strategy. He forgets the whole picture. Psychologically, he is down. Thus, he would have more problems with the strategy. He abandons his proven approach and starts looking for a new one, though, there is not anything wrong with the strategy.

As far as statistics are concerned, if on average a trade strategy gets us 40% losers, it means that 16% of the time (one every three losing streaks) a trader will encounter two losers in a row, 7% of the time he will get 3 consecutive losers, 3% of the occasions he will experience four losers. Are you already pondering? Here is the last data to be presented in front of you; about 1 in 100 trades, he will encounter five losers in a row. A trader needs to accept the fact because it is inherent to the statistical properties of his game.

We know a trader needs to do a lot of back-testing, study, demo trading before using it in live trading. This process consumes time. Moreover, a good strategy does not mean that it would suit every single trader. The new one may not be his cup of tea. Assume what happens next. He starts looking for another one.

Meanwhile, he starts losing his faith in him and this market. The consequence is obvious. He becomes a member of that ‘95% Club’.

The Bottom Line

It does not matter how good a trader someone is; he is to accept losing trades. The entire result is to be calculated. A trader must not worry about one or two losing trades, but must have faith in his strategy (which he uses after hours of back-testing, study) as long as it brings him consistent profit.

Tags Forex, Forex Basic Strategy, forex education, risk

Forex Trading Guides Ichimoku

Ichimoku Kinko Hyo Guide – A walk through a trade.

Post author By Arthur Simmons
Post date 18 November, 2019
No Comments on Ichimoku Kinko Hyo Guide – A walk through a trade.

Ichimoku Kinko Hyo Guide – A walk through a trade.
I want to preface this guide with a screenshot of my account.

[caption id="attachment_48804" align="aligncenter" width="1920"] Trade History[/caption]

The

Step Four - Reentry

Ichimoku Kinko Hyo Guide – A walk through a trade.
I want to preface this guide with a screenshot of my account.

[caption id="attachment_48804" align="aligncenter" width="1920"] Trade History[/caption]

The

Ichimoku Kinko Hyo Guide – A walk through a trade.

I want to preface this guide with a screenshot of my account.

Trade History

The screenshot is a series of some of the trades I’ve made in early April 2019. I do this because this guide on trading with Ichimoku will target the trade that is highlighted. Additionally, I think it is important that if I am showing you an example of a trade for a guide, I should show that I had skin in the game. There are a great many guides and strategies that authors, analysts, and traders suggest, but few will share if they took the trade. The highlighted trade for the EURGBP is the trade I will be using for this guide. It is a great example of the trading methodology I use with the Ichimoku System.

Multiple Timeframe Analysis – Daily, 4-Hour, and 1-Hour

The Ichimoku Kinko Hyo system is most effective when utilizing multiple timeframes. It is the only way that I use the Ichimoku system. In my trading, I use the Daily, 4-hour, and 1-hour time frames. Multiple timeframes are extremely useful in filtering your trade entries and ensuring higher probability trade setups. The process below will go through the process I used to take the trade.

Step One – Daily Chart Check: Price greater than Kijun-Sen, NOT inside the Cloud.

Step One – Check Daily Cloud

The very first thing I check is the daily chart. If the price is inside the Cloud on the daily chart, I skip the chart. It’s dead to me. If the price is not inside the Cloud, I then look for where the price is in relation to the Kijun-Sen. The daily chart determines my trading direction. If the price is above the Kijun-Sen, I only take long trades. If the price is below the Kijun-Sen, I only take short trades.

Step Two – 4-Hour Chart Check: Price above the Cloud, Chikou Span above candlesticks.

Step Two – Check the 4-hour chart.

If the daily chart determines the direction of my trading, the 4-hour provides the filter for the entry chart (the 1-hour chart). The only things I am concerned about with the 4-hour chart is that the Chikou Span is above the candlesticks, and that price is above the Cloud. Preferably, the Chikou Span would also be in ‘open space’ – but I don’t use it as a hard rule. I have not found the open space to be as important during the change of a trend or corrective move.

(a note about ‘Open Space’ – Open Space is a condition where the Chikou Span won’t intercept any candlesticks over the next five to ten trading periods. When the Chikou Span is in open space, this represents ease of movement in the direction of the trend with little in the form of resistance (or support) ahead.)

The EURGBP trade we are analyzing is a good example of why, at the current position, I don’t consider the open space as strict as I would on the hourly. I want to refer you back to the daily chart. If, on the daily chart, both price and the Kijun-Sen are below the daily cloud, but price moves above the Kijun-Sen – I don’t consider the open space variable as important on the 4-hour chart.

Step Three – 1-Hour Chart Check

Step Three – 1-hour Entry

The 1-Hour chart is my entry chart. As long as Step One and Step Two are true, the 1-hour chart is where the bread and butter of the trading occurs. My entry rules are this:

Future Span A is greater than Future Span B.
Chikou Span above the candlesticks and in ‘open space’ – for five periods.
Tenkan-Sen is greater than Kijun-Sen
Price is greater than the Tenkan-Sen and Kijun-Sen.

I generally look for a profit target of 20-40 pips, depending on the FX pair. For example, on the NZDUSD, I would look for 20 pips, and on the GBPNZD, I would look for 40 pips. But there are some hard technical reasons to leave a trade before that profit target is hit. The list below represents my exit rules on the 1-hour Chart – I exit the trade if any of these conditions occur.

Exit if Chikou Span below candlesticks for more than three consecutive candlesticks.
Exit if price enters the 1-hour Cloud.
Exit if Tenkan-Sen below the Kijun-Sen for more than five candlesticks.

Step Four – Reentry Rules

Step Four – Reentry

Entry rules are fine, but the problem isn’t always finding the entry. One of the hardest problems is creating rules for re-entering a trade. Mine are as follows:

Tenkan-Sen and Kijun-Sen must be above the Cloud.
Chikou Span above the candlesticks.
Price greater than Kijun-Sen and Tenkan-Sen.

A quick summary of steps taken

Checked the daily chart, the price was above the daily Kijun-Sen. The trade direction is long/buy.
Check the 4-hour chart, the price was above the Cloud, and the Chikou Span was above the candlesticks.
All 1-hour rules confirmed an entry; profit taken at 40 pips.
Re-entered trade on 1-hour chart, exited when price entered the 1-hour Cloud.

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

Tags bad, buy, Education, Forex, good, Ichimoku, long, sell, Short, signal, Strategy, Technical Analysis, trend

Forex Elliott Wave

How to Analyze a Fast Market Using the Elliott Wave Principle – Part 1

Post author By Eduardo Vargas
Post date 17 November, 2019
No Comments on How to Analyze a Fast Market Using the Elliott Wave Principle – Part 1

The speed is a characteristic of nature; in the same way, some markets tend to be faster than others. The problem arises when a market moves sharply. In this educational

The speed is a characteristic of nature; in the same way, some markets tend to be faster than others. The problem arises when a market moves sharply. In this educational article, we’ll introduce how to analyze a fast market using the Elliott Wave Principle.

Price and Speed

Both price and speed are individual characteristics of each market. Depending on specific factors, one market could be faster than another.

The problem arises when, in an active market, the price moves faster than usual. R.N. Elliott, in his Treatise “The Wave Principle,” wrote:

“In fast markets, it is essential to observe the daily as well as the weekly ranges; otherwise, characteristics of importance may be hidden.”

In other words, when the market studied in a specific timeframe doesn’t allow to identify any pattern. It is useful in these cases to observe the market in a higher time frame, for example, the daily or weekly timeframes.

The Case of Study

Consider the EURGBP cross in its 4-hour chart, which shows a rally developed from early May until the middle of August 2019. The remarkable observation is that the first part of the rally was faster than the second part of the range of study.

As a first step, let us observe the big-picture; in this case, we will study the EURGBP cross in a weekly timeframe. As can be noted, the EURGBP developed an extended Wave 3.

Both the RSI and the Awesome Oscillator display a bearish divergence, that helped us to identify waves (3) and (5).

In consequence, in view that the five-wave sequence has been completed, it is time for a corrective movement in three waves.

The next chart shows the possible recount of the EURGBP cross.

In the above figure, we observe that the cross could have fully completed a cycle that, as we know, includes a motive impulse and its corrective sequence. Thus, if our market hypothesis is that the EURGBP has completed a cycle, then our forecast should consider a new five-wave rally.

The following chart unveils the upward movement developed by the EURGBP from its bottom, established in early May.

In the next educational article, we will expand the analysis on how to decipher a fast market using the Elliott Wave Principle.

Tags Analysis, Crypto, Elliott Wave, Fast Markets, Forex, Technical Analysis, trading

Ichimoku

The Three Principles – Timespan Principle

Post author By Arthur Simmons
Post date 17 November, 2019
No Comments on The Three Principles – Timespan Principle

The Three Principles – Timespan Principle
In another correlation to Western analysis, Hosada’s Ichimoku Kinko Hyo system has a timing component within the system. The numbering system used in Ichimoku

Timepsan Principle - Combined Counts

The Three Principles – Timespan Principle

In another correlation to Western analysis, Hosada’s Ichimoku Kinko Hyo system has a timing component within the system. The numbering system used in Ichimoku is unique when compared to Western analysis. The reason for the numbering and counts in Ichimoku is related to the cultural importance of some numbers in Japan versus others. Numbers that would be considered ‘lucky’ in Japan are the same numbers in the West and many other cultures – particularly 7 and 9. But those numbers themselves are not what is important. How, exactly, this numbering and count system came to be developed in the fashion that it was developed I do not know. The following is directly from Ichimoku Chats – An Introduction to Ichimoku Kinko Clouds by Nicole Elliot – I heavily suggest getting her book (the 2^nd edition). The important numbers are:

9, 17, 26, 33, 42, 65, 76, 129, 172, 257

If you ever study the work of WD Gann, then these numbers are not only familiar but non-random.

Numbering

Numbering the candlesticks in a pattern is done with traditional Arabic numbers (1,2,3,4,5, etc.) and English letters (A, B, C, D, E, etc.). When counting how many candles are in a trend/wave, the last candle in an uptrend is counted as the first in the down wave and vice versa. See below:

Timespan Principle – Candle Counts

Notice that candle 19 is also A, candle H is also 1. Also, notice that the time counts (total number of candles) in this ‘N’ wave all represent essential numbers in the Ichimoku number system. 19 is close to 17, H is close to 9, and 8 is close to 9.

Kihon Suchi – ‘Day of the turn.’

Nicole Elliot’s work is fantastic – it’s refreshing to read an analyst and trader who updates her work and goes through the grueling process of keeping it relevant. Kijun Suchi (‘the day of the turn’). The Kihon Suchi is the Hosada’s Timespan Principle put into practice. It is very similar to the use of Gann’s cycles of the Inner Year or horizontal Point & Figure counts to identify turns in the markets. Let’s use the image above again as an example. Below, I’ve separated the ‘N’ wave into A, B, and C.

Timespan Principle – Combined Counts

When adding the number of bars in A, B, and C, we always subtract 1 from each wave after the first. For example, if we counted five waves and the total was 100 bars, we would subtract 4 from 100; 96. On the chart above, the total number of bars of A, B, and C is 33 bars. We subtract 2 from 33 to get 31. This is where the Timespan Principle using Kihon Suchi comes into play. We should be able to project the end of the down drive that will occur after wave C. Does it work? Let’s see.

Timespan Principle – A+B+C = D

Below is another example. In reality, the use of the Timespan Principle is a very simplified version of a phenomenon known as a foldback pattern. But Japanese analysis focuses on the quality of equilibrium, so it makes sense to see this kind of behavior from a method that focuses on balance in all things.

Timespan Principle – Symmetrical Inverse Head & Shoulder Pattern

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

Tags Analysis, Crypto, Education, Forex, Ichimoku, ichimokukinkohyo, Learning, Technical Analysis, trading, trend, trending

Ichimoku

The Three Principles – Price Principle

Post author By Arthur Simmons
Post date 17 November, 2019
No Comments on The Three Principles – Price Principle

The Three Principles – Price Principle
This will be the shortest article over the three principles, mainly because it is the same as many other Western styles of price projection.

Price Principle - N Price Target

The Three Principles – Price Principle
This will be the shortest article over the three principles, mainly because it is the same as many other Western styles of price projection.

The Three Principles – Price Principle

This will be the shortest article over the three principles, mainly because it is the same as many other Western styles of price projection. I do not need to go into any significant detail here. If you want further detail into this method, I would suggest Nicole Elliot’s book, Ichimoku Charts – An Introduction to Ichimoku Kinko Clouds (2^nd Edition).

Elliot identified four price target methods from Hosada’s work: V, N, E, and NT. Elliot does mention that she (myself included) does not use this analysis and relies instead on traditional Western methods. However, she does cite that for investors and traders with short time horizons that this Japanese method of the Price Principle is superior to many techniques.

V Price Target

V = B + (B – C)

Inverse: B – (B+C)

Price Principle – V Price Target

N Price Target

N = C + (B – A)

Inverse: C – (B + A)

Price Principle – N Price Target

E Price Target

E = B – (A – B)

Inverse E: B + (A + B)

Price Principle – E Price Target

NT Price Target

NT = C + (C – A)

Inverse NT: C – (C – A)

Price Principle – NT Price Target

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

Tags Crypto, Education, finance, Forex, Ichimoku, ichimokukinkohyo, investing, Learning, Technical Analysis, trading

Ichimoku

The Three Principles – Wave Principle

Post author By Arthur Simmons
Post date 15 November, 2019
No Comments on The Three Principles – Wave Principle

A man named Hidenobu Sasaki brought Hosada’s Ichimoku system and the three principles to contemporary times. He worked for Citigroup in Japan when he published his 1996 book, Ichimoku Studies.

These three principles have shared characteristics of many various styles and theories in Western technical analysis. A couple of examples of those would be Elliot Wave Theory and Tom DeMark’s Sequential. I would encourage all readers to pick up Nicole Elliots 2^nd edition of Ichimoku Charts – An introduction to Ichimoku Kinko Clouds. It is my opinion that her work is the most in-depth on these three principles – even though she reports she does not use them. I also do not use any of these three principles. Nonetheless, they are a component of the entire Ichimoku system.

Principle One – The Wave Principle

The Wave Principle is an enigma. It is both singular in its nature when compared to Western analysis but also very complimentary. Ichimoku is a very dynamic form of analysis with broad interpretation and flexibility available for the analyst/trader. Elliot Wave Theory is a very static form of analysis with strict rules that must be adhered too.

Much of these patterns are going to be very much the same patterns that new traders and analysts first discover when learning Western-style technical analysis. One of the more interesting elements of the Wave Principle is the naming of each pattern. I am not sure if it was Sasaki or Hosada who used English letters to identify the shapes of these patterns. Many of these patterns are self-explanatory and familiar.

One Wave – ‘I’ Wave

Wave One – ‘I’ Wave

Called the ‘I’ Wave, it is a simple (probably overly simple) single wave. I would call it a trendline more than a wave, but that is what Hosada calls it.

Two Wave – ‘V’ Wave

The ‘V’ wave is one of the most common patterns in technical analysis, it’s one of the first patterns we learn, but it’s not a specific pattern that we learn by itself. The ‘V’ wave is part of the M or W structure that makes up the majority pattern theory in technical analysis.

Three Wave – ‘N’ Wave

Again, this is a common pattern that most of you are already familiar with. The ‘N’ wave pattern in Nicole Elliot’s book shows symmetrical waves – which is important because the ‘N’ wave is essentially an AB=CD pattern, one of the building blocks of Harmonic Patterns. It is also a perfect description of what an A-B-C corrective wave in Elliot Wave Theory looks like.

Five Wave – ‘P’ Wave and ‘Y’ Wave

Five Wave – ‘P’ Wave

The ‘P’ wave is essentially another name for a popular and powerful continuation pattern known as a pennant. ‘P’ waves can also represent ascending or descending triangles. You will also see them in Ending Diagonals in Elliot Wave Theory. The pattern should also be called a ‘b’ pattern because the inverse of the ‘P’ pattern, a bullish pennant, is a ‘b’ shaped pattern – a bearish pennant.

Five Wave – ‘Y’ Wave

The ‘Y’ wave is probably more commonly referred to as a megaphone pattern, broadening top or broadening bottom.

Combined Patterns

Combined Waves

Although it may not need to be said, charts will show multiple patterns at any given time. And due to the fractalized nature of technical analysis, patterns within patterns are normal.

Wave Counts

So this part is the one where it will either make little sense or no sense. If you are new to technical analysis and/or never learned Elliot Wave Theory, the wave count component of the wave principle will make little sense. If you know the Elliot Wave Theory, then the wave count component will make no sense. Waves in Ichimoku are measured by time – a very Gann based approach. Trends are either Long-term or Short-term with no delineation between whether it is a bull market or bear market. There is no limit to the number of waves that can exist in a Long-term trend, but Short-term trends must be in single, double, or triple waves. The Ichimoku wave count is similar and very different from how we measure wave counts in the Elliot Wave Theory. In Elliot Wave Theory, moves occur in either three (corrective) or five (impulse) waves.

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

Tags Analysis, Candlestick, cryptocurrency, Education, expert, Forex, future, Ichimoku, ichimokukinkohyo, japanese, Learning, predict, prediction

Ichimoku

Ichimoku – The Two Clouds Discovery

Post author By Arthur Simmons
Post date 13 November, 2019
No Comments on Ichimoku – The Two Clouds Discovery

The Two Clouds Discovery
In Manesh Patel’s book, Trading with Ichimoku Cloud – The Essential Guide to Ichimoku Kinko Hyo Technical Analysis, he made a fantastic discovery. When I first

The Two Clouds Discovery

In Manesh Patel’s book, Trading with Ichimoku Cloud – The Essential Guide to Ichimoku Kinko Hyo Technical Analysis, he made a fantastic discovery. When I first read his work, I almost missed it. Whether he knows it or not, Mr. Patel made a discovery and an observation that his peers have not written about in their work. I call this the ‘Two Clouds Discovery.’ It’s one of those moments where you know you’ve probably been aware of this phenomena, but no one put words to it. It’s one of those things where you go, ‘huh, why didn’t I think of that?’ or ‘I can’t believe no one else noticed this.’

Two Clouds

The Two Clouds discovery puts a label on the component we already know: the Kumo (Cloud). The names we are giving to these two components are the Current Cloud and the Future Cloud. The Current Cloud is where price action is currently trading. The Future Cloud is the further point of Senkou Span A and Senkou Span B – so Future Senkou Span A and Future Senkou Span B. It’s important to think of it this way:

The Current Cloud is the average of the Tenkan-Sen and Kijun-Sen from 26 periods ago.

The Future Cloud is the current average of the Tenkan-Sen and Kijun-Sen.

And here is the main point and of the Two Clouds Discovery: When a significant trend change occurs, the Future Cloud is thin with both the current Senkou Span and Senkou Span B pointing in the direction of the Future Cloud.

The image below is Gold’s daily chart. Using the market replay feature in TradingView, I have used November 20^th, 2018, as the starting point for this article. It’s important to remember what we are looking for: Current Senkou Span A and Current Senkou Span B pointing in the direction of Future Senkou Span B and Future Senkou Span A.

First, we look to see if the Future Cloud is thin. The thickness or thinness of the Cloud is going to be very subjective, but I believe most people can determine whether something is thick or thin based on the instrument they trade and the timeframe they are trading in. For Gold, this is a thin cloud.

Thin Future Cloud

Next, we want to see if the Current Senkou Span A and Current Senkou Span B are pointing in the direction of the Future Cloud – they are.

Current Senkou Span A and Current Senkou Span B

Now, let’s see what happens when we populate the screen with the price action that occurred after November 20^th, 2018. What we should see if a significant trend change is occurring when both the Current Senkou Span A and Current Senkou Span B are pointing in the direction of a thin Future Cloud.

Bull Move

Go through any Daily or Weekly chart and find a thin Cloud and then utilize the market replay – odds are you will see what I have discovered: a high positive expectancy rate of markets trending strongly when price is trading near where the current Senkou Span A and current Senkou Span B are pointing towards the direction of a thin Future Cloud.

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

Tags Breakout, Education, Forex, fx, Ichimoku, ichimokukinkohyo, Learning, trading, trend, trending

Forex Elliott Wave

Understanding the Flat Pattern

Post author By Eduardo Vargas
Post date 12 November, 2019
No Comments on Understanding the Flat Pattern

The flat pattern is a corrective formation that runs in a 3-3-5 sequence. Also, compared with other Elliott wave patterns, it has the most extensive variations. In this educational article

The flat pattern is a corrective formation that runs in a 3-3-5 sequence. Also, compared with other Elliott wave patterns, it has the most extensive variations. In this educational article, we will review the characteristics of the flat correction and its varieties.

The Broad Concept

The flat structure is one of the three basic corrective patterns described by R.N. Elliott in his hork “The Wave Principle.” This formation has an internal 3-3-5 sequence. The next figure illustrates the basic concept.

The main characteristic of the flat pattern is that wave B tends to extend more than 61.8% of wave A.

Even wave B can surpass 100% of wave A. Depending on its extension, wave B will be weak, regular, or strong. As a summary,

Wave B is Weak if wave B retraces between 61.8% and 81% of wave A.
Wave B is Regular if wave B retraces between 81% and 100% of wave A.
Wave B is Strong if wave B retraces more than 100% of wave A.

On the other hand, wave C must be above or equal to 38.2% of wave A. Additionally, wave C tends to variate its extension depending on the wave B strength.

Strong Flat: If wave B retraces over 100% and less than 127.2% of wave A, likely, wave C completely retraces wave B.
In case that wave B retraces more than 127.2% of wave A, it is highly probable that wave C does not retraces completely wave B.
Regular flat: It occurs when wave B retraces between 81% and 100%. In this case, it is highly likely that wave C retrace completely wave B.
Weak flat: In case that wave B retraces between 61.8% and 81% of A, it is possible that wave C retrace over 100% of wave B.

Measuring the Flat Pattern

The Gasoline daily chart illustrates a flat structure. The measuring process of wave A makes us observe that wave B retraces between 618% and 81% of wave A.

In consequence, as said previously, the corrective pattern corresponds to a weak flat structure. Thus, we should expect a wave C that retraces over 100% of wave B, as shown in the following chart.

In summary, the measuring process of wave B of a flat pattern is a useful process that could allow you to identify the potential extension of wave C.

Tags Advanced, Elliott Wave, Flat Pattern, Forex, Technical Analysis

Forex Ichimoku strategies Ichimoku

Ichimoku Strategy #1 – The Ideal Ichimoku Strategy

Post author By Arthur Simmons
Post date 7 November, 2019
No Comments on Ichimoku Strategy #1 – The Ideal Ichimoku Strategy

The Ideal Ichimoku Strategy is the first strategy in my series over Ichimoku Kinko Hyo. There are two sides to a trade, and so there will be two different setups

Bearish Ideal Ichimoku Strategy Entry

The Ideal Ichimoku Strategy is the first strategy in my series over Ichimoku Kinko Hyo. There are two sides to a trade, and so there will be two different setups

The Ideal Ichimoku Strategy is the first strategy in my series over Ichimoku Kinko Hyo. There are two sides to a trade, and so there will be two different setups for long and short setups. This strategy comes from the phenomenal work of Manesh Patel in his book, Trading with Ichimoku Clouds: The essential guide to Ichimoku Kinko Hyo technical analysis. Buy it, don’t pirate.

Patel identified this strategy as the foundational strategy. Because it uses all of the components of the Ichimoku system, I believe that this is the strategy that people should be able to know so well, that they can glance at a chart and understand what is happening. You should see this strategy and be ready to trade it profitably before you transition into trying other Ichimoku strategy. If you don’t, you can run the risk of being disenfranchised with the system and believe that it is another trading system that doesn’t work.

Moving on to the other strategies without mastering this strategy first is very dangerous to your trading development and your understanding of the Ichimoku Kinko Hyo system.

Ideal Ichimoku Bullish Rules

Price above the Cloud.
Tenkan-Sen above Kijun-Sen.
Chikou Span above the candlesticks.
The Future Cloud is ‘green’ – Future Senkou Span A is above Future Senkou Span B.
Price is not far from the Tenkan-Sen or Kijun-Sen
Tenkan-Sen, Kijun-Sen, and Chikou Span should not be in a thick Cloud.

Bullish Ideal Ichimoku Strategy Entry

Ideal Ichimoku Bearish Rules

Price below the Cloud.
Tenkan-Sen below Kijun-Sen.
Chikou Span below the candlesticks.
The Future Cloud is ‘red’ – Future Senkou Span A is below Future Senkou Span B.
Price is not far from the Tenkan-Sen or Kijun-Sen.
Tenkan-Sen, Kijun-Sen, and Chikou Span should not be in a thick Cloud.

Bearish Ideal Ichimoku Strategy Entry

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

Tags buy, Education, entry, exit, Forex, hyo, Ichimoku, ichimokukinkohyo, kinko, long, sell, Short, signals, Strategy, Technical Analysis

The Basic Concept

Waves Identification

Alibaba Still Moves Higher

Conclusion

Suggested Reading

Fibonacci Confluence Zones

You’re still using Fibonacci retracements incorrectly

Old vs. New

The Brown Method

What factors affect the Trade Balance

Why are Trade Balance Figures Relevant to Forex Traders?

How does a Trade Balance report influence the respective currencies?

In conclusion

The Wave Concept

The Psychology of Participants

Types of Waves

Waves Identification

Conclusions

What is the Government Debt to GDP?

What Does the Debt-to-GDP Ratio Tell You?

Frequency of release

What do traders care about the Debt to GDP ratio and its impact on the currency?

The bottom line

The Background

Why the Wave Theory?

Pros and Cons

Conclusions

A black body in a topping area

A long Black-bodied candle confirms resistance

The Long Black-bodied candle breaks a support

Long Black-bodied Candle as Resistance

Conclusions

Trap Patterns

Rising Bottoms

Declining Tops

Split Tops and Bottoms

Triangles

Catapults

Spike Patterns

Pole Patterns

The Big Picture

The First Scenario

The Alternative Count

The Conclusion

What is GDP

Nominal GDP vs. Real GDP

Components of the GDP

Personal Consumption expenditures

Business investments

Government spending

Net exports of goods and services

The economic reports

Analyzing the DATA

What is the GDP Growth Rate

What determines growth

Economic reports

Impact on currency

Sources of information on GDP

Links to GDP information resources:

IMF

OECD

USA

Europe

UK

Canada

Japan

China

Australia

New Zealan­­­­d

Point & Figure Charts

Fundamental Perspective

Technical Perspective

Our Forecast

Problems with Japanese Candlestick Analysis

Point & Figure Analysis

Fundamental Perspective

Technical Perspective

Our Forecast

Long White Candle at a low price level

Takeaway

New Zealand